<PAGE> 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, 1995
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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
------------ ------------
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
--- ---
The number of shares of common stock outstanding as of July 31, 1995
was 87,038,988.
<PAGE> 2
THE CHUBB CORPORATION
INDEX
<TABLE>
<CAPTION>
Page Number
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<S> <C>
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Balance Sheets as of
June 30, 1995 and December 31, 1994.......................... 1
Consolidated Statements of Income for the
Three Months and Six Months Ended
June 30, 1995 and 1994....................................... 2
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1995 and 1994...................... 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 4 - Submission of Matters to a Vote of Security Holders.... 15
Item 6 - Exhibits and Reports on Form 8-K....................... 16
</TABLE>
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Page 1
THE CHUBB CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, Dec. 31,
1995 1994
-------- --------
(in millions)
<S> <C> <C>
Assets
Invested Assets
Short Term Investments............................... $ 586.3 $ 810.9
Fixed Maturities
Held-to-Maturity
Tax Exempt (market $3,171.3 and $3,177.1)......... 3,038.6 3,149.5
Taxable (market $626.7 and $604.1)................ 604.3 619.1
Available-for-Sale
Tax Exempt (cost $3,088.7 and $2,524.4)........... 3,234.4 2,530.2
Taxable (cost $4,668.1 and $4,604.2).............. 4,775.2 4,423.9
Equity Securities (cost $460.8 and $609.5)........... 537.3 642.1
Policy and Mortgage Loans............................ 204.8 202.7
--------- ---------
TOTAL INVESTED ASSETS......................... 12,980.9 12,378.4
Cash................................................... 8.6 5.6
Accrued Investment Income.............................. 224.4 215.7
Premiums Receivable.................................... 941.1 787.2
Reinsurance Recoverable on Property and Casualty
Unpaid Claims......................................... 1,997.6 1,980.3
Prepaid Reinsurance Premiums........................... 460.8 455.1
Funds Held for Asbestos-Related Settlement............. 1,041.7 558.1
Deferred Policy Acquisiton Costs
Property and Casualty Insurance...................... 549.2 529.5
Life and Health Insurance............................ 588.8 606.5
Real Estate Assets..................................... 1,723.6 1,740.3
Deferred Income Tax.................................... 225.4 314.7
Other Assets........................................... 1,254.4 1,151.7
--------- ---------
TOTAL ASSETS.................................. $21,996.5 $20,723.1
========= =========
Liabilities
Property and Casualty Unpaid Claims.................... $ 9,217.2 $ 8,913.2
Life and Health Policy Liabilities..................... 2,822.2 2,659.6
Unearned Premiums...................................... 2,495.4 2,382.6
Short Term Debt........................................ 201.5 153.3
Long Term Debt......................................... 1,167.4 1,285.6
Dividend Payable to Shareholders....................... 42.5 39.9
Accrued Expenses and Other Liabilities................. 1,229.4 1,041.9
--------- ---------
TOTAL LIABILITIES............................. 17,175.6 16,476.1
--------- ---------
Shareholders' Equity
Common Stock - $1 Par Value; 87,822,598 and
87,798,286 Shares..................................... 87.8 87.8
Paid-In Surplus........................................ 783.4 786.6
Retained Earnings...................................... 3,927.2 3,680.5
Foreign Currency Translation Gains, Net of Income Tax.. 6.7 9.8
Unrealized Appreciation (Depreciation) of
Investments, Net...................................... 192.7 (124.3)
Receivable from Employee Stock Ownership Plan.......... (119.1) (123.0)
Treasury Stock, at Cost - 802,455 and 977,580 Shares... (57.8) (70.4)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.................... 4,820.9 4,247.0
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $21,996.5 $20,723.1
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
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Page 2
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
PERIODS ENDED JUNE 30
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------- --------------
1995 1994 1995 1994
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Revenues
Premiums Earned and Policy Charges.... $1,177.3 $1,149.0 $2,351.1 $2,282.7
Investment Income..................... 218.8 200.7 437.1 403.9
Real Estate........................... 79.4 49.6 148.0 93.4
Realized Investment Gains............. 50.3 15.3 53.7 30.6
-------- -------- -------- --------
Total Revenues................. 1,525.8 1,414.6 2,989.9 2,810.6
-------- -------- -------- --------
Benefits, Claims and Expenses
Insurance Claims and Policyholders'
Benefits............................. 788.4 791.0 1,575.3 1,684.4
Amortization of Deferred Policy
Acquisition Costs.................... 294.0 274.8 587.7 546.2
Other Insurance Operating Costs and
Expenses............................. 118.4 105.1 231.0 208.3
Real Estate Cost of Sales and Expenses 73.3 50.3 147.2 94.7
Investment Expenses................... 3.6 2.4 8.3 6.9
Corporate Expenses.................... 7.5 8.5 15.8 17.9
-------- -------- -------- --------
Total Benefits, Claims and
Expenses...................... 1,285.2 1,232.1 2,565.3 2,558.4
-------- -------- -------- --------
Income Before Federal and Foreign
Income Tax............................. 240.6 182.5 424.6 252.2
Federal and Foreign Income Tax.......... 55.6 35.8 92.9 32.3
-------- -------- -------- --------
Net Income.............................. $ 185.0 $ 146.7 $ 331.7 $ 219.9
======== ======== ======== ========
Average Common and Common Equivalent
Shares Outstanding (In Thousands)...... 89,878 90,654 89,823 90,640
PER SHARE DATA
Net Income.............................. $ 2.09 $ 1.65 $ 3.75 $ 2.48
Dividends Declared...................... .49 .46 .98 .92
</TABLE>
See Notes to Consolidated Financial Statements.
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THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30
<TABLE>
<CAPTION>
1995 1994
---- ----
(in millions)
<S> <C> <C>
Cash Flows from Operating Activities
Net Income............................................. $ 331.7 $ 219.9
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Increase in Property and Casualty Unpaid Claims, Net. 286.7 294.9
Increase in Unearned Premiums, Net................... 107.1 91.9
Increase in Premiums Receivable...................... (153.9) (112.2)
Increase in Funds Held for Asbestos-Related
Settlement.......................................... (483.6) (8.4)
Increase in Deferred Policy Acquisition Costs........ (62.0) (47.5)
Realized Investment Gains............................ (53.7) (30.6)
Other, Net........................................... 52.7 44.8
--------- ---------
Net Cash Provided by Operating Activities.............. 25.0 452.8
--------- ---------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities................ 1,786.8 1,499.4
Proceeds from Maturities of Fixed Maturities........... 324.9 296.6
Proceeds from Sales of Equity Securities............... 286.3 154.4
Purchases of Fixed Maturities.......................... (2,609.9) (2,063.0)
Purchases of Equity Securities......................... (86.1) (205.6)
Decrease (Increase) in Short Term Investments, Net..... 224.6 (138.7)
Increase (Decrease) in Net Payable from Security
Transactions Not Settled.............................. 119.1 (4.2)
Additions to Real Estate Assets, Net................... (25.3) (23.2)
Other, Net............................................. (72.1) (27.8)
--------- ---------
Net Cash Used in Investing Activities.................. (51.7) (512.1)
--------- ---------
Cash Flows from Financing Activities
Deposits Credited to Policyholder Funds................ 241.4 158.7
Withdrawals from Policyholder Funds.................... (68.9) (63.7)
Proceeds from Issuance of Long Term Debt............... 151.5 33.2
Repayment of Long Term Debt............................ (269.7) (16.1)
Increase in Short Term Debt, Net....................... 48.2 23.5
Dividends Paid to Shareholders......................... (82.4) (78.1)
Other, Net............................................. 9.6 4.2
--------- ---------
Net Cash Provided by Financing Activities.............. 29.7 61.7
--------- ---------
Net Increase in Cash..................................... 3.0 2.4
Cash at Beginning of Year................................ 5.6 4.6
--------- ---------
Cash at End of Period.................................. $ 8.6 $ 7.0
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
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THE CHUBB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) General
The amounts included in this report are unaudited but include those
adjustments, consisting of normal recurring items, which management
considers necessary for a fair presentation. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes in the 1994 Annual Report to Shareholders.
2) Adoption of New Accounting Pronouncement
Effective January 1, 1995, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for
Impairment of a Loan. Under SFAS No. 114, a loan is considered impaired and
a valuation allowance is established when it is probable that a creditor
will be unable to collect all principal and interest amounts due according
to the contractual terms of the loan agreement. SFAS No. 114 requires
creditors to measure impairment of a loan based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, based on the market price of the loan or the
fair value of the collateral if the loan is collateral dependent. Prior to
1995, the Corporation measured impairment of a loan based on undiscounted
expected future cash flows. SFAS No. 114 may not be retroactively applied to
prior years' financial statements. The initial application of SFAS No. 114
resulted in an increase of $10 million to the allowance for uncollectible
amounts.
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.
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The net change in unrealized appreciation or depreciation of
investments carried at market value was as follows:
<TABLE>
<CAPTION>
Periods Ended June 30
----------------------------------
Second Quarter Six Months
-------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Change in unrealized appreciation of
equity securities...................... $ 1.9 $ (38.5) $ 43.9 $(122.3)
Change in unrealized appreciation or
depreciation of fixed maturities....... 166.7 (155.7) 427.3 (430.7)
Change in deferred policy acquisition
cost adjustment........................ (30.7) 28.1 (60.0) 65.7
------ ------- ------ -------
137.9 (166.1) 411.2 (487.3)
Deferred income tax (credit), net of
change in valuation allowance.......... 48.2 (58.2) 94.2 (170.6)
------ ------- ------ -------
89.7 (107.9) 317.0 (316.7)
Cumulative effect, as of January 1,
1994, of change in accounting
principle, net......................... - - - 220.5
------ ------- ------ -------
Change in unrealized appreciation or
depreciation of investments, net....... $ 89.7 $(107.9) $317.0 $ (96.2)
====== ======= ====== =======
</TABLE>
At December 31, 1994, there was a valuation allowance of $49.6 million
related to future tax benefits on unrealized depreciation of investments
carried at market value. At March 31, 1995, there was unrealized
appreciation of investments carried at market value. Therefore, the
valuation allowance was eliminated in the first quarter of 1995. Such
elimination was reflected in the deferred income tax provision for the first
quarter of 1995 and had no impact on net income.
4) Property and Casualty Unpaid Claims
A discussion of the 1993 Fibreboard asbestos-related settlement is
presented in Note 14 of the notes to consolidated financial statements in
the 1994 Annual Report to Shareholders. The following developments during
1995 relate to the settlement.
In February 1995, the agreement between Pacific Indemnity Company, a
subsidiary of the Corporation, and Continental Casualty Company (a
subsidiary of CNA Financial Corporation) for the handling of all
asbestos-related bodily injury claims pending on August 26, 1993 against
Fibreboard Corporation was amended to extend for several years the period
over which Pacific Indemnity will pay its remaining obligation, plus
interest, under the agreement. Prior to such amendment, Pacific Indemnity's
payment obligations under this agreement were to have been completed by
March 1, 1995. The increase in funds held for asbestos-related settlement
during 1995 was primarily the result of such amendment. Funds held for
asbestos-related settlement are assets of the Corporation's property and
casualty insurance subsidiaries that accrue income for the benefit of
participants in the class settlement of asbestos-related bodily injury
claims against Fibreboard.
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In July 1995, the United States District Court of the Eastern District
of Texas approved the global settlement agreement among Pacific Indemnity,
Continental Casualty, Fibreboard and attorneys representing claimants
against Fibreboard for all future asbestos-related bodily injury claims
against Fibreboard, which are claims that were not filed in court before
August 27, 1993. The Court also approved the trilateral agreement among
Pacific Indemnity, Continental Casualty and Fibreboard to settle all pending
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 a higher court. In August 1995, a
notice of appeal was filed which is expected to extend the period of
judicial review at least into 1996. 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 a
higher court, there can be no assurance that the loss reserves established
for future claims would be sufficient to pay all amounts which ultimately
could become payable in respect of future asbestos-related bodily injury
claims against Fibreboard.
5) Contingencies
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 below November 1987 levels and would have required
an additional 20 percent reduction in automobile rates by November 1989. In
1989, the California Supreme Court, ruling on the constitutional challenge
to Proposition 103, held that an insurer is entitled to a fair rate of
return. In the years following the approval of Proposition 103, the
California Insurance Department established regulations to implement its
provisions. In 1994, the California Supreme Court upheld these regulations
after numerous legal challenges.
In May 1995, the property and casualty insurance subsidiaries of the
Corporation reached an agreement with the California Insurance Department to
refund premiums, with interest, of approximately $6.6 million related to
business written during the rollback period. The agreement settles all
rollback refund obligations of the property and casualty insurance
subsidiaries related to Proposition 103. A consumer group requested a
hearing to object to the rollback settlement. The California Insurance
Commissioner has granted such hearing which is expected to be held in late
1995. Management believes that the settlement agreement will ultimately be
upheld.
6) Per Share Data
Earnings per share amounts are based on the weighted average number of
common and common equivalent shares outstanding. The 6% guaranteed
exchangeable subordinated notes are considered to be common equivalent
shares. The computation assumes the addition to income of the after-tax
interest expense applicable to such notes.
<PAGE> 9
Page 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND
1994 AND FOR THE QUARTERS ENDED JUNE 30, 1995 AND 1994
PROPERTY AND CASUALTY INSURANCE
Earnings from our property and casualty business were substantially
higher in the first six months of 1995 compared with the same period of 1994.
The increase was due to a significant improvement in underwriting results in
1995. Underwriting results in 1994 were adversely affected by substantially
higher catastrophe losses in the first quarter. Investment income increased
modestly in 1995 compared with 1994. Property and casualty income after taxes
amounted to $278.6 million in the first six months of 1995 and $136.6 million in
the second quarter compared with $187.6 million and $132.2 million,
respectively, in 1994.
Net premiums written were $2.1 billion in the first six months of 1995
and $1.1 billion in the second quarter, representing increases of 9.6% and
11.5%, respectively, over the comparable periods of 1994. The marketplace
continued to be competitive, particularly in the commercial classes. Price
increases continued to be difficult to achieve. Premium growth was due primarily
to the selective writing of new business and exposure growth on existing
business. A significant portion of premium growth was achieved outside the
United States, from both our expanding foreign branch network and our increased
participation in the business of the Sun Alliance Group plc.
Underwriting results were profitable in the first six months of 1995
compared with unprofitable results for the same period in 1994. Underwriting
results were profitable in the second quarter of both years. Our combined loss
and expense ratio was 96.3% in the first six months of 1995 and 96.4% in the
second quarter compared with 103.0% and 96.3%, respectively, in 1994.
The loss ratio was 63.9% for the first six months of 1995 and 64.5% for
the second quarter compared with 70.1% and 63.8%, respectively, in the prior
year. The loss ratio in the first six months of 1994 was adversely affected by
high catastrophe losses in the first quarter, resulting primarily from the
earthquake in California and the winter storms in the eastern and midwestern
parts of the United States. Catastrophe losses in the first six months of 1995
amounted to $49.1 million which represented 2.5 percentage points of the loss
ratio compared with $160.3 million or 8.7 percentage points in 1994. Catastrophe
losses for the second quarter of 1995 amounted to $42.7 million or 4.2
percentage points of the loss ratio compared with $12.9 million or 1.4
percentage points in 1994.
Our expense ratio was 32.4% for the first six months of 1995 and 31.9%
for the second quarter compared with 32.9% and 32.5%, respectively, in 1994. The
decrease in 1995 was due primarily to growth in written premiums at a somewhat
greater rate than the increase in overhead expenses. Expenses were reduced in
the first six months of 1994 by a contingent profit sharing accrual of $4.0
million ($2.0 million per quarter) relating to a medical malpractice stop loss
reinsurance agreement.
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Underwriting results during 1995 and 1994 by class of business were as
follows:
<TABLE>
<CAPTION>
Six Months Ended June 30
--------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
-------------- -----------------
1995 1994 1995 1994
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Personal Insurance
Automobile........................ $ 99.0 $ 94.6 90.4% 95.6%
Homeowners........................ 215.3 213.8 93.8 129.7
Other............................. 99.7 99.4 75.7 86.7
-------- -------- ----- -----
414.0 407.8 88.6 111.5
-------- -------- ----- -----
Standard Commercial Insurance
Multiple Peril.................... 341.3 300.3 99.6 115.9
Casualty.......................... 296.2 284.3 118.7 104.8
Workers' Compensation............. 101.5 94.7 96.5 107.9
-------- -------- ----- -----
739.0 679.3 107.0 110.1
-------- -------- ----- -----
Specialty Commercial Insurance
Fidelity and Surety............... 373.1 344.8 84.1 80.0
Other............................. 434.3 390.4 94.9 101.6
-------- -------- ----- -----
807.4 735.2 89.8 91.2
-------- -------- ----- -----
Reinsurance Assumed................. 158.8 110.9 101.4 106.3
-------- -------- ----- -----
Total $2,119.2 $1,933.2 96.3% 103.0%
======== ======== ===== =====
<CAPTION>
Quarter Ended June 30
--------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
-------------- -----------------
1995 1994 1995 1994
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Personal Insurance
Automobile........................ $ 53.5 $ 49.7 90.3% 96.2%
Homeowners........................ 122.2 118.6 100.3 105.2
Other............................. 55.8 55.0 72.9 76.3
-------- -------- ----- -----
231.5 223.3 91.4 96.2
-------- -------- ----- -----
Standard Commercial Insurance
Multiple Peril.................... 192.6 163.9 99.4 103.5
Casualty.......................... 154.3 148.2 116.9 106.0
Workers' Compensation............. 48.1 45.4 95.4 104.4
-------- -------- ----- -----
395.0 357.5 106.3 105.1
-------- -------- ----- -----
Specialty Commercial Insurance
Fidelity and Surety............... 204.5 191.0 80.4 77.3
Other............................. 230.5 201.3 97.3 96.5
-------- -------- ----- -----
435.0 392.3 89.2 87.1
-------- -------- ----- -----
Reinsurance Assumed................. 75.8 47.1 101.3 108.7
-------- -------- ----- -----
Total $1,137.3 $1,020.2 96.4% 96.3%
======== ======== ===== =====
</TABLE>
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PERSONAL INSURANCE
Premiums from personal insurance coverages, which represent
approximately 20% of the premiums written by our property and casualty insurance
subsidiaries, increased 1.5% in the first six months of 1995 and 3.7% in the
second quarter compared with the similar periods in 1994. Our disciplined
approach to pricing continues to make it difficult to write new homeowners and
other non-automobile business. Personal automobile premiums increased modestly
in 1995, which is consistent with our plan to control our exposure in this
class.
Our personal insurance business produced highly profitable underwriting
results in the first six months of 1995 compared with unprofitable results in
the same period of 1994. Underwriting results in 1994 were adversely
affected by significant catastrophe losses in the first quarter. Underwriting
results were profitable for the second quarter of both 1995 and 1994. The
combined loss and expense ratios were 88.6% for the first six months of 1995
and 91.4% for the second quarter compared with 111.5% and 96.2%, respectively,
in 1994. Homeowners results were profitable for the first six months of 1995,
benefiting from disciplined pricing and fewer large losses. Significant
weather-related catastrophe losses adversely affected homeowners results in the
first six months of both years, but particularly in 1994. Catastrophe losses
for this class represented 13.2 percentage points of the loss ratio for the
first six months of 1995 and 22.3 percentage points for the second quarter
compared with 34.7 and 16.8 percentage points, respectively, in the comparable
1994 periods. Other personal coverages, which include insurance for personal
valuables and excess liability, produced more profitable results in 1995 than
in 1994. Results in 1994 were adversely affected by losses of personal
valuables resulting from the earthquake in California in the first quarter.
Catastrophe losses represented less than 1 percentage point of the loss ratio
for other personal coverages in the first six months of 1995 compared with 10.2
percentage points in 1994. Our automobile business produced profitable results
in 1995 and 1994 due primarily to stable loss frequency and severity.
STANDARD COMMERCIAL INSURANCE
Premiums from standard commercial insurance, which include multiple
peril, casualty and workers' compensation, and which represent approximately 35%
of our total writings, increased 8.8% in the first six months of 1995 and 10.5%
in the second quarter compared with the same periods a year ago. The competitive
market has continued to place significant pressure on prices. Premium growth was
due primarily to the selective writing of new accounts and exposure growth on
existing business. Our multiple peril business outside the United States
experienced strong premium growth in the first six months of 1995.
Our standard commercial underwriting business improved modestly in the
first six months of 1995 compared with the same period in 1994 although results
remained unprofitable. The combined loss and expense ratios were 107.0% for the
first six months of 1995 and 106.3% for the second quarter compared with 110.1%
and 105.1%, respectively, in 1994. Results in the multiple peril class improved
substantially in the first six months of 1995 compared with 1994; results in
1994 were adversely affected by significant catastrophe losses in the first
quarter, due primarily to the earthquake in California. Catastrophe losses for
the multiple peril class in the first six months of 1995 represented only 1.2
percentage points of the loss ratio compared with 19.2 percentage points in
1994. Casualty results deteriorated in 1995 compared with 1994. Casualty results
in both years, but more so in 1995, were adversely affected by increases in loss
reserves for asbestos-related and toxic waste claims. The profitability
<PAGE> 12
Page 10
of the excess liability component of our casualty coverages decreased modestly
due to more competitive prices. Results in the automobile component were
profitable in 1995 and 1994. Workers' compensation results were profitable in
1995 compared with unprofitable results in 1994. Results in our voluntary
business have benefited from rate increases and the impact of medical cost
containment and disability management activities. Results in this class were
aggravated in the first six months of 1994 by our share of the significant
losses incurred in that year by the involuntary pools and mandatory business in
which we must participate by law.
SPECIALTY COMMERCIAL INSURANCE
Premiums from specialty commercial business, which represent
approximately 38% of our total writings, increased by 9.8% in the first six
months of 1995 and 10.9% in the second quarter compared with the similar periods
in 1994. Premium increases for our executive protection and financial fidelity
coverages were due primarily to new business opportunities as significant
competition has made price increases difficult to achieve for most of these
coverages. Our strategy of working closely with our customers and our ability to
differentiate our products have enabled us to renew a large percentage of our
business.
Our specialty commercial business produced substantial underwriting
profits in both 1995 and 1994. The combined loss and expense ratios were 89.8%
for the first six months of 1995 and 89.2% for the second quarter compared with
91.2% and 87.1%, respectively, in 1994. Our executive protection results were
highly profitable in both years due to favorable loss experience. Improvement in
the non-fidelity portion of our financial institutions business in the first six
months of 1995 was offset by deterioration in fidelity results due to several
large losses. Surety results were unprofitable in 1995 due to several large
losses compared with profitable results in 1994. Marine results were profitable
in the first six months of 1995 compared with unprofitable results in 1994;
results in 1994 were adversely affected by significant catastrophe losses in the
first quarter, resulting primarily from the earthquake in California.
REINSURANCE ASSUMED
Premiums from reinsurance assumed, which is primarily treaty reinsurance
from the Sun Alliance Group plc, represent approximately 7% of our total premium
writings. Premiums increased 43.2% in the first six months of 1995 and 60.9% in
the second quarter compared with the same periods in 1994 due primarily to an
increase in our participation in the business of Sun Alliance. Underwriting
results for this segment were near breakeven in 1995 compared with unprofitable
results in the prior year.
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 below November 1987 levels and would have required an additional
20 percent reduction in automobile rates by November 1989. In 1989, the
California Supreme Court, ruling on the constitutional challenge to Proposition
103, held that an insurer is entitled to a fair rate of return. In the years
following the approval of Proposition 103, the California Insurance Department
established regulations to implement its provisions. In 1994, the California
Supreme Court upheld these regulations after numerous legal challenges.
<PAGE> 13
Page 11
In May 1995, the property and casualty subsidiaries reached an agreement
with the California Insurance Department to refund premiums, with interest, of
approximately $6.6 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 requested
a hearing to object to the rollback settlement. The California Insurance
Commissioner has granted such hearing which is expected to be held in late 1995.
Management believes that the settlement agreement will ultimately be upheld.
LOSS RESERVES
Loss reserves, net of reinsurance recoverable, increased by $286.7
million during the first six months of 1995. Substantial reserve growth has
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 $91.1
million in the first six months of 1995 and $55.7 million for the same period in
1994.
A discussion of the 1993 Fibreboard asbestos-related settlement is
incorporated by reference from Item 7 of the Corporation's Form 10-K for the
year ended December 31, 1994. The following developments during 1995 relate to
the settlement.
In February 1995, the agreement between Pacific Indemnity Company, a
subsidiary of the Corporation, and Continental Casualty Company (a subsidiary of
CNA Financial Corporation) for the handling of all asbestos-related bodily
injury claims pending on August 26, 1993 against Fibreboard Corporation was
amended to extend for several years the period over which Pacific Indemnity will
pay its remaining obligation, plus interest, under the agreement. Prior to such
amendment, Pacific Indemnity's payment obligations under this agreement were to
have been completed by March 1, 1995. Pacific Indemnity's obligation under this
agreement is not expected to exceed $635 million, of which approximately $468
million remained unpaid at June 30, 1995.
In July 1995, the United States District Court of the Eastern District
of Texas approved the global settlement agreement among Pacific Indemnity,
Continental Casualty, Fibreboard and attorneys representing claimants against
Fibreboard for all future asbestos-related bodily injury claims against
Fibreboard, which are claims that were not filed in court before August 27,
1993. The Court also approved the trilateral agreement among Pacific Indemnity,
Continental Casualty and Fibreboard to settle all pending 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
a higher court. In August 1995, a notice of appeal was filed which is expected
to extend the period of judicial review at least into 1996. 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
a higher court, there can be no assurance that the loss reserves established for
future claims would be sufficient to pay all amounts which ultimately could
become payable in respect of future asbestos-related bodily injury claims
against Fibreboard.
<PAGE> 14
Page 12
INVESTMENTS
Investment income after deducting expenses and taxes increased by 6.1%
in the first six months of 1995 and 6.2% in the second quarter compared with the
same periods in 1994. The growth was primarily due to an increase in invested
assets since the second quarter of 1994, reflecting strong cash flow from
operations. The effective tax rate on investment income increased to 15.5% in
the first six months of 1995 from 14.7% in 1994 due to holding a larger
proportion of our investment portfolio in taxable securities.
We maintain investments in highly liquid short term securities at all
times to provide for immediate cash needs. At June 30, 1995, such securities
were reduced to a more normal level as the expected payout period for Fibreboard
related amounts has been extended.
In the first six months of 1995, new cash was invested primarily in
tax-exempt bonds. The level of purchases of taxable bonds exceeded the level of
sales and maturities of such bonds by approximately $300 million in the first
six months of 1995. However, as the result of the amendment to the agreement
between Pacific Indemnity and Continental Casualty, approximately $480 million
of taxable bonds purchased during the first quarter of 1995 were designated as
funds held for asbestos-related settlement rather than as invested assets since
these assets accrue income for the benefit of participants in the class
settlement of asbestos-related bodily injury claims against Fibreboard.
LIFE AND HEALTH INSURANCE
The life and health subsidiaries earnings after taxes were $12.4 million
for the first six months of 1995 compared with $12.0 million in 1994. Total life
and health insurance premiums and policy charges were $339.0 million in the
first six months of 1995 compared with $441.4 million in 1994.
Premiums and policy charges for personal insurance amounted to $152.4
million in the first six months of 1995, an increase of 17.0% from the
comparable period in 1994. Earnings in personal lines were $18.5 million in the
first six months of 1995 compared with $19.4 million in 1994. Earnings in 1994
reflected the favorable settlement of litigation in the second quarter related
to certain previously purchased software systems.
Premium revenue for group insurance was $186.6 million for the first six
months of 1995 compared with $311.1 million in 1994, a decrease of 40%. Due to
legislation which became effective in April 1993 in New York, which is our major
market, several insurers reduced their market share in the small group health
segment in 1993. We offered a competitive product and thus substantially
increased our sales in that market during 1993. The high premium revenue in the
first six months of 1994 reflects the effect of that significant increase in
sales of new policies. Due to increased levels of competition in the small group
market as well as our significant rate increases in 1994 and 1995, many of the
new policies written in 1993 were not renewed. The decline in premium revenue in
1995 was expected due to this increase in non-renewals. We anticipate that this
trend will continue during the remainder of 1995. Initial results of our efforts
to replace our traditional indemnity medical business by offering managed care
products through Chubb Health, Inc., a health maintenance organization, have
been encouraging.
<PAGE> 15
Page 13
Group insurance operations resulted in a loss of $6.1 million for the
first six months of 1995 compared with a loss of $7.4 million in 1994. Results
in both periods were adversely affected by a high level of claims resulting from
the increased cost of medical services and the increased utilization of those
services. In 1995, the benefit from rate increases was offset by the adverse
effect of premium revenue decreasing at a greater rate than the decrease in
expenses.
Gross investment income increased by 8.1% in the first six months of
1995 over the same period in 1994. The growth was due to an increase in invested
assets since the second quarter of 1994 resulting primarily from deposits to
policyholder funds. New cash was invested primarily in mortgage-backed
securities. To provide for liquidity, funds believed to be sufficient to meet
any unusual needs for cash have been maintained in short term securities.
REAL ESTATE
Real estate earnings after taxes amounted to $0.5 million for the first
six months of 1995 compared with a loss of $1.0 million in 1994. Real estate
earnings in 1995 reflect a first quarter charge of $6.5 million after taxes
resulting from the initial application of Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan, which
established new criteria for measuring impairment of a loan. This change in
accounting principle is discussed further in Note 2 of the Notes to Consolidated
Financial Statements.
Results in 1995 benefited from an increase in earnings from rental
operations and residential development. Results were adversely affected in both
periods by progressively higher portions of interest being charged directly to
expense rather than being capitalized.
Revenues were $148.0 million in the first six months of 1995 compared
with $93.4 million in 1994. Revenue growth in 1995 was primarily due to higher
levels of rental revenues on owned properties and increased revenues from
residential sales.
CORPORATE
Chubb Capital Corporation had outstanding $100 million of unsecured 8
5/8% notes, the proceeds of which were loaned to our real estate subsidiaries.
The notes became due and were redeemed in January 1995. The $100 million loan to
the real estate subsidiaries from Chubb Capital was renewed.
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 Corporation. No securities have been issued under
this registration.
During 1995, the Corporation reduced its investment in Sun Alliance,
with proceeds from the sales aggregating $67 million. These sales have not
affected the ongoing business relationship between the Corporation's property
and casualty subsidiaries and Sun Alliance.
<PAGE> 16
Page 14
INVESTMENT GAINS AND LOSSES
Decisions to sell securities are governed principally by consideration
of investment opportunities and tax consequences. As a result, realized
investment gains and losses may vary significantly from period to period.
Investment gains before taxes of $53.7 million were realized in the first six
months of 1995 compared with gains of $30.6 million for the same period in 1994.
The 1995 amount reflects $17.8 million of investment gains from the
Corporation's reduction of its investment in Sun Alliance.
<PAGE> 17
Page 15
PART II. OTHER INFORMATION
--------------------------
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Annual Meeting of Shareholders of The Chubb Corporation was held on
April 25, 1995. Matters submitted to Shareholders at the meeting were as
follows:
Votes were cast in the following manner in connection with the election
of each Director to serve until the next Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
Director Votes For Votes Against
- -------- --------- -------------
<S> <C> <C>
John C. Beck 76,519,552 4,773
Percy Chubb, III 76,517,865 6,460
Joel J. Cohen 76,519,248 5,077
Henry U. Harder 76,501,564 22,761
David H. Hoag 76,493,722 30,603
Robert V. Lindsay 76,506,745 17,580
Thomas C. MacAvoy 76,509,793 14,532
Gertrude G. Michelson 76,504,964 19,361
Dean R. O'Hare 76,517,860 6,465
Warren B. Rudman 76,511,774 12,551
David G. Scholey 76,523,239 1,086
Raymond G. H. Seitz 76,458,322 66,003
Lawrence M. Small 76,519,760 4,565
Richard D. Wood 76,504,685 19,640
</TABLE>
For each Director, there were 176,547 abstaining votes. There were no
broker non-votes cast.
Votes were cast in the following manner in connection with the proposal
to approve the selection of Ernst & Young LLP as the independent auditors of the
Registrant for the year 1995.
<TABLE>
<CAPTION>
Votes For Votes Against
--------- -------------
<S> <C>
76,427,882 115,582
</TABLE>
There were 157,408 abstaining votes and no broker non-votes cast.
<PAGE> 18
Page 16
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
A. Exhibit 11.1 - Computation of earnings per share.
B. Reports on Form 8-K - There were no reports on Form 8-K filed for the three
months ended June 30, 1995.
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, 1995
<PAGE> 19
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
EX-11.1 Computation of earnings per share
EX-27 Financial Data Schedule
<PAGE> 1
Exhibit 11.1
THE CHUBB CORPORATION
COMPUTATION OF EARNINGS PER SHARE
PERIODS ENDED JUNE 30
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Net income.................................. $185.0 $146.7 $331.7 $219.9
After-tax interest expense on 6% guaranteed
exchangeable subordinated notes............ 2.5 2.5 4.9 4.9
------ ------ ------ ------
Net income for computing earnings per share. $187.5 $149.2 $336.6 $224.8
====== ====== ====== ======
Average number of common shares
outstanding................................ 87.0 87.8 86.9 87.7
Additional shares from assumed conversion
of 6% guaranteed exchangeable subordinated
notes as if each $1,000 of principal
amount had been converted at issuance
into 11.628 shares of common stock......... 2.9 2.9 2.9 2.9
------ ------ ------ ------
Average number of common and common
equivalent shares assumed outstanding for
computing earnings per share............... 89.9 90.7 89.8 90.6
====== ====== ====== ======
Net income per share........................ $ 2.09 $ 1.65 $ 3.75 $ 2.48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THE CHUBB CORPORATION
Financial Data Schedule(*)
(*) 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 reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<DEBT-HELD-FOR-SALE> 8,010<F1>
<DEBT-CARRYING-VALUE> 3,643<F2>
<DEBT-MARKET-VALUE> 3,798<F3>
<EQUITIES> 537
<MORTGAGE> 11
<REAL-ESTATE> 0
<TOTAL-INVEST> 12,981
<CASH> 9
<RECOVER-REINSURE> 25<F4>
<DEFERRED-ACQUISITION> 1,138
<TOTAL-ASSETS> 21,997
<POLICY-LOSSES> 12,039<F5>
<UNEARNED-PREMIUMS> 2,495<F6>
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,369<F7>
<COMMON> 88
0
0
<OTHER-SE> 4,733<F8>
<TOTAL-LIABILITY-AND-EQUITY> 21,997
2,351
<INVESTMENT-INCOME> 437
<INVESTMENT-GAINS> 54
<OTHER-INCOME> 148<F9>
<BENEFITS> 1,575
<UNDERWRITING-AMORTIZATION> 588
<UNDERWRITING-OTHER> 231
<INCOME-PRETAX> 425
<INCOME-TAX> 93
<INCOME-CONTINUING> 332
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 332
<EPS-PRIMARY> 3.75
<EPS-DILUTED> 0
<RESERVE-OPEN> 0<F10>
<PROVISION-CURRENT> 0<F10>
<PROVISION-PRIOR> 0<F10>
<PAYMENTS-CURRENT> 0<F10>
<PAYMENTS-PRIOR> 0<F10>
<RESERVE-CLOSE> 0<F10>
<CUMULATIVE-DEFICIENCY> 0<F10>
<FN>
<F1>DEBT-HELD-FOR-SALE REPRESENTS FIXED MATURITY INVESTMENTS CLASSIFIED AS
AVAILABLE-FOR-SALE AND CARRIED AT MARKET VALUE AS PRESCRIBED BY SFAS
NO. 115.
<F2>DEBT-CARRYING-VALUE REPRESENTS FIXED MATURITY INVESTMENTS CLASSIFIED AS
HELD-TO-MATURITY AND CARRIED AT AMORTIZED COST AS PRESCRIBED BY SFAS NO.
115.
<F3>DEBT-MARKET-VALUE REPRESENTS THE RELATED MARKET VALUE OF FIXED MATURITIES
CLASSIFIED AS HELD-TO-MATURITY.
<F4>RECOVER-REINSURE REPRESENTS REINSURANCE RECOVERABLE ON PAID CLAIMS.
<F5>POLICY-LOSSES EXCLUDE THE REDUCTIONS FOR REINSURANCE RECOVERABLES ON
UNPAID CLAIMS ($1,998) AND POLICY LIABILITIES ($195), AS PRESCRIBED BY
SFAS NO. 113. THESE AMOUNTS ARE INCLUDED IN TOTAL ASSETS.
<F6>UNEARNED-PREMIUMS EXCLUDE THE REDUCTION FOR PREPAID REINSURANCE PREMIUMS
($461), AS PRESCRIBED BY SFAS NO. 113. THIS AMOUNT IS INCLUDED IN
TOTAL ASSETS.
<F7>NOTES-PAYABLE INCLUDES SHORT-TERM DEBT OF $202 AND LONG-TERM DEBT OF $1,167
<F8>OTHER-SE INCLUDES PAID-IN SURPLUS; RETAINED EARNINGS; FOREIGN CURRENCY
TRANSLATION GAINS, NET OF INCOME TAX; UNREALIZED APPRECIATION OF
INVESTMENTS, NET; RECEIVABLE FROM ESOP AND TREASURY STOCK.
<F9>OTHER-INCOME REPRESENTS REVENUES FROM REAL ESTATE OPERATIONS.
<F10>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.
</FN>
</TABLE>
