<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 March 31, 1999
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 April 30, 1999
was 161,677,080.
<PAGE> 2
THE CHUBB CORPORATION
INDEX
Page Number
-----------
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998......................... 1
Consolidated Statements of Income for the
Three Months Ended March 31, 1999 and 1998................... 2
Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 1999 and 1998........... 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998................... 4
Notes to Consolidated Financial Statements.................... 5
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations.............. 9
Part II. Other Information:
Item 6 - Exhibits and Reports on Form 8-K....................... 17
<PAGE> 3
Page 1
THE CHUBB CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
1999 1998
--------- ---------
(in millions)
<S> <C> <C>
Assets
Invested Assets
Short Term Investments............................... $ 541.7 $ 344.2
Fixed Maturities
Held-to-Maturity - Tax Exempt (market $2,068.9
and $2,140.2)..................................... 1,940.8 2,002.2
Available-for-Sale
Tax Exempt (cost $6,830.3 and $6,509.3)........... 7,216.8 6,935.1
Taxable (cost $4,153.1 and $4,259.0).............. 4,245.8 4,381.6
Equity Securities (cost $795.6 and $1,002.6)......... 830.5 1,092.2
--------- ---------
TOTAL INVESTED ASSETS......................... 14,775.6 14,755.3
Cash................................................... 9.9 8.3
Accrued Investment Income.............................. 203.5 221.0
Premiums Receivable.................................... 1,210.8 1,199.3
Reinsurance Recoverable on Unpaid Claims............... 1,266.3 1,306.6
Prepaid Reinsurance Premiums........................... 126.4 134.6
Funds Held for Asbestos-Related Settlement............. 605.9 607.4
Deferred Policy Acquisition Costs...................... 733.8 728.7
Real Estate Assets..................................... 743.3 746.0
Deferred Income Tax.................................... 339.8 320.8
Other Assets........................................... 956.2 718.0
--------- ---------
TOTAL ASSETS.................................. $20,971.5 $20,746.0
========= =========
Liabilities
Unpaid Claims.......................................... $10,514.9 $10,356.5
Unearned Premiums...................................... 2,933.6 2,915.7
Long Term Debt......................................... 607.4 607.5
Dividend Payable to Shareholders....................... 52.1 50.3
Accrued Expenses and Other Liabilities................. 1,213.5 1,171.9
--------- ---------
TOTAL LIABILITIES............................. 15,321.5 15,101.9
--------- ---------
Shareholders' Equity
Common Stock - $1 Par Value; 175,984,913 and
175,989,202 Shares.................................... 176.0 176.0
Paid-In Surplus........................................ 531.5 546.7
Retained Earnings...................................... 5,738.8 5,604.0
Accumulated Other Comprehensive Income
Unrealized Appreciation of Investments, Net of Tax.... 334.2 414.7
Foreign Currency Translation Losses, Net of Tax....... (31.1) (36.0)
Receivable from Employee Stock Ownership Plan.......... (86.3) (86.3)
Treasury Stock, at Cost - 14,448,615 and
13,722,376 Shares..................................... (1,013.1) (975.0)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.................... 5,650.0 5,644.1
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $20,971.5 $20,746.0
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 4
Page 2
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in millions)
<S> <C> <C>
Revenues
Premiums Earned..................................... $1,379.8 $1,314.1
Investment Income................................... 208.9 204.1
Real Estate......................................... 9.4 24.5
Realized Investment Gains........................... 31.5 44.6
-------- --------
Total Revenues............................... 1,629.6 1,587.3
-------- --------
Claims and Expenses
Insurance Claims.................................... 908.0 819.5
Amortization of Deferred Policy Acquisition Costs... 373.7 361.9
Other Insurance Operating Costs and Expenses........ 92.2 87.7
Real Estate Cost of Sales and Expenses.............. 10.3 25.4
Investment Expenses................................. 5.2 5.3
Corporate Expenses.................................. 13.6 8.2
Restructuring Charge................................ - 40.0
-------- --------
Total Claims and Expenses.................... 1,403.0 1,348.0
-------- --------
Income Before Federal and Foreign Income Tax.......... 226.6 239.3
Federal and Foreign Income Tax........................ 39.7 47.5
-------- --------
Net Income............................................ $ 186.9 $ 191.8
======== ========
Average Common Shares Outstanding..................... 161.4 168.3
Average Common and Potentially Dilutive
Shares Outstanding................................... 163.2 171.9
Net Income Per Share
Basic................................................ $1.16 $1.14
Diluted.............................................. 1.14 1.12
Dividends Declared Per Share.......................... .32 .31
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 5
Page 3
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
1999 1998
------ ------
(in millions)
<S> <C> <C>
Net Income............................................ $186.9 $191.8
------ ------
Other Comprehensive Income (Loss)
Change in Unrealized Appreciation
of Investments, Net of Tax......................... (80.5) 23.1
Foreign Currency Translation
Gains (Losses), Net of Tax......................... 4.9 (1.8)
------ ------
(75.6) 21.3
------ ------
Comprehensive Income.................................. $111.3 $213.1
====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 6
Page 4
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
1999 1998
------- ---------
(in millions)
<S> <C> <C>
Cash Flows from Operating Activities
Net Income.............................................. $ 186.9 $ 191.8
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Increase in Unpaid Claims, Net........................ 198.7 135.5
Increase in Unearned Premiums, Net.................... 26.1 17.4
Depreciation.......................................... 15.4 16.0
Realized Investment Gains............................. (31.5) (44.6)
Other, Net............................................ (29.6) (20.8)
------- ---------
Net Cash Provided by Operating Activities............... 366.0 295.3
------- --------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities................. 393.2 1,134.6
Proceeds from Maturities of Fixed Maturities............ 205.6 161.6
Proceeds from Sales of Equity Securities................ 435.8 102.6
Purchases of Fixed Maturities........................... (752.0) (1,270.3)
Purchases of Equity Securities.......................... (204.0) (88.4)
Purchase of Interest in Hiscox plc...................... (145.3) -
Increase in Short Term Investments, Net................. (197.5) (167.4)
Increase in Net Payable from Security Transactions
Not Settled............................................ 46.0 126.1
Other, Net.............................................. (23.9) (21.8)
------- ---------
Net Cash Used in Investing Activities................... (242.1) (23.0)
------- ---------
Cash Flows from Financing Activities
Repayment of Long Term Debt............................. (.4) (150.2)
Dividends Paid to Shareholders.......................... (50.3) (49.0)
Repurchase of Shares.................................... (75.2) (89.1)
Other, Net.............................................. 3.6 17.3
------- ---------
Net Cash Used in Financing Activities................... (122.3) (271.0)
-------- ---------
Net Increase in Cash...................................... 1.6 1.3
Cash at Beginning of Year................................. 8.3 11.5
------- ---------
Cash at End of Period................................... $ 9.9 $ 12.8
======= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 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 1998 Annual
Report to Shareholders.
2) Adoption of New Accounting Pronouncement
Effective January 1, 1999, the Corporation adopted Statement of
Position (SOP) 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, which was issued by the American
Institute of Certified Public Accountants. The SOP requires that certain
costs incurred to develop or obtain computer software for internal use
should be capitalized and amortized over the software's expected useful
life. Prior to 1999, the Corporation expensed all development costs of
internal use computer software. The SOP has been applied prospectively.
Adoption of SOP 98-1 resulted in an increase to net income of $2.8
million or $.02 per diluted share for the three months ended March 31,
1999.
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:
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
1999 1998
------- ------
(in millions)
<S> <C> <C>
Change in unrealized appreciation of
equity securities................................... $ (54.7) $ 64.5
Change in unrealized appreciation of
fixed maturities.................................... (69.2) (29.0)
------- ------
(123.9) 35.5
Deferred income tax (credit)......................... (43.4) 12.4
------- ------
Change in unrealized appreciation of
investments, net.................................... $ (80.5) $ 23.1
======= ======
</TABLE>
<PAGE> 8
Page 6
4) Restructuring Charge
In the first quarter of 1998, the Corporation recorded a
restructuring charge of $40 million related to the implementation of a
cost control initiative. Of the $40 million restructuring charge, $30
million was comprised of accruals for providing enhanced pension
benefits and postretirement medical benefits to employees who accepted
an early retirement incentive offer and $5 million was severance costs
for employees who were terminated. The remainder of the charge was for
other expenses such as the cost of outplacement services. The initiative
was substantially completed in 1998 with no significant differences from
original estimates. The liabilities related to the enhanced pension and
postretirement medical benefits were included in the pension and
postretirement medical benefits liabilities, which will be reduced as
benefit payments are made over time. Of the other restructuring costs,
approximately $3 million remained unpaid at March 31, 1999.
5) Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
1999 1998
------ ------
(in millions,
except per share amounts)
<S> <C> <C>
Basic earnings per share:
Net income..................................... $186.9 $191.8
====== ======
Weighted average number of common
shares outstanding............................ 161.4 168.3
====== ======
Basic earnings per share....................... $ 1.16 $ 1.14
====== ======
Diluted earnings per share:
Net income..................................... $186.9 $191.8
====== ======
Weighted average number of common
shares outstanding............................ 161.4 168.3
Additional shares from assumed exercise
of stock-based compensation awards............ 1.8 3.6
------ ------
Weighted average number of common shares
and potential common shares assumed
outstanding for computing diluted
earnings per share............................ 163.2 171.9
====== ======
Diluted earnings per share..................... $ 1.14 $ 1.12
====== ======
</TABLE>
<PAGE> 9
Page 7
6) Segment Information
Effective December 31, 1998, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131
establishes new standards for reporting information about operating
segments in annual financial statements and requires the reporting of
selected segment information in interim reports to shareholders.
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 and
specialty commercial classes include property and marine, executive
protection, financial institutions and other commercial classes.
Revenues and income before income tax of the operating segments
were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------
1999 1998
-------- --------
(in millions)
<S> <C> <C>
Revenues
Property and casualty insurance
Premiums earned
Personal................................. $ 345.1 $ 313.4
Standard commercial...................... 500.4 494.9
Specialty commercial..................... 534.3 505.8
-------- --------
1,379.8 1,314.1
Investment income.......................... 195.9 187.6
-------- --------
Total property and casualty insurance.... 1,575.7 1,501.7
Corporate and other.......................... 22.4 41.0
Realized investment gains.................... 31.5 44.6
-------- --------
Total revenues........................... $1,629.6 $1,587.3
======== ========
</TABLE>
<PAGE> 10
Page 8
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------
1999 1998
-------- --------
(in millions)
<S> <C> <C>
Income (loss) before income tax
Property and casualty insurance
Underwriting
Personal................................. $ 41.8 $ 64.1
Standard commercial...................... (87.8) (73.8)
Specialty commercial..................... 48.8 55.0
-------- --------
2.8 45.3
Increase in deferred policy acquisition
costs................................... 5.1 4.9
Other charges............................ (2.0) (5.2)
-------- --------
Underwriting income........................ 5.9 45.0
Investment income.......................... 191.7 183.4
Restructuring charge....................... - (40.0)
-------- --------
Total property and casualty insurance.... 197.6 188.4
Corporate and other.......................... (2.5) 6.3
Realized investment gains.................... 31.5 44.6
-------- --------
Total income before income tax........... $ 226.6 $ 239.3
======== ========
</TABLE>
7) Pending Acquisition
On February 8, 1999, the Corporation announced that it entered
into a definitive merger agreement under which it would acquire
Executive Risk Inc. Executive Risk is a specialty insurance company
offering directors and officers, errors and omissions and professional
liability coverages.
The acquisition will be accounted for using the purchase method
of accounting. The agreement provides that Executive Risk shareholders
will receive 1.235 shares of the Corporation's common stock for each
outstanding common share of Executive Risk. The agreement contemplates
that approximately 13,730,000 shares of common stock of the Corporation
will be issued to Executive Risk shareholders and approximately
2,3000,000 shares of common stock of the Corporation will be reserved
for issuance upon exercise of Executive Risk stock options. The total
value of the transaction is expected to be approximately $850 million.
Completion of the acquisition is subject to approval by Executive Risk
shareholders and various regulatory authorities. Closing is expected by
the end of the second quarter of 1999.
<PAGE> 11
Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1999 AND 1998
SUMMARY OF FINANCIAL RESULTS
The following is a summary of the Corporation's operating results for
the first quarter of 1999 and 1998:
<TABLE>
<CAPTION>
Quarter Ended
March 31
----------------------
1999 1998
-------- --------
(in millions)
<S> <C> <C>
PROPERTY AND CASUALTY INSURANCE
Underwriting
Net Premiums Written................................. $1,405.9 $1,331.5
Increase in Unearned Premiums........................ (26.1) (17.4)
-------- --------
Premiums Earned................................... 1,379.8 1,314.1
-------- --------
Claims and Claim Expenses............................ 908.0 819.5
Operating Costs and Expenses......................... 460.7 446.0
Increase in Deferred Policy Acquisition Costs........ (5.1) (4.9)
Dividends to Policyholders........................... 10.3 8.5
-------- --------
Underwriting Income Before Income Tax................ 5.9 45.0
Federal and Foreign Income Tax....................... 2.1 16.2
-------- --------
Underwriting Income.................................. 3.8 28.8
-------- --------
Investments
Investment Income Before Expenses and Income Tax..... 195.9 187.6
Investment Expenses.................................. 4.2 4.2
-------- --------
Investment Income Before Income Tax.................. 191.7 183.4
Federal and Foreign Income Tax....................... 28.7 28.9
-------- --------
Investment Income.................................... 163.0 154.5
-------- --------
Property and Casualty Income.......................... 166.8 183.3
CORPORATE AND OTHER, Net of Tax........................ (.4) 5.5
-------- --------
CONSOLIDATED OPERATING INCOME
BEFORE RESTRUCTURING CHARGE........................... 166.4 188.8
Restructuring Charge, Net of Tax....................... - (26.0)
-------- --------
CONSOLIDATED OPERATING INCOME.......................... 166.4 162.8
REALIZED INVESTMENT GAINS, Net of Tax.................. 20.5 29.0
-------- --------
CONSOLIDATED NET INCOME................................ $ 186.9 $ 191.8
======== ========
</TABLE>
<PAGE> 12
Page 10
PROPERTY AND CASUALTY INSURANCE
Property and casualty earnings were lower in the first quarter of 1999
compared with the same period of 1998 due to a decrease in underwriting income,
partially offset by an increase in investment income. Property and casualty
income after taxes amounted to $166.8 million in the first quarter of 1999
compared with $183.3 million in 1998.
Net premiums written were $1,405.9 million in the first quarter of 1999,
an increase of 5.6% compared with the first quarter of 1998. Premium growth in
personal lines remained strong. In commercial lines, intense competition in the
worldwide marketplace has made profitable premium growth difficult, particularly
in the standard commercial classes, which include multiple peril, casualty and
workers' compensation. Competitors continued to place significant pressure on
pricing and coverage terms as they sought to maintain or increase market share.
However, our strategy to improve the pricing in the standard commercial classes
has shown some early success thus far in 1999. Substantial premium growth in the
first quarter of 1999 was achieved outside the United States, particularly in
Europe, our largest foreign market.
Underwriting results were profitable in the first quarter of 1999 and
1998. Our combined loss and expense ratio was 99.2% in the first quarter of 1999
compared with 96.1% in 1998.
The loss ratio deteriorated to 66.3% in the first quarter of 1999 from
62.8% in 1998 due in part to higher catastrophe losses. The loss ratio, while
somewhat higher in 1999, continues to reflect the favorable experience resulting
from the consistent application of our disciplined underwriting standards.
Catastrophe losses during the first quarter of 1999 were 2.9 percentage points
of the loss ratio compared with 2.3 percentage points of the loss ratio in 1998.
Catastrophe losses in 1999 resulted primarily from a series of winter storms in
the United States in January. In 1998, catastrophe losses resulted primarily
from the winter ice storms in Canada.
Our expense ratio was 32.9% in the first quarter of 1999 compared with
33.3% in 1998. The lower ratio in 1999 was due to salary and overhead expenses
remaining flat compared with the first quarter of 1998. Such expenses were flat
due primarily to a cost control initiative implemented during 1998 and, to a
lesser extent, a change in accounting that resulted in the capitalization of
certain costs incurred to develop computer software for internal use. The cost
control initiative resulted in approximately 500 job reductions in the home
office and the branch network through a combination of early retirements,
terminations and attrition. Other savings include vendor management, consulting
expenses and other operating costs.
<PAGE> 13
Page 11
Underwriting results during 1999 and 1998 by class of business were as
follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
----------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
------------------- -----------------
1999 1998 1999 1998
-------- -------- ----- -----
(in millions)
<S> <C> <C> <C> <C>
Personal Insurance
Automobile........................ $ 77.2 $ 70.6 83.1% 89.0%
Homeowners........................ 177.9 154.8 101.4 85.8
Other............................. 79.6 73.9 66.2 63.3
-------- -------- ----- -----
Total Personal................ 334.7 299.3 88.9 81.1
-------- -------- ----- -----
Standard Commercial Insurance
Multiple Peril.................... 189.1 189.6 120.4 118.4
Casualty.......................... 214.0 231.8 116.8 114.2
Workers' Compensation............. 96.0 97.8 116.3 101.0
-------- ------ ----- -----
Total Standard................ 499.1 519.2 117.9 113.4
-------- ------ ----- -----
Specialty Commercial Insurance
Property and Marine............... 127.7 128.0 98.7 116.6
Executive Protection.............. 243.4 223.4 81.9 71.8
Financial Institutions............ 109.3 98.0 83.3 83.0
Other............................. 91.7 63.6 98.5 95.8
-------- -------- ----- -----
Total Specialty Commercial.... 572.1 513.0 88.6 88.6
-------- -------- ----- ------
Total Commercial.............. 1,071.2 1,032.2 102.6 100.9
-------- -------- ------ -----
Total......................... $1,405.9 $1,331.5 99.2% 96.1%
======== ======== ===== =====
</TABLE>
PERSONAL INSURANCE
Premiums from personal insurance coverages, which represent 24% of total
premiums written, increased by 11.8% in the first quarter of 1999 compared with
the same quarter in 1998. We continued to grow our homeowners and other
non-automobile business, primarily in non-catastrophe prone areas. Personal
automobile premiums also increased as a result of an increase in the number of
in-force policies for high value automobiles. Premiums outside the United States
grew by over 50% although from a small base.
Our personal insurance business produced highly profitable underwriting
results in the first quarter of 1999 and 1998. The combined loss and expense
ratio was 88.9% in the first quarter of 1999 compared with 81.1% in 1998.
Our homeowners business produced breakeven results in 1999 compared with
highly profitable results in 1998. The deterioration in 1999 was due to an
increase in both catastrophe and non-catastrophe related losses, the latter due
in part to one $7 million loss. Catastrophe losses represented 11.4 percentage
points of the loss ratio for this class in the first quarter of 1999 compared
with 7.8 percentage points in 1998. Our automobile business produced profitable
results in 1999 and 1998 due primarily to stable loss frequency and severity.
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.
<PAGE> 14
Page 12
STANDARD COMMERCIAL INSURANCE
Premiums from standard commercial insurance, which represent 35% of our
total writings, decreased by 3.9% in the first quarter of 1999 compared with the
same period a year ago. The decrease was 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. On that business
that was renewed, rates increased modestly in the first quarter of 1999 and we
expect this trend to continue. Retention levels were lower compared with the
first quarter of 1998. Approximately half of the non-renewals were the result of
business we chose not to renew and half were the result of customers not
accepting the price increases we instituted.
Our standard commercial insurance business produced highly unprofitable
results in the first quarter of 1999 and 1998. The combined loss and expense
ratio was 117.9% in the first quarter of 1999 compared with 113.4% in 1998.
Multiple peril results were unprofitable by a similar margin in 1999 and
1998 due, in large part, to inadequate prices. Results in 1999 deteriorated in
the property component of this business due primarily to several large overseas
losses. Results in the liability component improved in 1999 due to a lower
frequency of large losses. Catastrophe losses represented 6.8 percentage points
of the loss ratio for this class in the first quarter of 1999 compared with 5.5
percentage points in 1998.
Results for our casualty business were unprofitable by a similar margin
in 1999 and 1998. Casualty results were adversely affected in both years by
incurred losses relating to asbestos-related and toxic waste claims. The excess
liability component of our casualty coverages produced modestly unprofitable
underwriting results in both 1999 and 1998. Results for the primary liability
component were extremely unprofitable in both years due to a high frequency of
large losses. Results in the automobile component were more unprofitable in 1999
than in 1998. Our commercial automobile book of business is inadequately priced.
Results in 1999 deteriorated due to an increase in the frequency of losses.
Workers' compensation results deteriorated in 1999 from the marginally
unprofitable results in 1998. The deterioration in 1999 was due to an increase
in the frequency of losses. Results in both periods reflect the cumulative
effect of price reductions over the past several years.
SPECIALTY COMMERCIAL INSURANCE
Premiums from specialty commercial insurance, which represent 41% of our
total writings, increased by 11.5% in the first quarter of 1999 compared with
the same period a year ago. Substantial premium growth was achieved in 1999 in
our executive protection business and in the professional liability component of
our financial institutions business due primarily to the selective writing of
new accounts and an emphasis on new products. In addition, other commercial
business includes $17 million of premiums in 1999 from our new Chubb Re
operation. Property and marine premiums were flat in 1999 compared with the
first quarter of 1998 due to the effect on retention levels of pricing
initiatives and non-renewing certain unprofitable accounts.
Our specialty commercial insurance business produced highly profitable
underwriting results in the first quarter of 1999 and 1998. The combined loss
and expense ratio was 88.6% in both years.
<PAGE> 15
Page 13
Property and marine results were modestly profitable in 1999 compared
with unprofitable results in 1998. The substantial improvement in 1999 was due
to a decrease in the frequency of large losses and the positive effect of the
pricing initiatives and the culling of unprofitable accounts. Results in 1999
and 1998 were adversely affected by several large overseas losses. Catastrophe
losses represented 3.6 percentage points of the loss ratio for this class in the
first quarter of 1999 compared with 3.4 percentage points in 1998.
Executive protection results were highly profitable in 1999 and 1998 due
to favorable loss experience on U.S. and foreign business, particularly in the
directors and officers and fiduciary liability components. Our financial
institutions business produced highly profitable results in both years due to
the favorable loss experience in the fidelity component. Results in our other
commercial classes were modestly profitable in 1999 and 1998. Our surety
business produced highly profitable results in both years which more than offset
the unprofitable results in our aviation business.
LOSS RESERVES
Gross loss reserves were $10,514.9 million and $10,356.5 million at
March 31, 1999 and December 31, 1998, respectively. Reinsurance recoverables on
such loss reserves were $1,266.3 million and $1,306.6 million at March 31, 1999
and December 31, 1998, respectively.
Loss reserves, net of reinsurance recoverable, increased by $198.7
million during the first quarter of 1999. Substantial reserve growth continued
to occur in those liability classes, 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 $12.8
million in the first quarter of 1999 and $17.9 million in 1998.
INVESTMENTS
Investment income after deducting expenses and taxes increased by 5.5%
in the first quarter of 1999 compared with the same period in 1998. The growth
was due to an increase in invested assets since the first quarter of 1998,
reflecting strong cash flow from operations over the period, partially offset by
lower average yields on new investments. The effective tax rate on investment
income decreased to 15.0% in the first quarter of 1999 from 15.8% in the
comparable period in 1998 due to holding a larger proportion of our investment
portfolio in tax-exempt securities.
New cash available for investment in the first quarter of 1999 was
invested in tax-exempt bonds. During the quarter, we reduced our equity
securities portfolio by approximately $200 million with $145 million of the
proceeds used to fund the purchase of a 27% interest in Hiscox plc, a leading
U.K. personal and commercial specialty insurer.
The property and casualty subsidiaries maintain sufficient investments
in highly liquid, short term securities to provide for immediate cash needs.
<PAGE> 16
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CORPORATE AND OTHER
Corporate and other includes investment income earned on corporate
invested assets, interest and other expenses not allocable to the operating
subsidiaries, and the results of our real estate subsidiary. Corporate and other
produced a loss after taxes of $.4 million in the first quarter of 1999 compared
with income of $5.5 million in the first quarter of 1998 due primarily to higher
interest expense in 1999.
RESTRUCTURING CHARGE
In the first quarter of 1998, the Corporation recorded a restructuring
charge of $40 million, or $26 million after taxes, related to the implementation
of a cost control initiative. Of the $40 million restructuring charge, $30
million was comprised of accruals for providing enhanced pension benefits and
postretirement medical benefits to employees who accepted an early retirement
incentive offer and $5 million was severance costs for employees who were
terminated. The remainder of the charges was for other expenses such as the cost
of outplacement services. The initiative was substantially completed in 1998
with no significant differences from original estimates. The liabilities related
to the enhanced pension and postretirement medical benefits were included in the
pension and postretirement medical benefits liabilities, which will be reduced
as benefit payments are made over time. Of the other restructuring costs,
approximately $3 million remained unpaid at March 31, 1999.
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 $31.5 million were realized in the first
quarter of 1999 compared with net gains of $44.6 million for the same period in
1998.
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
March 31, 1999, the Corporation repurchased 19,246,300 shares under the 1997 and
1998 authorizations, including 1,251,400 shares repurchased in open-market
transactions in the first quarter of 1999 at a cost of $75.2 million. As of
March 31, 1999, 10,753,700 shares remained under the current share repurchase
authorizations.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue relates to the inability of certain information
technology (IT) systems and applications as well as non-IT systems, such as
equipment with imbedded chips and microprocessors, to properly process data
containing dates beginning with the year 2000. The issue exists because many
systems used two digits rather than four to define the applicable year. Such
systems may recognize the date "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing disruptions of
normal business activities or other unforeseen problems.
<PAGE> 17
Page 15
As of March 31, 1999, we completed remediation and testing procedures on
95% of our mainframe IT systems, including all mission critical systems except
one. We expect to complete the remediation and testing of all remaining systems
by June 1999, except for three minor applications that we expect will be
completed in the third quarter of 1999.
We have also completed an inventory and assessment of all our personal
computers, servers and other non-mainframe computers. We expect that all such
computers and related software will be Year 2000 ready in the third quarter of
1999. We have also assessed our non-IT systems and believe that the failure of
any of these systems would have minimal impact on our operations.
The Corporation and its subsidiaries have interaction with many third
parties, including producers, reinsurers, financial institutions, vendors,
suppliers and others. We have initiated contact with these parties regarding
their plans for Year 2000 readiness. We are in the process of evaluating the
responses and following up with those parties from whom we have received no
response. The information obtained is being used to develop business contingency
plans to address any mission critical operations that may be adversely impacted
by the noncompliance of a third party with whom we interact. We have electronic
data interchanges with some third parties. We are physically testing such
interchanges for Year 2000 compliance. We expect that such testing will be
completed by June 1999.
We have identified those third parties that are critical to our
operations and are assessing risks with respect to the potential failure of such
parties to be Year 2000 ready. However, we do not have control over these third
parties and are unable to determine whether all such third parties will address
the Year 2000 issue successfully, including third parties located outside the
United States where it is believed that Year 2000 remediation efforts in general
may be less advanced. Management cannot determine the effect on the
Corporation's future operating results of the failure of third parties to be
Year 2000 ready.
Our Year 2000 plans have been developed with the intention of minimizing
the need for actual implementation of contingency activities. A substantial
portion of 1999 is being used to monitor systems already remediated for Year
2000 for any unidentified problems and to perform additional remediation and
testing as necessary. Nonetheless, in order to address any unexpected
difficulties that may arise, we will keep our core Year 2000 readiness team
intact until June 2000. Additionally, we are in the process of developing
contingency plans to continue business in the unlikely event that one or more of
our critical systems fail.
We believe that we are taking the necessary measures to address Year
2000 issues that may arise and that our internal systems will be compliant.
Notwithstanding such efforts, significant Year 2000 problems could arise. In
particular, the prolonged failure of power and telecommunications systems could
have a material adverse effect on our operations. Similarly, Year 2000 related
difficulties experienced by our producers or financial institutions have the
potential to materially disrupt our business. Given the uncertain nature of Year
2000 problems that may arise, management cannot determine at this time whether
the consequences of Year 2000 related problems will have a material impact on
the Corporation's financial position or results of operations.
<PAGE> 18
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We expect that the cost to address the Year 2000 IT systems issue,
including compensation of employees and the cost of consultants, will
approximate $36 million. Approximately $32 million was incurred as of March 31,
1999, of which $2 million was incurred in the first quarter of 1999. These
amounts do not include the cost of computer equipment purchased to replace
equipment that would have been upgraded in the normal course of business, but
not necessarily prior to January 2000.
An additional concern to the Corporation is the potential future impact
of the Year 2000 issue on insurance coverages written by our property and
casualty subsidiaries. The Year 2000 issue is a risk for some of our insureds
and needs to be considered during the underwriting process similar to any other
risk to which our customers may be exposed. It is possible that Year 2000
related losses may emerge that would adversely affect operating results in
future periods. At this time, in the absence of any significant claims
experience, management cannot determine the nature and extent of any losses, the
availability of coverage for such losses or the likelihood of significant
claims.
PENDING ACQUISITION
On February 8, 1999, the Corporation announced that it entered into a
definitive merger agreement under which it would acquire Executive Risk Inc.
Executive Risk is a specialty insurance company offering directors and officers,
errors and omissions and professional liability coverages.
The acquisition will be accounted for using the purchase method of
accounting. The agreement provides that Executive Risk shareholders will receive
1.235 shares of the Corporation's common stock for each outstanding common share
of Executive Risk. The agreement contemplates that approximately 13,730,000
shares of common stock of the Corporation will be issued to Executive Risk
shareholders and approximately 2,3000,000 shares of common stock of the
Corporation will be reserved for issuance upon exercise of Executive Risk stock
options. The total value of the transaction is expected to be approximately $850
million. Completion of the acquisition is subject to approval by Executive Risk
shareholders and various regulatory authorities. Closing is expected by the end
of the second quarter of 1999.
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
result in", "is expected to", "are continuing to", "is anticipated", "estimate",
"project", 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 its activity value analysis program, its business retention estimates
or the completion of the Executive Risk merger; 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 development of major year 2000 liabilities, the inability to reinsure
certain risks economically, the adequacy of loss reserves, as well as general
market conditions, competition, pricing and restructurings.
<PAGE> 19
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PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 4 - Instruments defining the rights of security holders, including
debentures
- Rights Agreement dated as of March 12, 1999 between The Chubb
Corporation and First Chicago Trust Company of New York, as Rights
Agent, incorporated by reference to Exhibit (99.1) of the Registrant's
Report to the Securities and Exchange Commission on Form 8-K dated
March 12, 1999.
Exhibit 10 - Material Contracts
- The Chubb Corporation Estate Enhancement Program filed herewith.
- The Chubb Corporation Estate Enhancement Program for Non-Employee
Directors filed herewith.
Exhibit 27 - Financial Data Schedule
- Financial Data Schedule filed herewith.
B. Reports on Form 8-K
The Registrant filed a current report on Form 8-K on January 19, 1999 with
respect to the announcement on January 18, 1999 of its preliminary
financial results for the quarter and year ended December 31, 1998.
The Registrant filed a current report on Form 8-K on February 10, 1999
with respect to the announcement on February 8, 1999 that the Registrant
entered into a definitive merger agreement under which the Registrant will
acquire Executive Risk Inc.
The Registrant filed a current report on Form 8-K on March 15, 1999 with
respect to the announcement on March 12, 1999 that the Registrant had
adopted a new shareholder rights plan, replacing the Registrant's existing
plan, which was due to expire on June 12, 1999.
The Registrant filed a current report on Form 8-K on March 30, 1999 for
the purpose of filing the Rights Agreement dated as of March 12, 1999
between The Chubb Corporation and First Chicago Trust Company of New York,
as Rights Agent.
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 14, 1999
<PAGE> 1
The Chubb Corporation
Estate Enhancement Program
1. Purpose
The purpose of The Chubb Corporation Estate Enhancement Program (the
"Plan") is to provide key executives of The Chubb Corporation and its
subsidiaries the ability to elect life insurance coverage pursuant to a
split-dollar life insurance arrangement in return for forgoing receipt of
certain benefits under the Pension Excess Benefit Plan of The Chubb
Corporation, Chubb & Son Inc. and Participating Affiliates (the "Pension
Excess Plan").
2. Definitions
For purposes of this Plan, the following terms have the meanings set forth
below:
2.01 Adjusted Company Death Benefit means the portion of the Policy death
benefit payable to the Company solely as a result of an Alternative
Death Benefit Election being in effect for the Policy, and shall be
determined by subtracting from the amount of Policy death benefit
paid to the Company an amount equal to the portion of the Policy
death benefit that would have been paid to the Company if an
Alternative Death Benefit Election was not in effect for the Policy.
2.02 Agreement means the Agreement executed by the Participant (or other
Policy Owner) and the Company implementing the terms of this Plan.
2.03 Alternative Death Benefit means a Company-paid death benefit paid by
the Company to the Former Policy Owner's beneficiary(ies) pursuant
to an Alternative Death Benefit Election under Section 8 of the
Plan.
2.04 Alternative Death Benefit Amount means, with respect to a
Participant, an amount that, after subtracting any Company federal,
state, and local income tax savings resulting from the deductibility
of the payment for corporate tax purposes, is equal to the Adjusted
Company Death Benefit reduced by the income taxes (if any) payable
by the Company as a result of receiving the Adjusted Company Death
Benefit. The Alternative Death Benefit Amount shall be determined at
the time the payment is to be made, based on the Company's federal,
state and local income tax rate
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<PAGE> 2
(calculated at the marginal tax rate then applicable to the Company,
but net of any federal deduction for state and local taxes) at the
time of the payment, and shall be determined by the Plan
Administrator.
2.05 Alternative Death Benefit Election means an election made by the
Policy Owner pursuant to Section 8 of the Plan.
2.06 Board of Directors means the Board of Directors of the Company.
2.07 Change in Control means a change in control of the Company, as such
term is defined in The Chubb Corporation Stock Option Plan for
Non-Employee Directors (1996) as in effect on the Effective Date.
2.08 Collateral Assignment means the Collateral Assignment executed by
the Policy Owner pursuant to Section 6.02 of the Plan.
2.09 Committee means the Organization & Compensation Committee of the
Board of Directors of The Chubb Corporation that will administer the
Plan pursuant to the provisions of Section 14.02 of the Plan.
2.10 Company means The Chubb Corporation and, for such other purposes as
determined by the Committee, shall include any subsidiary of The
Chubb Corporation.
2.11 Company Death Benefit means the portion of the Policy's death
benefit payable to Company as provided in Section 7.
2.12 Compensation means amounts a Participant agrees to forego to
participate in the Plan pursuant to Section 3.02, and shall include
all or any portion of (i) an amount equal to seventy-five (75%) of
the Participant's accrued lump sum benefit under the Pension Excess
Plan; or (ii) any other amounts the Committee deems Compensation for
the purpose of this Plan.
2.13 Effective Date means December 10, 1998.
2.14 Elector means the person or persons who are entitled to make or
revoke an Alternative Death Benefit Election pursuant to Section
8.01.
2.15 Eligible Executive means any executive of The Chubb Corporation or
the Chubb & Son division of Federal Insurance Company who is an
Executive
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<PAGE> 3
Vice President or higher, or such other key executives of the
Company as may be designated by the Chairman of The Chubb
Corporation.
2.16 Enrollment and Election to Forego Compensation Form means the form
used by a Participant to make an election to forego Compensation
pursuant to Section 3.02 of the Plan.
2.17 Former Policy Owner means the person(s) or entity that is the Policy
Owner immediately prior to when an Alternative Death Benefit
Election is first made with respect to a Policy.
2.18 Insurer means, with respect to a Participant's Policy, the insurance
company issuing the Policy on the Participant's life (or on the
lives of the Participant and the Participant's spouse, in the case
of a Survivorship Policy) pursuant to the provisions of the Plan.
2.19 Participant means an Eligible Executive who elects to participate in
the Plan.
2.20 Participant's Coverage Amount means the portion of the Policy's
death benefit payable to the beneficiary(ies) of the Policy Owner as
provided in Section 7.
2.21 Participant Premium means the amount of premium payment, if any,
paid by the Participant, Policy Owner or Former Policy Owner
pursuant to Section 5.02.
2.22 Plan Administrator means the Committee, or its designee.
2.23 Policy means the life insurance coverage acquired on the life of the
Participant (or on the lives of the Participant and the
Participant's spouse, in the case of a Survivorship Policy) by the
Company.
2.24 Policy Owner means the person or entity designated as owner on the
application for the Policy, or the person or entity to which a
Policy Owner assigns his or her interest in the Policy.
2.25 Premium means, with respect to a Policy on the life of a Participant
(or the lives of a Participant and a Participant's spouse, if the
Policy is a Survivorship Policy), the amount the Company is
obligated, pursuant to the terms of the Plan, to pay to the Insurer
with respect to such Policy.
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<PAGE> 4
2.26 Survivorship Policy means a Policy insuring the lives of the
Participant and a Participant's spouse, with the death benefit
payable at the death of the last survivor of the Participant and his
or her spouse.
3. Participation
3.01 Eligibility. Any Eligible Executive shall be eligible to participate
in the Plan. An Eligible Executive shall become a Participant by
completing such forms, documents and procedures as specified by the
Plan Administrator. The Participant (and, in the case of a
Survivorship Policy, the Participant's spouse) shall cooperate with
the Insurer by furnishing any and all information requested by the
Insurer in order to facilitate the issuance of the Policy, including
furnishing such medical information and taking such physical
examinations as the Insurer may deem necessary. In the absence of
such cooperation, the Company shall have no obligation to the
Participant to allow him or her to participate in the Plan.
3.02 Election to Forego Compensation. As a condition of participating in
the Plan, each Participant shall be required to make an election in
which the Participant shall commit to forego the receipt of a
specified type and amount of Compensation. The Participant shall
make an election to forego Compensation by execution of an
Enrollment and Election to Forego Compensation Form prior to the
Policy effective date.
4. Amount and Type of Coverage
The amount and type of coverage provided under the Policy shall be that
amount and type specified in the Agreement.
5. Payment of Premiums
5.01 Company Payments. The Company shall pay Premiums equal to four times
the amount of the Compensation foregone by a Participant as provided
in the Enrollment and Election to Forego Compensation Form. The
Premium amount corresponding to a foregone amount related to an
accrued benefit under the Pension Excess Plan shall be paid within
thirty (30) days after the Policy is issued.
5.02 Participant Payments. Unless otherwise provided in an Agreement, a
Participant, Policy Owner (other than the Company, if the Company
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<PAGE> 5
becomes the Policy Owner pursuant to Section 8), or Former Policy
Owner shall not be required to pay any portion of the Premium due on
the Policy. However, the Participant, Policy Owner or Former Policy
Owner may elect to pay a premium to the Insurer with respect to the
Policy.
6. Policy Ownership
6.01 Ownership. Except as otherwise provided in this Plan and related
Agreement, the Policy Owner shall be the sole and exclusive owner of
a Participant's Policy.
6.02 Company's Rights. The Company shall not have any ownership rights in
the Policy (except as provided in Section 8). The Company's rights
shall be limited to: (1) the right to receive a portion of the
Policy death benefit in the event of the payment of the Policy death
benefit while the Collateral Assignment is in effect with respect to
the Policy; and, (2) the right to receive all of the proceeds of any
surrender, withdrawal or loan processed while the Collateral
Assignment is in effect, as specified in the Agreement. In exchange
for the Company's agreement to pay the Premiums described in Section
5.01 of the Plan and the Participant's Agreement, the Policy Owner
shall execute a Collateral Assignment to the Company of the rights
provided to the Company under this Plan and related Agreement. The
Company shall have the right to direct the Policy Owner in writing
to take any required action consistent with these rights, and upon
the receipt of such written direction from the Company, the Policy
Owner promptly shall take such action as is necessary to comply
therewith. The Company shall have the right to assign any part or
all of its interest in the Policy, subject to the Policy Owner's
rights, and the terms and conditions of this Plan and related
Agreement, to any person, entity or trust by the execution of a
written instrument delivered to the Policy Owner.
6.03 Prohibited Policy Transactions. The Policy Owner shall not borrow
from, hypothecate, withdraw cash value from, surrender in whole or
in part, cancel, or in any other manner encumber a Policy without
the prior written consent of the Company (or without the prior
written consent of the Former Policy Owner, if the Company is the
Policy Owner).
6.04 Investment of Policy Cash Values. If the Policy provides the Policy
Owner with a choice of investment funds for the Policy cash values,
the
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Policy Owner shall invest the cash values in the funds selected by
and in the proportions specified by the Company.
6.05 Possession of Policy. The Policy Owner shall maintain possession of
the Policy.
7. Death Benefit
Upon the death of the Participant (or the death of the survivor of the
Participant and the Participant's spouse, if the Policy is a Survivorship
Policy), the death benefit under the Policy shall be divided as follows:
a. The Company shall be entitled to receive as the Company Death
Benefit an amount equal to the sum of: (i) the Policy cash
accumulation value immediately prior to the death of the Participant
(or the death of the survivor of the Participant and the
Participant's spouse, if the Policy is a Survivorship Policy) and
before any surrender charges; plus (ii) twenty-five percent (25%) of
the face amount of the Policy. For the purposes of the preceding
sentence, the Policy face amount shall equal the sum of the face
amount at the time the Policy death benefit is paid, plus the amount
of any face amount reduction made pursuant to Section 9. If the
Policy provides for a death benefit equal to the sum of the face
amount of the Policy and any cash account or accumulation value, any
Company Death Benefit should first be paid from the cash account or
accumulation value portion of the death benefit.
b. The beneficiary(ies) of the Policy Owner shall be entitled to
receive the Participant's Coverage Amount, which shall consist of
the excess, if any, of the Policy's death benefit over the Company
Death Benefit.
8. Alternative Death Benefit Election
8.01 Alternative Death Benefit Election. The Alternative Death Benefit
Election provided for in this Section may be made or revoked by the
person or persons designated as the Elector in the Participant's
Agreement. If no such person is designated in the Agreement, or if
no designated person is living and able to make the election, the
election may be made or revoked by the Policy Owner (except that an
election cannot be made or revoked by the Company, if the Company
becomes the Policy Owner). Any such election shall be filed with the
Plan
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<PAGE> 7
Administrator in such form as may be prescribed by the Plan
Administrator. When an Alternative Death Benefit Election is made,
the Policy Owner shall immediately transfer the ownership of the
Policy to the Company, and the Company shall be designated as
beneficiary to receive the entire Policy death benefit. In addition,
using a form provided by the Plan Administrator, the Former Policy
Owner shall designate a beneficiary to receive the Alternative Death
Benefit.
The Elector may revoke the Alternative Death Benefit Election. In
the event of such a revocation, the Company shall continue to be the
Policy Owner and shall, by endorsement filed with the Insurer,
provide the Former Policy Owner the right to designate a beneficiary
of an amount of Policy death benefit equal to the Participant's
Coverage Amount. The revocation of an Alternative Death Benefit
Election shall not preclude an Elector from making a later
Alternative Death Benefit Election (or from revoking such later
election).
An Alternative Death Benefit Election (or an election to revoke such
an election) shall be effective when any necessary documentation is
submitted to and accepted by the Insurer. The Policy Owner (or
Former Policy Owner, if applicable) and the Company will promptly
submit any required forms or documents to the Insurer when an
Alternative Death Benefit Election is made or revoked.
8.02 Payment of Benefit. The Alternative Death Benefit shall be paid by
the Company from the general funds of the Company, and shall not
constitute an insurance benefit. It shall be paid by the Company to
the Former Policy Owner's beneficiary(ies) within thirty (30) days
after the Company receives the death benefit for the Participant's
Policy. The amount of the payment shall be equal to the Alternative
Death Benefit Amount. As long as an Alternative Death Benefit
Election is in effect, the beneficiary(ies) of the Former Policy
Owner shall receive only the Alternative Death Benefit, and shall
not be entitled to receive any portion of any death benefits that
would become payable under the Participant's Policy.
9. Election to Reduce Policy Face Amount
The Policy Owner (except the Company, if the Company becomes a Policy
Owner) or, if applicable, the Former Policy Owner, may elect to reduce the
Policy
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<PAGE> 8
face amount, except that the Policy face amount shall not be reduced to an
amount less than the Company Death Benefit. If the Company is the Policy
Owner, then, within sixty (60) days of receipt of a written request from
the Former Policy Owner, the Company shall complete and submit the
necessary forms to the Insurer to reduce the Policy face amount in
accordance with the Former Policy Owner's request.
The Company may elect, in its discretion, to unilaterally reduce the face
amount of a Participant's Policy if, based on projections provided by the
Insurer or its agent, and assuming a Policy cash value investment return
rate for all future years equal to the average of the actual rates
realized on the Policy cash values for the immediately preceding three (3)
years, the Policy would lapse: (1) in less than ten (10) years, if the
Insured (or younger surviving Insured, if the Policy is a Survivorship
Policy and both Insureds are living at the time the determination is made)
is under ninety (90) years of age; (2) in less than eight (8) years if the
Insured (or younger surviving Insured, if the Policy is a Survivorship
Policy and both Insureds are living at the time the determination is made)
is ninety (90) years of age or older, but is under ninety-five (95) years
of age; or, (3) in less than five (5) years, if the Insured (or younger
surviving Insured, if the Policy is a Survivorship Policy and both
Insureds are living at the time the determination is made) is ninety-five
(95) years of age or older. If any reduction is made pursuant to the
preceding sentence, the maximum allowable reduction shall be to the
highest face amount that would satisfy the requirements of the preceding
sentence. In exercising its discretion to reduce the face amount, the
Company shall consider whether there is a reasonable risk of Policy lapse
absent a face amount reduction, after considering the health of the
Insured(s) and other appropriate factors.
10. Change in Control
If there is a Change in Control:
a. notwithstanding any provisions to the contrary in Section 14.01, the
Plan shall become irrevocable for all Participants in the Plan at
the time of the Change in Control;
b. the Company immediately shall transfer the ownership of all
Participants' Policies owned by the Company to an irrevocable trust
created by the Company to: (i) hold any such Policies in accordance
with the terms of the
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Plan, and (ii) pay any Alternative Death Benefit that becomes
payable under Section 8 of this Plan; and
c. except as otherwise provided in this Section, the provisions of the
Plan shall continue to apply as if there had been no Change in
Control.
The occurrence of a Change in Control shall not preclude a Policy Owner
from thereafter making (or revoking) an Alternative Death Benefit Election
pursuant to Section 8. However, if a Policy Owner makes an Alternative
Death Benefit Election after a Change in Control, the ownership of the
Policy shall be transferred to the trust created pursuant to this Section,
and not directly to the Company as provided in Section 8.
Notwithstanding the creation and funding of an irrevocable trust in
accordance with the provisions of this Section, the Company or its
successor shall continue to be responsible for its obligations under the
Plan to the extent not satisfied by such trust, including any Alternative
Death Benefits payable under Section 8 if such amounts are not paid by the
trust for any reason, or if the trust's assets become insufficient to pay
any required amounts.
11. Company Default
11.01 Company Default. A Company Default shall be deemed to have occurred
with respect to a Policy if the Company processes or attempts to
process a policy loan, or a complete or partial surrender, or a cash
value withdrawal without prior written approval from the Policy
Owner (or Former Policy Owner, if applicable).
11.02 Rights upon Company Default. In the event of a Company Default as
described in Section 11.01, the Policy Owner (or Former Policy
Owner, if applicable) shall have the right to require the Company to
cure the Company Default by notifying the Company in writing within
sixty (60) days after the Company Default occurs, or if later,
within thirty (30) days after the Policy Owner (or Former Policy
Owner) becomes aware of the Company Default. If the Company fails to
cure the Company Default within sixty (60) days after being notified
by the Policy Owner (or Former Policy Owner) of the Company Default,
the Policy Owner (or Former Policy Owner) shall have the right to
require the Company to transfer its interest in the Participant's
Policy to the Policy Owner (or Former Policy
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<PAGE> 10
Owner). The Policy Owner (or Former Policy Owner) may exercise this
right by notifying the Company, in writing, within sixty (60) days
after the Company Default occurs. Upon receipt of such notice, the
Company shall immediately transfer its rights in the Policy to the
Policy Owner (or Former Policy Owner), either by a release of the
Collateral Assignment, or by a transfer of ownership if the Company
is the Policy Owner, and the Company shall thereafter have no rights
with respect to such Policy. A Policy Owner's (or Former Policy
Owner's) failure to exercise its rights under this Section shall not
be deemed to release the Company from any of its obligations under
the Plan, and shall not preclude the Policy Owner (or Former Policy
Owner) from seeking other remedies with respect to the Company
Default. Also, a Policy Owner's (or Former Policy Owner's) failure
to exercise its rights under this Section will not preclude the
Policy Owner (or Former Policy Owner) from exercising such rights
upon a later Company Default.
12. Governing Laws and Notices
12.01 Governing Law. This Plan shall be governed by and construed in
accordance with the substantive law of New Jersey without giving
effect to the choice of law rules of New Jersey.
12.02 Notices. All notices hereunder shall be in writing and sent by first
class mail with postage prepaid. Any notice to the Company shall be
addressed to the attention of the Manager of Compensation and
Benefits of Chubb & Son at 15 Mountain View Road, Warren, NJ 07059.
Any notice to the Participant (or other Policy Owner or Former
Policy Owner) shall be addressed to the Participant (or other Policy
Owner or Former Policy Owner) at the address following such party's
signature on his or her Agreement. Any party may change its address
by giving written notice of such change to the other party pursuant
to this Section.
13. Miscellaneous Provisions
13.01 Gender. The masculine pronoun includes the feminine and the singular
includes the plural where appropriate for valid construction.
13.02 Cooperation with Insurer. In order to be eligible to participate in
this Plan, the Participant (and, in the case of a Survivorship
Policy, the
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Participant's spouse) shall cooperate with the Insurer by furnishing
any and all information requested by the Insurer in order to
facilitate the issuance of the policy, including furnishing such
medical information and taking such physical examinations as the
Insurer may deem necessary. In the absence of such cooperation, the
Company shall have no obligation to the Participant to allow him or
her to participate in the Plan.
13.03 Cancellation of Policy. If the Insurer cancels the Participant's
Policy pursuant to Policy provisions related to the suicide of the
Participant (or the Participant's spouse, if the Policy is a
Survivorship Policy), a material misstatement of information,
nondisclosure of medical information, or any other Policy provision,
then no benefits shall be payable to the beneficiary(ies) of such
Participant (or other Policy Owner, or Former Policy Owner, where
applicable). In such case, after the Company receives the amount
payable to the Company as a result of the cancellation of the
Policy, the Company shall pay to the Participant (or the
Participant's estate, if the Participant has died) an amount equal
to the Compensation already foregone by the Participant in
accordance with the Participant's election under Section 3.02 plus
any amounts paid by the Participant or other Policy Owner or Former
Policy Owner under Section 5.02, or, if less, twenty-five percent
(25%) of the amount the Company receives from the Insurer upon
cancellation of the Participant's Policy.
13.04 Inconsistent Terms. In the event of any inconsistency between the
terms of this Plan as described herein and the terms of any Policy
purchased hereunder or any related Agreement, the terms of such
Policy or Agreement shall be controlling as to that Participant, or
his or her Policy Owner or Former Policy Owner, if other than the
Participant, his successor-in-interest (if any) and his or her
beneficiary or beneficiaries.
14. Amendment, Termination, Administration, and Successors
14.01 Amendment/Termination. The Board of Directors of the Company may
amend, modify or terminate the Plan at any time, but any such
amendment, modification or termination will not affect the rights of
any Participant, Policy Owner or Former Policy Owner under any
Agreement entered into with the Company prior to the date of such
amendment, modification or termination without the Participant's,
Policy Owner's or Former Policy Owner's written consent.
Notwithstanding the prior
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sentence of this Section, the Board of Directors shall have the
unilateral right to terminate the Plan and cancel the Company's
obligations hereunder and any Agreements entered into hereunder if
there is any material adverse change (as determined by the Company
in its sole discretion) in the tax or financial consequences to the
Company with respect to the Plan. In the event a Participant's
Agreement is terminated as a result of a termination of the Plan
pursuant to the preceding sentence, the Company shall immediately
pay to the Participant (or, if the Participant is not living, to the
Policy Owner, if the Policy Owner is not the Company or a trust
created pursuant to Section 10 of the Plan, or to the Former Policy
Owner, if the Policy Owner is the Company or a trust created
pursuant to Section 10 of the Plan) an amount equal to the sum of:
(a) the actual amount of Compensation foregone by the Participant
under the Agreement; (b) interest, at a rate equal to the rate that
would have been payable for such period of time under the Stable
Value Fund of the Capital Accumulation Plan of The Chubb
Corporation, Chubb & Son Inc. and Participating Affiliates ("CCAP")
compounded annually, on the actual foregone Compensation from the
date the Compensation was foregone to the date the payment under
this Section is made; (c) the amount of any federal, state and local
income and gift taxes paid by the Participant and the Participant's
spouse as a result of the life insurance coverage provided under the
Plan; (d) interest, at a rate equal to the rate that would have been
payable for such period of time under the Stable Value Fund of CCAP,
compounded annually, on any such taxes referred to in subsection (c)
of this Section 14.01 from April 15 of the year following the year
to which such taxes relate to the date the payment under this
Section is made; (e) the amount of any payment made under Section
5.02; and, (f) interest, at a rate equal to the rate that would have
been payable for such period of time under the Stable Value Fund of
CCAP, compounded annually, on any payment referred to in subsection
(e) of this Section 14.01 from the date such payment was made to the
date the payment under this Section is made. When a payment is made
pursuant to this Section, the Participant's Agreement shall
immediately terminate and, if the Company is not the Policy Owner,
the Policy Owner shall immediately transfer all interest in the
Policy to the Company, and thereafter, the Participant, Policy Owner
(other than the Company) and Former Policy Owner (if any) shall have
no further rights or interest in the Policy. For the purpose of this
paragraph, if the Stable Value Fund
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referred to does not exist for any period of time for which an
interest rate calculation is required under this paragraph, the
interest rate payable for such period shall be a comparable rate
determined by the Plan Administrator, in its discretion, except that
any rate so determined shall not be less than 6%.
14.02 Administration. This Plan shall be administered by the Plan
Administrator. The Plan Administrator shall have the authority to
make, amend, interpret, and enforce all rules and regulations for
the administration of the Plan and decide or resolve any and all
questions, including interpretations of the Plan, as may arise in
connection with the Plan in the Plan Administrator's sole
discretion. In the administration of this Plan, the Plan
Administrator from time to time may employ agents and delegate to
them or to others such administrative duties as it sees fit. The
Plan Administrator from time to time may consult with counsel, who
may be counsel to the Company. The decision or action of the Plan
Administrator (or its designee) with respect to any question arising
out of or in connection with the administration, interpretation and
application of this Plan shall be final and conclusive and binding
upon all persons having any interest in the Plan. The Company shall
indemnify and hold harmless the Plan Administrator and any employees
of the Company or its subsidiaries to whom administrative duties
under this Plan are delegated, against any and all claims, loss,
damage, expense or liability arising from any action or failure to
act with respect to this Plan, except in the case of willful
misconduct by the Plan Administrator or such employees of the
Company or its subsidiaries.
14.03 Successors. The terms and conditions of this Plan shall inure to the
benefit of and bind the Company and the Participant and their
successors, assignees (including any Assignee), and representatives.
The Company shall have the right to absolutely and irrevocably
assign its rights, title and interest in a Policy without the
consent of the Participant (or Assignee).
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Exhibit 10
The Chubb Corporation
Estate Enhancement Program for Non-Employee Directors
1. Purpose
The purpose of The Chubb Corporation Estate Enhancement Program for
Non-Employee Directors (the "Plan") is to provide non-employee members of
the Board of Directors of The Chubb Corporation (the "Company") the
ability to elect life insurance coverage pursuant to a split-dollar life
insurance arrangement in return for forgoing receipt of certain benefits
under The Chubb Corporation Deferred Compensation Plan for Non-Employee
Directors.
2. Definitions
For purposes of this Plan, the following terms have the meanings set forth
below:
2.01 Adjusted Company Death Benefit means the portion of the Policy death
benefit payable to the Company solely as a result of an Alternative
Death Benefit Election being in effect for the Policy, and shall be
determined by subtracting from the amount of Policy death benefit
paid to the Company an amount equal to the portion of the Policy
death benefit that would have been paid to the Company if an
Alternative Death Benefit Election was not in effect for the Policy.
2.02 Agreement means the Agreement executed by the Participant (or other
Policy Owner) and the Company implementing the terms of this Plan.
2.03 Alternative Death Benefit means a Company-paid death benefit paid by
the Company to the Former Policy Owner's beneficiary(ies) pursuant
to an Alternative Death Benefit Election under Section 8 of the
Plan.
2.04 Alternative Death Benefit Amount means, with respect to a
Participant, an amount that, after subtracting any Company federal,
state, and local income tax savings resulting from the deductibility
of the payment for corporate tax purposes, is equal to the Adjusted
Company Death Benefit reduced by the income taxes (if any) payable
by the Company as a result of receiving the Adjusted Company Death
Benefit. The Alternative Death Benefit Amount shall be determined at
the time the payment is to be made, based on the Company's federal,
state and local income tax rate
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(calculated at the marginal tax rate then applicable to the Company,
but net of any federal deduction for state and local taxes) at the
time of the payment, and shall be determined by the Plan
Administrator.
2.05 Alternative Death Benefit Election means an election made by the
Policy Owner pursuant to Section 8 of the Plan.
2.06 Board of Directors means the Board of Directors of the Company.
2.07 Change in Control means a change in control of the Company, as such
term is defined in The Chubb Corporation Stock Option Plan for
Non-Employee Directors (1996).
2.08 Collateral Assignment means the Collateral Assignment executed by
the Policy Owner pursuant to Section 6.02 of the Plan.
2.09 Company means The Chubb Corporation.
2.10 Company Death Benefit means the portion of the Policy's death
benefit payable to Company as provided in Section 7.
2.11 Compensation means amounts a Participant agrees to forego to
participate in the Plan pursuant to Section 3.02, and shall include
all or any portion of (i) the Participant's account balance under
The Chubb Corporation Deferred Compensation Plan for Non-Employee
Directors; or (ii) any other amounts the Board of Directors deems
Compensation for the purpose of this Plan.
2.12 Director means a member of the Board of Directors of the Company who
is not an employee of the Company or a subsidiary of the Company.
2.13 Effective Date means December 10, 1998.
2.14 Elector means the person or persons who are entitled to make or
revoke an Alternative Death Benefit Election pursuant to Section
8.01.
2.15 Enrollment and Election to Forego Compensation Form means the form
used by a Participant to make an election to forego Compensation
pursuant to Section 3.02 of the Plan.
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2.16 Former Policy Owner means the person(s) or entity that is the Policy
Owner immediately prior to when an Alternative Death Benefit
Election is first made with respect to a Policy.
2.17 Insurer means, with respect to a Participant's Policy, the insurance
company issuing the Policy on the Participant's life (or on the
lives of the Participant and the Participant's spouse, in the case
of a Survivorship Policy) pursuant to the provisions of the Plan.
2.18 Participant means a Director who elects to participate in the Plan.
2.19 Participant's Coverage Amount means the portion of the Policy's
death benefit payable to the beneficiary(ies) of the Policy Owner as
provided in Section 7.
2.20 Participant Premium means the amount of premium payment, if any,
paid by the Participant, Policy Owner or Former Policy Owner
pursuant to Section 5.02.
2.21 Plan Administrator means the Board of Directors, or its designee.
2.22 Policy means the life insurance coverage acquired on the life of the
Participant (or on the lives of the Participant and the
Participant's spouse, in the case of a Survivorship Policy) by the
Company.
2.23 Policy Owner means the person or entity designated as owner on the
application for the Policy, or the person or entity to which a
Policy Owner assigns his or her interest in the Policy.
2.24 Premium means, with respect to a Policy on the life of a Participant
(or the lives of a Participant and a Participant's spouse, if the
Policy is a Survivorship Policy), the amount the Company is
obligated, pursuant to the terms of the Plan, to pay to the Insurer
with respect to such Policy.
2.25 Survivorship Policy means a Policy insuring the lives of the
Participant and a Participant's spouse, with the death benefit
payable at the death of the last survivor of the Participant and his
or her spouse.
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3. Participation
3.01 Eligibility. Any Director shall be eligible to participate in the
Plan. A Director shall become a Participant by completing such
forms, documents and procedures as specified by the Plan
Administrator. The Participant (and, in the case of a Survivorship
Policy, the Participant's spouse) shall cooperate with the Insurer
by furnishing any and all information requested by the Insurer in
order to facilitate the issuance of the Policy, including furnishing
such medical information and taking such physical examinations as
the Insurer may deem necessary. In the absence of such cooperation,
the Company shall have no obligation to the Participant to allow him
or her to participate in the Plan.
3.02 Election to Forego Compensation. As a condition of participating in
the Plan, each Participant shall be required to make an election in
which the Participant shall commit to forego the receipt of a
specified type and amount of Compensation. The Participant shall
make an election to forego Compensation by execution of an
Enrollment and Election to Forego Compensation Form prior to the
Policy effective date.
4. Amount and Type of Coverage
The amount and type of coverage provided under the Policy shall be that
amount and type specified in the Agreement.
5. Payment of Premiums
5.01 Company Payments. The Company shall pay Premiums equal to four times
the amount of the Compensation foregone by a Participant as provided
in the Enrollment and Election to Forego Compensation Form. The
Premium amount corresponding to a foregone amount related to a
balance in The Chubb Corporation Deferred Compensation Plan for
Non-Employee Directors shall be paid within thirty (30) days after
the Policy is issued.
5.02 Participant Payments. Unless otherwise provided in an Agreement, a
Participant, Policy Owner (other than the Company, if the Company
becomes the Policy Owner pursuant to Section 8), or Former Policy
Owner shall not be required to pay any portion of the Premium due on
the
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<PAGE> 5
Policy. However, the Participant, Policy Owner or Former Policy
Owner may elect to pay a premium to the Insurer with respect to the
Policy.
6. Policy Ownership
6.01 Ownership. Except as otherwise provided in this Plan and related
Agreement, the Policy Owner shall be the sole and exclusive owner of
a Participant's Policy.
6.02 Company's Rights. The Company shall not have any ownership rights in
the Policy (except as provided in Section 8). The Company's rights
shall be limited to: (1) the right to receive a portion of the
Policy death benefit in the event of the payment of the Policy death
benefit while the Collateral Assignment is in effect with respect to
the Policy; and, (2) the right to receive all of the proceeds of any
surrender, withdrawal or loan processed while the Collateral
Assignment is in effect, as specified in the Agreement. In exchange
for the Company's agreement to pay the Premiums described in Section
5.01 of the Plan and the Participant's Agreement, the Policy Owner
shall execute a Collateral Assignment to the Company of the rights
provided to the Company under this Plan and related Agreement. The
Company shall have the right to direct the Policy Owner in writing
to take any required action consistent with these rights, and upon
the receipt of such written direction from the Company, the Policy
Owner promptly shall take such action as is necessary to comply
therewith. The Company shall have the right to assign any part or
all of its interest in the Policy, subject to the Policy Owner's
rights, and the terms and conditions of this Plan and related
Agreement, to any person, entity or trust by the execution of a
written instrument delivered to the Policy Owner.
6.03 Prohibited Policy Transactions. The Policy Owner shall not borrow
from, hypothecate, withdraw cash value from, surrender in whole or
in part, cancel, or in any other manner encumber a Policy without
the prior written consent of the Company (or without the prior
written consent of the Former Policy Owner, if the Company is the
Policy Owner).
6.04 Investment of Policy Cash Values. If the Policy provides the Policy
Owner with a choice of investment funds for the Policy cash values,
the Policy Owner shall invest the cash values in the funds selected
by and in the proportions specified by the Company.
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6.05 Possession of Policy. The Policy Owner shall maintain possession of
the Policy.
7. Death Benefit
Upon the death of the Participant (or the death of the survivor of the
Participant and the Participant's spouse, if the Policy is a Survivorship
Policy), the death benefit under the Policy shall be divided as follows:
a. The Company shall be entitled to receive as the Company Death
Benefit an amount equal to the sum of: (i) the Policy cash
accumulation value immediately prior to the death of the Participant
(or the death of the survivor of the Participant and the
Participant's spouse, if the Policy is a Survivorship Policy) and
before any surrender charges; plus (ii) twenty-five percent (25%) of
the face amount of the Policy. For the purposes of the preceding
sentence, the Policy face amount shall equal the sum of the face
amount at the time the Policy death benefit is paid, plus the amount
of any face amount reduction made pursuant to Section 9. If the
Policy provides for a death benefit equal to the sum of the face
amount of the Policy and any cash account or accumulation value, any
Company Death Benefit should first be paid from the cash account or
accumulation value portion of the death benefit.
b. The beneficiary(ies) of the Policy Owner shall be entitled to
receive the Participant's Coverage Amount, which shall consist of
the excess, if any, of the Policy's death benefit over the Company
Death Benefit.
8. Alternative Death Benefit Election
8.01 Alternative Death Benefit Election. The Alternative Death Benefit
Election provided for in this Section may be made or revoked by the
person or persons designated as the Elector in the Participant's
Agreement. If no such person is designated in the Agreement, or if
no designated person is living and able to make the election, the
election may be made or revoked by the Policy Owner (except that an
election cannot be made or revoked by the Company, if the Company
becomes the Policy Owner). Any such election shall be filed with the
Plan Administrator in such form as may be prescribed by the Plan
Administrator. When an Alternative Death Benefit Election is made,
the
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Policy Owner shall immediately transfer the ownership of the Policy
to the Company, and the Company shall be designated as beneficiary
to receive the entire Policy death benefit. In addition, using a
form provided by the Plan Administrator, the Former Policy Owner
shall designate a beneficiary to receive the Alternative Death
Benefit.
The Elector may revoke the Alternative Death Benefit Election. In
the event of such a revocation, the Company shall continue to be the
Policy Owner and shall, by endorsement filed with the Insurer,
provide the Former Policy Owner the right to designate a beneficiary
of an amount of Policy death benefit equal to the Participant's
Coverage Amount. The revocation of an Alternative Death Benefit
Election shall not preclude an Elector from making a later
Alternative Death Benefit Election (or from revoking such later
election).
An Alternative Death Benefit Election (or an election to revoke such
an election) shall be effective when any necessary documentation is
submitted to and accepted by the Insurer. The Policy Owner (or
Former Policy Owner, if applicable) and the Company will promptly
submit any required forms or documents to the Insurer when an
Alternative Death Benefit Election is made or revoked.
8.02 Payment of Benefit. The Alternative Death Benefit shall be paid by
the Company from the general funds of the Company, and shall not
constitute an insurance benefit. It shall be paid by the Company to
the Former Policy Owner's beneficiary(ies) within thirty (30) days
after the Company receives the death benefit for the Participant's
Policy. The amount of the payment shall be equal to the Alternative
Death Benefit Amount. As long as an Alternative Death Benefit
Election is in effect, the beneficiary(ies) of the Former Policy
Owner shall receive only the Alternative Death Benefit, and shall
not be entitled to receive any portion of any death benefits that
would become payable under the Participant's Policy.
9. Election to Reduce Policy Face Amount
The Policy Owner (except the Company, if the Company becomes a Policy
Owner) or, if applicable, the Former Policy Owner, may elect to reduce the
Policy face amount, except that the Policy face amount shall not be
reduced to an amount less than the Company Death Benefit. If the Company
is the Policy
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<PAGE> 8
Owner, then, within sixty (60) days of receipt of a written request from
the Former Policy Owner, the Company shall complete and submit the
necessary forms to the Insurer to reduce the Policy face amount in
accordance with the Former Policy Owner's request.
The Company may elect, in its discretion, to unilaterally reduce the face
amount of a Participant's Policy if, based on projections provided by the
Insurer or its agent, and assuming a Policy cash value investment return
rate for all future years equal to the average of the actual rates
realized on the Policy cash values for the immediately preceding three (3)
years, the Policy would lapse: (1) in less than ten (10) years, if the
Insured (or younger surviving Insured, if the Policy is a Survivorship
Policy and both Insureds are living at the time the determination is made)
is under ninety (90) years of age; (2) in less than eight (8) years if the
Insured (or younger surviving Insured, if the Policy is a Survivorship
Policy and both Insureds are living at the time the determination is made)
is ninety (90) years of age or older, but is under ninety-five (95) years
of age; or, (3) in less than five (5) years, if the Insured (or younger
surviving Insured, if the Policy is a Survivorship Policy and both
Insureds are living at the time the determination is made) is ninety-five
(95) years of age or older. If any reduction is made pursuant to the
preceding sentence, the maximum allowable reduction shall be to the
highest face amount that would satisfy the requirements of the preceding
sentence. In exercising its discretion to reduce the face amount, the
Company shall consider whether there is a reasonable risk of Policy lapse
absent a face amount reduction, after considering the health of the
Insured(s) and other appropriate factors.
10. Change in Control
If there is a Change in Control:
a. notwithstanding any provisions to the contrary in Section 14.01, the
Plan shall become irrevocable for all Participants in the Plan at
the time of the Change in Control;
b. the Company immediately shall transfer the ownership of all
Participants' Policies owned by the Company to an irrevocable trust
created by the Company to: (i) hold any such Policies in accordance
with the terms of the Plan, and (ii) pay any Alternative Death
Benefit that becomes payable under Section 8 of this Plan; and
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<PAGE> 9
c. except as otherwise provided in this Section, the provisions of the
Plan shall continue to apply as if there had been no Change in
Control.
The occurrence of a Change in Control shall not preclude a Policy Owner
from thereafter making (or revoking) an Alternative Death Benefit Election
pursuant to Section 8. However, if a Policy Owner makes an Alternative
Death Benefit Election after a Change in Control, the ownership of the
Policy shall be transferred to the trust created pursuant to this Section,
and not directly to the Company as provided in Section 8.
Notwithstanding the creation and funding of an irrevocable trust in
accordance with the provisions of this Section, the Company or its
successor shall continue to be responsible for its obligations under the
Plan to the extent not satisfied by such trust, including any Alternative
Death Benefits payable under Section 8 if such amounts are not paid by the
trust for any reason, or if the trust's assets become insufficient to pay
any required amounts.
11. Company Default
11.01 Company Default. A Company Default shall be deemed to have occurred
with respect to a Policy if the Company processes or attempts to
process a policy loan, or a complete or partial surrender, or a cash
value withdrawal without prior written approval from the Policy
Owner (or Former Policy Owner, if applicable).
11.02 Rights upon Company Default. In the event of a Company Default as
described in Section 11.01, the Policy Owner (or Former Policy
Owner, if applicable) shall have the right to require the Company to
cure the Company Default by notifying the Company in writing within
sixty (60) days after the Company Default occurs, or if later,
within thirty (30) days after the Policy Owner (or Former Policy
Owner) becomes aware of the Company Default. If the Company fails to
cure the Company Default within sixty (60) days after being notified
by the Policy Owner (or Former Policy Owner) of the Company Default,
the Policy Owner (or Former Policy Owner) shall have the right to
require the Company to transfer its interest in the Participant's
Policy to the Policy Owner (or Former Policy Owner). The Policy
Owner (or Former Policy Owner) may exercise this right by notifying
the Company, in writing, within sixty (60) days after the Company
Default occurs. Upon receipt of such notice, the Company shall
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immediately transfer its rights in the Policy to the Policy Owner
(or Former Policy Owner), either by a release of the Collateral
Assignment, or by a transfer of ownership if the Company is the
Policy Owner, and the Company shall thereafter have no rights with
respect to such Policy. A Policy Owner's (or Former Policy Owner's)
failure to exercise its rights under this Section shall not be
deemed to release the Company from any of its obligations under the
Plan, and shall not preclude the Policy Owner (or Former Policy
Owner) from seeking other remedies with respect to the Company
Default. Also, a Policy Owner's (or Former Policy Owner's) failure
to exercise its rights under this Section will not preclude the
Policy Owner (or Former Policy Owner) from exercising such rights
upon a later Company Default.
12. Governing Laws and Notices
12.01 Governing Law. This Plan shall be governed by and construed in
accordance with the substantive law of New Jersey without giving
effect to the choice of law rules of New Jersey.
12.02 Notices. All notices hereunder shall be in writing and sent by first
class mail with postage prepaid. Any notice to the Company shall be
addressed to the attention of the Corporate Secretary of The Chubb
Corporation at the principal office of the Company at 15 Mountain
View Road, Warren, NJ 07061. Any notice to the Participant (or other
Policy Owner or Former Policy Owner) shall be addressed to the
Participant (or other Policy Owner or Former Policy Owner) at the
address following such party's signature on his or her Agreement.
Any party may change its address by giving written notice of such
change to the other party pursuant to this Section.
13. Miscellaneous Provisions
13.01 Gender. The masculine pronoun includes the feminine and the singular
includes the plural where appropriate for valid construction.
13.02 Cooperation with Insurer. In order to be eligible to participate in
this Plan, the Participant (and, in the case of a Survivorship
Policy, the Participant's spouse) shall cooperate with the Insurer
by furnishing any and all information requested by the Insurer in
order to facilitate the
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issuance of the policy, including furnishing such medical
information and taking such physical examinations as the Insurer may
deem necessary. In the absence of such cooperation, the Company
shall have no obligation to the Participant to allow him or her to
participate in the Plan.
13.03 Cancellation of Policy. If the Insurer cancels the Participant's
Policy pursuant to Policy provisions related to the suicide of the
Participant (or the Participant's spouse, if the Policy is a
Survivorship Policy), a material misstatement of information,
nondisclosure of medical information, or any other Policy provision,
then no benefits shall be payable to the beneficiary(ies) of such
Participant (or other Policy Owner, or Former Policy Owner, where
applicable). In such case, after the Company receives the amount
payable to the Company as a result of the cancellation of the
Policy, the Company shall pay to the Participant (or the
Participant's estate, if the Participant has died) an amount equal
to the Compensation already foregone by the Participant in
accordance with the Participant's election under Section 3.02 plus
any amounts paid by the Participant or other Policy Owner or Former
Policy Owner under Section 5.02, or, if less, twenty-five percent
(25%) of the amount the Company receives from the Insurer upon
cancellation of the Participant's Policy.
13.04 Inconsistent Terms. In the event of any inconsistency between the
terms of this Plan as described herein and the terms of any Policy
purchased hereunder or any related Agreement, the terms of such
Policy or Agreement shall be controlling as to that Participant, or
his or her Policy Owner or Former Policy Owner, if other than the
Participant, his successor-in-interest (if any) and his or her
beneficiary or beneficiaries.
14. Amendment, Termination, Administration, and Successors
14.01 Amendment/Termination. The Board of Directors of the Company may
amend, modify or terminate the Plan at any time, but any such
amendment, modification or termination will not affect the rights of
any Participant, Policy Owner or Former Policy Owner under any
Agreement entered into with the Company prior to the date of such
amendment, modification or termination without the Participant's,
Policy Owner's or Former Policy Owner's written consent.
Notwithstanding the prior sentence of this Section, the Board of
Directors shall have the unilateral right to terminate the Plan and
cancel the Company's obligations
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<PAGE> 12
hereunder and any Agreements entered into hereunder if there is any
material adverse change (as determined by the Company in its sole
discretion) in the tax or financial consequences to the Company with
respect to the Plan. In the event a Participant's Agreement is
terminated as a result of a termination of the Plan pursuant to the
preceding sentence, the Company shall immediately pay to the
Participant (or, if the Participant is not living, to the Policy
Owner, if the Policy Owner is not the Company or a trust created
pursuant to Section 10 of the Plan, or to the Former Policy Owner,
if the Policy Owner is the Company or a trust created pursuant to
Section 10 of the Plan) an amount equal to the sum of: (a) the
actual amount of Compensation foregone by the Participant under the
Agreement; (b) interest, at a rate equal to the rate that would have
been payable for such period of time under the Stable Value Fund in
The Chubb Corporation CCAP, compounded annually, on the actual
foregone Compensation from the date the Compensation was foregone to
the date the payment under this Section is made; (c) the amount of
any federal, state and local income and gift taxes paid by the
Participant and the Participant's spouse as a result of the life
insurance coverage provided under the Plan; (d) interest, at a rate
equal to the rate that would have been payable for such period of
time under the Stable Value Fund in The Chubb Corporation CCAP,
compounded annually, on any such taxes referred to in subsection (c)
of this Section 14.01 from April 15 of the year following the year
to which such taxes relate to the date the payment under this
Section is made; (e) the amount of any payment made under Section
5.02; and, (f) interest, at a rate equal to the rate that would have
been payable for such period of time under the Stable Value Fund in
The Chubb Corporation CCAP, compounded annually, on any payment
referred to in subsection (e) of this Section 14.01 from the date
such payment was made to the date the payment under this Section is
made. When a payment is made pursuant to this Section, the
Participant's Agreement shall immediately terminate and, if the
Company is not the Policy Owner, the Policy Owner shall immediately
transfer all interest in the Policy to the Company, and thereafter,
the Participant, Policy Owner (other than the Company) and Former
Policy Owner (if any) shall have no further rights or interest in
the Policy. For the purpose of this paragraph, if the Stable Value
Fund referred to does not exist for any period of time for which an
interest rate calculation is required under this paragraph, the
interest rate payable for such period shall be a comparable rate
-12-
<PAGE> 13
determined by the Plan Administrator, in its discretion, except that
any rate so determined shall not be less than 6%.
14.02 Administration. This Plan shall be administered by the Plan
Administrator. The Plan Administrator shall have the authority to
make, amend, interpret, and enforce all rules and regulations for
the administration of the Plan and decide or resolve any and all
questions, including interpretations of the Plan, as may arise in
connection with the Plan in the Plan Administrator's sole
discretion. In the administration of this Plan, the Plan
Administrator from time to time may employ agents and delegate to
them or to others such administrative duties as it sees fit. The
Plan Administrator from time to time may consult with counsel, who
may be counsel to the Company. The decision or action of the Plan
Administrator (or its designee) with respect to any question arising
out of or in connection with the administration, interpretation and
application of this Plan shall be final and conclusive and binding
upon all persons having any interest in the Plan. The Company shall
indemnify and hold harmless the Plan Administrator and any employees
of the Company or its subsidiaries to whom administrative duties
under this Plan are delegated, against any and all claims, loss,
damage, expense or liability arising from any action or failure to
act with respect to this Plan, except in the case of willful
misconduct by the Plan Administrator or such employees of the
Company or its subsidiaries.
14.03 Successors. The terms and conditions of this Plan shall inure to the
benefit of and bind the Company and the Participant and their
successors, assignees (including any Assignee), and representatives.
The Company shall have the right to absolutely and irrevocably
assign its rights, title and interest in a Policy without the
consent of the Participant (or Assignee).
-13-
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 11,463<F1>
<DEBT-CARRYING-VALUE> 1,941<F2>
<DEBT-MARKET-VALUE> 2,069<F3>
<EQUITIES> 831
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 14,776
<CASH> 10
<RECOVER-REINSURE> 89<F4>
<DEFERRED-ACQUISITION> 734
<TOTAL-ASSETS> 20,972
<POLICY-LOSSES> 10,515<F5>
<UNEARNED-PREMIUMS> 2,934<F6>
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 607<F7>
<COMMON> 176
0
0
<OTHER-SE> 5,474<F8>
<TOTAL-LIABILITY-AND-EQUITY> 20,972
1,380
<INVESTMENT-INCOME> 209
<INVESTMENT-GAINS> 32
<OTHER-INCOME> 9<F9>
<BENEFITS> 908
<UNDERWRITING-AMORTIZATION> 374
<UNDERWRITING-OTHER> 92
<INCOME-PRETAX> 227
<INCOME-TAX> 40
<INCOME-CONTINUING> 187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 187
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.14
<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 ($1,266), AS PRESCRIBED BY SFAS NO. 113. SUCH AMOUNTS ARE
INCLUDED IN TOTAL ASSETS.
<F6>UNEARNED-PREMIUMS EXCLUDE THE REDUCTION FOR PREPAID REINSURANCE PREMIUMS
($126) AS PRESCRIBED BY SFAS NO. 113. THIS PREPAID AMOUNT IS INCLUDED IN
TOTAL ASSETS.
<F7>NOTES-PAYABLE INCLUDES LONG-TERM DEBT OF $607.
<F8>OTHER-SE INCLUDES PAID IN SURPLUS; RETAINED EARNINGS; FOREIGN CURRENCY
TRANSLATION LOSSES, 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>
