<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
THE CHUBB CORPORATION
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
Chubb Corporation Logo
THE CHUBB CORPORATION
15 MOUNTAIN VIEW ROAD, P.O. BOX 1615, WARREN, NEW JERSEY 07061-1615
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of The Chubb Corporation will be held at
15 Mountain View Road, Warren, New Jersey on April 27, 1999 at 11:00 A.M., local
time, for the following purposes:
1. To elect 15 Directors to serve until the next Annual Meeting of
Shareholders and until their respective successors are elected and shall
qualify.
2. To approve the selection of independent auditors for the year
1999.
3. To act on a Shareholder Proposal that all future stock option
grants to senior executives shall be performance-based.
4. To act on a Shareholder Proposal to amend the Corporation's By-
Laws with respect to the Corporation's Rights Plan.
5. To transact such other business as may properly be brought before
the meeting and any adjournment thereof.
Shareholders of record at the close of business on March 8, 1999 will be
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
By order of the Board of Directors,
HENRY G. GULICK
Vice President and Secretary
Dated: March 24, 1999
- - --------------------------------------------------------------------------------
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE FILL IN, SIGN, DATE
AND RETURN THE PROXY SUBMITTED HEREWITH, IN THE ENCLOSED ADDRESSED ENVELOPE. THE
GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE SUCH PROXY BY
APPROPRIATE WRITTEN NOTICE OR TO VOTE IN PERSON SHOULD YOU LATER DECIDE TO
ATTEND THE MEETING.
<PAGE> 3
CHUBB CORPORATION LOGO
THE CHUBB CORPORATION
15 MOUNTAIN VIEW ROAD, P.O. BOX 1615, WARREN, NEW JERSEY 07061-1615
------------------
PROXY STATEMENT
------------------
March 24, 1999
The Proxy accompanying this Proxy Statement is solicited by the Board of
Directors of The Chubb Corporation to be voted at the Annual Meeting of
Shareholders on April 27, 1999 and at any adjournment thereof. The Proxy may be
revoked by appropriate written notice at any time before it is exercised. See
"Voting, Solicitation of Proxies, Shareholder Proposals and Nominations."
A copy of the Corporation's Annual Report to Shareholders for 1998
accompanies this Proxy Statement and Proxy which are first being mailed to
Shareholders on March 24, 1999.
As of March 8 , 1999, the record date for the determination of Shareholders
entitled to vote at the Annual Meeting, 161,361,903 shares of Common Stock of
the Corporation were issued and outstanding. Each share of Common Stock entitles
the holder to one vote on all matters brought before the Annual Meeting.
THE CORPORATION WILL FURNISH, WITHOUT CHARGE, TO ANY RECORD HOLDER OR
BENEFICIAL OWNER OF ITS COMMON STOCK ON SUCH RECORD DATE, UPON RECEIPT OF A
WRITTEN REQUEST, A COPY OF ITS ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K. WRITTEN REQUESTS SHOULD BE DIRECTED TO THE CHUBB
CORPORATION TO THE ATTENTION OF HENRY G. GULICK, VICE PRESIDENT AND SECRETARY,
15 MOUNTAIN VIEW ROAD, P.O. BOX 1615, WARREN, NEW JERSEY 07061-1615.
The Corporation is a holding company with subsidiaries principally engaged
in the business of property and casualty insurance. Its principal subsidiaries
are Federal Insurance Company ("Federal"), Pacific Indemnity Company
("Pacific"), Vigilant Insurance Company ("Vigilant"), Great Northern Insurance
Company ("Great Northern"), Chubb Insurance Company of Canada ("Chubb Canada"),
Chubb Insurance Company of Australia, Limited, Chubb Insurance Company of
Europe, S.A. and Bellemead Development Corporation ("Bellemead").
ELECTION OF DIRECTORS
The following persons have been nominated by the Board of Directors to
serve as Directors until the next Annual Meeting of Shareholders and until their
respective successors shall be elected and shall qualify. All of the nominees
were elected as members of the Board of Directors at the 1998 Annual Meeting
except Zoe Baird who was elected a Director by the Board of Directors at its
regular meeting on June 12, 1998. Pursuant to the provisions of the By-Laws, the
Board of Directors has fixed the number of Directors to be elected at 15. In the
event that any of the nominees should be unable or unwilling to serve as a
Director, it is intended that the Proxy will be voted for such person, if any,
as shall be designated by the Board of Directors. However, the Board of
Directors has no reason to believe that any nominee will be unable or unwilling
to serve as a Director.
<PAGE> 4
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
NAME AGE(1)
- - ----------------------------------------------------------------
<S> <C>
Zoe Baird 46
President, The Markle Foundation since January 1998.
Ms. Baird first became a Director of the Corporation
in June 1998. For six years, until the end of 1996,
Ms. Baird was Senior Vice President and General
Counsel of Aetna, Inc. During 1997, she was Senior
Visiting Scholar and Senior Research Associate at Yale
Law School. Ms. Baird founded and currently chairs
Lawyers for Children America, is a member of the
Council on Foreign Relations and the American Law
Institute and is on the Board of the Mexican American
Legal Defense and Education Fund. She serves on the
President's Foreign Intelligence Advisory Board and
the International Competition Policy Advisory
Committee to the Attorney General and Assistant
Attorney General for Antitrust of the U.S. Department
of Justice.
John C. Beck 67
Member, Beck, Mack & Oliver LLC, an investment
counseling firm. Mr. Beck has been associated with
Beck, Mack & Oliver since 1958 and first became a
partner in 1962. He first became a Director of the
Corporation in 1988. Mr. Beck is also a Director of
Russell Reynolds Associates, Inc.
Sheila P. Burke 48
Executive Dean and Lecturer in Public Policy of the
John F. Kennedy School of Government, Harvard
University. Ms. Burke first became a Director of the
Corporation in 1997. For the ten years prior to her
appointment as Executive Dean in 1996, Ms. Burke
served as Chief of Staff to the United States Senate
Majority Leader Bob Dole. She serves on the Board of
Directors of Picker Institute, Boston, MA and
Wellpoint Health Networks Inc. She is a Trustee of
Marymount University, Arlington, VA and the University
of San Francisco, a Member of the Kaiser Foundation
Commission on Medicaid and the Uninsured, a member of
the Board of Directors of Center for Health Care
Strategies, Inc. and a member of the Board of
Directors of Community Health Systems, Inc.
James I. Cash, Jr. 51
The James E. Robison Professor of Business
Administration, Harvard University. Professor Cash has
been a member of the Harvard Business School faculty
since 1976. Professor Cash first became a Director of
the Corporation in 1996. He is also a Director of
Cambridge Technology Partners, Inc., General Electric
Company, Knight-Ridder, Inc., State Street
Corporation, The Tandy Corporation and WinStar
Communications, Inc. He is a Trustee of the
Massachusetts Software Council and Massachusetts
General Hospital. Professor Cash is also an overseer
for the Boston Museum of Science.
Percy Chubb, III 64
Former Vice Chairman of the Corporation. Mr. Chubb
retired as an officer of the Corporation and employee
on February 1, 1997 and served as a consultant through
January 31, 1999. Prior to his retirement he had
served as Vice Chairman since June 1986. Prior to his
election as Vice Chairman, Mr. Chubb had been an
Executive Vice President since 1981. He had also
served as Vice Chairman of Bellemead, a Senior Vice
President of Federal and Chairman of Chubb Canada. Mr.
Chubb had been associated with Chubb & Son Inc. since
1958. He first became a Director of the Corporation in
1978.
Joel J. Cohen 61
Managing Director, Investment Banking Department, and
Director, Mergers and Acquisitions, Donaldson, Lufkin
& Jenrette Securities Corporation since October 1989.
He first became a Director of the Corporation in 1984.
Mr. Cohen was a consultant from February 1988 until
October 1989. Mr. Cohen had been General Counsel:
Presidential Task Force on Market Mechanisms from
November 1987 through January 1988 and a Partner of
Davis Polk & Wardwell, attorneys, until September
1987. He had been associated with Davis Polk &
Wardwell from 1963 until September 1987 and became a
Partner in 1969. Mr. Cohen is also a Director of
Maersk, Inc.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
NAME AGE(1)
- - ----------------------------------------------------------------
<S> <C>
James M. Cornelius 55
Chairman, Guidant Corporation. Mr. Cornelius has been
associated with Guidant Corporation since September
1994 when he was elected Chairman of the Board of
Directors of Guidant Corporation. From 1986 to 1994,
he was Vice President of Finance and Chief Financial
Officer and Director of Eli Lilly and Company. He
first became a Director of the Corporation in 1998.
Mr. Cornelius is currently a Director of Guidant
Corporation, Lilly Industries Inc. and American United
Life Insurance Company and he serves as a Trustee of
the Indianapolis Museum of Art and the University of
Indianapolis.
David H. Hoag 59
Former Chairman and Chief Executive Officer, The LTV
Corporation from January 1991 until his retirement on
February 1, 1999. Mr. Hoag also served as President
and Chief Executive Officer of LTV Steel Company from
1983 until 1990. Mr. Hoag had been associated with The
LTV Corporation since 1960. He first became a Director
of the Corporation in 1994. Mr. Hoag is also a
Director of Brush-Wellman, Karrington Health Inc.,
Lubrizol Corporation and the Federal Reserve Board of
Cleveland.
Thomas C. MacAvoy 71
Since July 1, 1998, Professor Emeritus of Business
Administration, Darden Graduate School of Business
Administration, University of Virginia. He first
became a Director of the Corporation in 1981. He is a
former Vice Chairman and Director of Corning, Inc. Mr.
MacAvoy had been associated with Corning, Inc. from
1957 until his retirement in 1987.
Dean R. O'Hare 56
Chairman and Chief Executive Officer of the Corporation
since September 1996. Prior to September 1996, Mr.
O'Hare had been Chairman, President and Chief
Executive Officer of the Corporation since January
1995. Prior to January 1995, Mr. O'Hare had been
Chairman and Chief Executive Officer since June 1988.
Mr. O'Hare had been President from 1986 until 1988, an
Executive Vice President since 1985 and a Senior Vice
President since 1979. He is Chairman and President of
Federal, Vigilant and Great Northern, and Chairman of
Bellemead, Pacific and Chubb & Son, a division of
Federal Insurance Company ("Chubb & Son"). Mr. O'Hare
has been associated with Chubb since 1963. He first
became a Director of the Corporation in 1984. Mr.
O'Hare is also a Director of the Fluor Corporation.
Warren B. Rudman 68
Partner, Paul, Weiss, Rifkind, Wharton & Garrison,
attorneys, since January 1993. Senator Rudman first
became a Director of the Corporation in 1993. Prior to
January 1993, Senator Rudman had been a United States
Senator from New Hampshire since 1980. He is also on
the Board of Governors of the American Stock Exchange,
a Director of Allied Waste, Collins & Aikman, Prime
Succession and Raytheon Company and a Director of
several funds in the Dreyfus Family of Mutual Funds.
Senator Rudman is also Chairman of the President's
Foreign Intelligence Advisory Board and Co-Chairman of
the Concord Coalition and serves on the Senior
Advisory Board of the Institute of Politics of the
John F. Kennedy School of Government at Harvard
University.
Sir David G. Scholey, CBE 63
Senior Advisor, Warburg Dillon Read since September
1997. Prior to September 1997, Sir David had been
Chairman of the International Advisory Council, UBS
AG. since November 1995. He had been Chairman of SBC
Warburg, the investment banking division of UBS AG.,
from February 1995 until November 1995. Prior to
February 1995, Sir David had been Executive Chairman
of S.G. Warburg Group plc since 1984. He first became
a Director of the Corporation in 1991. Sir David is
also a Governor of the British Broadcasting
Corporation and a Director of J Sainsbury plc and The
Vodafone Group plc. He is also Vice President
(Chairman of the Governors) of Wellington College, a
Trustee of the Glyndebourne Arts Trust and The
National Portrait Gallery and Chairman of the
International Council of INSEAD (Institut European
d'Administration des Affaires).
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
NAME AGE(1)
- - ----------------------------------------------------------------
<S> <C>
Raymond G.H. Seitz 58
Vice Chairman, Lehman Bros. International (Europe)
since April 1995 following his retirement as
Ambassador of the United States of America to the
Court of St. James's. He first became a Director of
the Corporation in 1994. Previously he was Assistant
Secretary of State for European and Canadian Affairs
from 1989 to 1991. Ambassador Seitz had served in the
United States Foreign Service since 1966 wherein he
held many positions in the U.S. and abroad. Ambassador
Seitz is also a Director of British Airways plc, Cable
& Wireless Co. plc, The General Electric Company plc,
Hong Kong Telecommunications and Rio Tinto. He is a
Trustee of the National Gallery, the Royal Academy and
the World Monument Fund and a member of the Advisory
Board of Stanford University.
Lawrence M. Small 57
President and Chief Operating Officer, Fannie Mae since
September 1991. He first became a Director of the
Corporation in 1989. Prior to September 1991, when Mr.
Small joined Fannie Mae, he had served as Vice
Chairman and Chairman of the Executive Committee,
Citicorp and Citibank, N.A. since January 1990. Prior
to assuming that position, Mr. Small had been Sector
Executive since 1985, responsible for Citicorp's and
Citibank's Institutional Bank. He had been associated
with Citibank since 1964. Mr. Small is also a Director
of Fannie Mae, Marriott International, Inc., the
Fannie Mae Foundation, National Building Museum and
New York City's Spanish Repertory Theatre. He also
serves as Chairman of the Financial Advisory Committee
of Trans-Resources International. He is a Trustee
Emeritus of Brown University and of Morehouse College;
he is also a Trustee of Mt. Sinai-New York University
Medical Center and Health System.
James M. Zimmerman 55
Chairman and Chief Executive Officer of Federated
Department Stores, Inc. He has been associated with
Federated Department Stores, Inc. since 1965. Mr.
Zimmerman was elected to his present position in May
1997. Prior to that he had been President and Chief
Operating Officer since March 1988. He first became a
Director of the Corporation in 1998. Mr. Zimmerman is
also a Director of Federated Department Stores, Inc.
and H.J. Heinz Company.
</TABLE>
- - ------------------
(1) As of April 27, 1999.
4
<PAGE> 7
BENEFICIAL SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table lists Chubb stock-based holdings, including the
beneficial ownership of the Corporation's Common Stock by Directors, the Chief
Executive Officer, the four most highly compensated executive officers other
than the Chief Executive Officer and Directors and executive officers as a
group, in accordance with the definitions adopted by the Securities and Exchange
Commission under Rule 13d-3 of the Securities Exchange Act of 1934, as amended
(the "Act"). No Director or officer beneficially owns as much as one half of 1%
of the outstanding Common Stock, except for Mr. Chubb, whose beneficial
ownership reflected in the table is .66%.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
BENEFICIALLY OWNED
NAME MARCH 8, 1999(1) DEFERRAL PLAN(2) TOTAL
---- ------------------- ---------------- -----
<S> <C> <C> <C>
Zoe Baird............................... 100 -- 100
John C. Beck............................ 94,450 12,863 107,313(3)(22)
Sheila P. Burke......................... 8,265 -- 8,265(4)
James I. Cash, Jr. ..................... 12,200 -- 12,200(5)
Percy Chubb, III........................ 1,067,789 -- 1,067,789(6)(22)
Joel J. Cohen........................... 44,900 10,487 55,387(7)
James M. Cornelius...................... 7,000 -- 7,000(8)
David H. Hoag........................... 17,000 3,577 20,577(9)
Thomas C. MacAvoy....................... 28,900 328 29,228(10)
Dean R. O'Hare.......................... 522,139 -- 522,139(11)(21)(22)
Warren B. Rudman........................ 24,200 1,387 25,587(12)
Sir David G. Scholey, CBE............... 29,000 1,417 30,417(13)(22)
Raymond G. H. Seitz..................... 16,200 899 17,099(14)
Lawrence M. Small ...................... 66,000 3,156 69,156(15)(22)
James M. Zimmerman...................... 4,100 -- 4,100(16)
John J. Degnan.......................... 138,817 -- 138,817(17)(21)(22)
David B. Kelso.......................... 61,908 -- 61,908(18)(21)
Thomas F. Motamed....................... 42,579 -- 42,579(19)(21)
Michael O'Reilly........................ 144,150 -- 144,150(20)(21)
Directors and Executive Officers as a
group ................................ 3,019,117 34,114 3,053,231(22)
</TABLE>
- - ---------------
(1) Each person has sole voting and investment power with respect to the
shares listed, unless otherwise indicated.
(2) Includes compensation allocated to the Market Value Account of the
Deferred Compensation Plan for Non-Employee Directors (See "Directors'
Compensation" on page 8). The value of units allocated to this account is based
upon the market value of the Corporation's Common Stock.
(3) Includes 50,850 shares held in accounts managed by Beck, Mack & Oliver
LLC, for which Mr. Beck disclaims beneficial ownership, 1,000 shares held in a
trust for Mr. Beck's benefit and 40,000 shares that may be purchased within 60
days pursuant to The Chubb Corporation Stock Option Plans for Non-Employee
Directors.
(4) Includes 8,000 shares that may be purchased within 60 days pursuant to
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1996).
(5) Includes 12,000 shares that may be purchased within 60 days pursuant
to The Chubb Corporation Stock Option Plans for Non-Employee Directors.
(6) Includes 3,195 shares held by trusts for Mr. Chubb's benefit, 19,084
shares owned by a member of Mr. Chubb's family who lives in his home, 1,404
shares held in trusts of which a member of Mr. Chubb's family who lives in his
home is trustee, 790,888 shares owned by the Victoria Foundation Inc., of which
Mr. Chubb is President and one of 14 trustees, 64,464 shares which Mr. Chubb has
a right to purchase within 60 days under The Chubb Corporation Long-Term Stock
Incentive Plans and 8,000 shares that may be purchased within 60 days pursuant
to The Chubb Corporation Stock Option Plan for Non-Employee Directors (1996).
Mr. Chubb disclaims beneficial ownership of 811,376 of such shares.
5
<PAGE> 8
(7) Includes 36,000 shares that may be purchased within 60 days pursuant
to The Chubb Corporation Stock Option Plans for Non-Employee Directors.
(8) Includes 4,000 shares that may be purchased within 60 days pursuant to
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1996).
(9) Includes 16,000 shares that may be purchased within 60 days pursuant
to The Chubb Corporation Stock Option Plans for Non-Employee Directors.
(10) Includes 22,253 shares that may be purchased within 60 days pursuant
to The Chubb Corporation Stock Option Plans for Non-Employee Directors.
(11) Includes 5,262 shares held by a family limited partnership of which
Mr. O'Hare disclaims beneficial ownership and 383,149 shares which Mr. O'Hare
has the right to purchase within 60 days under The Chubb Corporation Long-Term
Stock Incentive Plans.
(12) Includes 24,000 shares that may be purchased within 60 days pursuant
to The Chubb Corporation Stock Option Plans for Non-Employee Directors.
(13) Includes 100 shares owned by a member of Sir David Scholey's family
who lives in his home, of which Sir David disclaims beneficial ownership and
28,000 shares that may be purchased within 60 days pursuant to The Chubb
Corporation Stock Option Plans for Non-Employee Directors.
(14) Includes 16,000 shares that may be purchased within 60 days pursuant
to The Chubb Corporation Stock Option Plans for Non-Employee Directors.
(15) Includes 3,200 shares held in a trust of which Mr. Small is a trustee
and 36,000 shares that may be purchased within 60 days pursuant to The Chubb
Corporation Stock Option Plans for Non-Employee Directors. Mr. Small disclaims
beneficial ownership of 3,200 of such shares.
(16) Includes 4,000 shares that may be purchased within 60 days pursuant to
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1996).
(17) Includes 432 shares held by members of Mr. Degnan's family who live in
his home, 120,610 shares which Mr. Degnan has the right to purchase within 60
days under The Chubb Corporation Long-Term Stock Incentive Plans and 3,413
shares in the Corporation Stock Fund of the Capital Accumulation Plan of The
Chubb Corporation, Chubb & Son Inc. and Participating Affiliates. Mr. Degnan
disclaims beneficial ownership of 432 of such shares.
(18) Includes 56,878 shares which Mr. Kelso has the right to purchase
within 60 days under The Chubb Corporation Long-Term Stock Incentive Plan
(1996).
(19) Includes 34,038 shares which Mr. Motamed has the right to purchase
within 60 days under The Chubb Corporation Long-Term Stock Incentive Plans and
894 shares in the Corporation Stock Fund of the Capital Accumulation Plan of The
Chubb Corporation, Chubb & Son Inc. and Participating Affiliates.
(20) Includes 106,496 shares which Mr. O'Reilly has the right to purchase
within 60 days under The Chubb Corporation Long-Term Stock Incentive Plans.
(21) Includes 1,771, 424, 2,016, 2,624 and 2,631 shares which were
allocated to Messrs. Degnan, Kelso, Motamed, O'Hare and O'Reilly, respectively,
pursuant to The Chubb Corporation Employee Stock Ownership Plan (the "ESOP").
(22) Such shares include the shares reflected above as to which Messrs.
Beck, Chubb, Degnan, O'Hare, Scholey and Small disclaim beneficial ownership,
21,886 shares which executive officers other than those listed in the table
above disclaim beneficial ownership, 27,204 shares which were allocated to
executive officers other than those listed in the table above pursuant to the
ESOP, 475,628 shares which executive officers other than those listed in the
table above have the right to purchase within 60 days under The Chubb
Corporation Long-Term Stock Incentive Plans and 2,665 shares in the Corporation
Stock Fund of the Capital Accumulation Plan of The Chubb Corporation, Chubb &
Son Inc. and Participating Affiliates which are beneficially owned by two
executive officers other than those listed in the table above. All Directors and
executive officers as a group own 1.9% of the outstanding Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As required by Securities and Exchange Commission rules, the Corporation
notes that during 1998, David S. Fowler, Senior Vice President, was late in
reporting the sale of 2,000 shares of Common Stock on February 6, 1998 by his
spouse. The sale was reported on a Form 4 on March 27, 1998. Robert Rusis,
Senior
6
<PAGE> 9
Vice President and General Counsel, was late in reporting a restoration stock
option award which was granted on November 12, 1996 for 1,929 shares. The grant
was reported on a Form 5 on February 2, 1999. Sheila P. Burke, Director, was
late in reporting a purchase of 165 shares of Common Stock on October 7, 1998.
The purchase was reported on a Form 4 on March 1, 1999.
CERTAIN SHAREHOLDERS
As of March 8, 1999, the Royal & Sun Alliance Insurance Group plc ("Royal &
Sun Alliance") at 30 Berkeley Square, London, WIX 5HA, England held 9,023,916
shares of Common Stock of the Corporation (approximately 5.6% of the outstanding
Common Stock at March 8, 1999). Royal & Sun Alliance has reported that it holds
such shares for the purpose of investment.
The Board of Directors knows of no other beneficial owner of five percent
or more of the Corporation's Common Stock nor does it know of any arrangement
which may at a subsequent date result in a change in control of the Corporation.
See "Transactions with Certain Shareholders."
AUDIT, ORGANIZATION & COMPENSATION AND NOMINATING COMMITTEES
The Board of Directors has, among other Committees, an Audit Committee, an
Organization & Compensation Committee and a Nominating Committee.
The Audit Committee is composed of Messrs. Cohen (Chairman), Cash,
Cornelius and Seitz, and Ms. Baird and Ms. Burke. No officer of the Corporation
or of any of its subsidiaries may serve on the Audit Committee. In 1998, the
Committee met four times. The functions of the Audit Committee include reviewing
the accounting principles and practices employed by the Corporation and, to the
extent the Committee deems appropriate, of the Corporation's subsidiaries;
meeting with the Corporation's independent auditors to review their reports on
their audits of the Corporation's accounts, their comments on the internal
accounting controls and internal audit procedures of the Corporation and the
actions taken by management with regard to such comments; and recommending
annually to the Board of Directors the appointment of the Corporation's
independent auditors. The Committee has the power at its discretion to order
interim and surprise audits and to perform such other duties as may be assigned
to it from time to time by the Board of Directors.
The Organization & Compensation Committee is composed of Messrs. Small
(Chairman), Hoag and Rudman and Ms. Burke. Richard D. Wood, a Director who
retired effective December 31, 1998, was a member of the Committee prior to his
retirement. No officer of the Corporation or any of its subsidiaries may serve
on the Organization & Compensation Committee. In 1998, the Committee met four
times. The Committee monitors the performance and oversees the promotion of the
senior executive officers of the Corporation and its principal operating
subsidiaries and periodically consults with the Chief Executive Officer and
other members of senior management regarding the development of qualified
replacements to succeed key executives and other aspects of succession planning.
The Committee determines overall compensation policy for senior management of
the Corporation, recommending to the Board of Directors new compensation
programs or changes in existing programs which the Committee finds appropriate.
Any action to be taken with regard to the salary of any employee of the
Corporation or any of its subsidiaries, which is in excess of certain amounts,
is subject to ratification by the Committee. In addition, the Committee performs
administrative functions pursuant to The Chubb Corporation Director's Charitable
Award Program, The Chubb Corporation Long-Term Stock Incentive Plan (1992), The
Chubb Corporation Long-Term Stock Incentive Plan (1996) (the "Long-Term Stock
Incentive Plans"), the Annual Incentive Compensation Plan (1996) (the "Annual
Incentive Compensation Plan"), The Profit Sharing Plan of The Chubb Corporation,
Chubb & Son Inc. and Participating Affiliates (1987) (the "Profit Sharing Plan
(1987)"), The Chubb Corporation Investment Department/Chubb Asset Managers, Inc.
Incentive Compensation Plan (the "Investment Department Incentive Plan"), the
Stock Purchase Plan (1989) of The Chubb Corporation (the "Stock Purchase Plan
(1989)") and The Chubb Corporation Executive Deferred Compensation Plan and
ratifies certain awards made pursuant to incentive or bonus plans of
subsidiaries of the Corporation.
The Nominating Committee is composed of Messrs. Hoag (Chairman), Cohen and
Rudman. The Committee seeks out, evaluates and recommends qualified nominees for
election as Directors, considers Director performance before recommending
re-election and makes recommendations concerning the size and
7
<PAGE> 10
composition of the Board. In 1998, the Committee met three times. The Committee
will consider Shareholder recommendations for Director nominees, provided that
such recommendations are submitted to the Corporation in accordance with the
same requirements and procedures as are set forth in the Corporation's By-Laws
for nominations by shareholders of persons for election as directors at an
Annual Meeting. These requirements and procedures are summarized under "Voting,
Solicitation of Proxies, Shareholder Proposals and Nominations" on page 27 of
this Proxy Statement. For additional information on this process, Shareholders
should write to Henry G. Gulick, Vice President and Secretary, The Chubb
Corporation, 15 Mountain View Road, P.O. Box 1615, Warren, New Jersey
07061-1615.
DIRECTORS' ATTENDANCE
In 1998, there were four meetings of the Board of Directors of the
Corporation. All of the incumbent Directors attended 75% or more of the
aggregate of their respective Board and Committee meetings, except James M.
Zimmerman who attended 57%. Mr. Zimmerman was first elected a Director of the
Corporation in March of last year. At the June Board of Directors meeting, he
was appointed to two Committees where his pre-established schedule and the
Committee meeting dates conflicted. He has now been able to adjust his schedule
to allow attendance at the scheduled Committee meetings.
DIRECTORS' COMPENSATION
All Directors of the Corporation are also directors of Federal. It is the
practice of the Corporation's Board of Directors to hold concurrent meetings
with the Board of Directors of Federal.
Each Director receives an annual stipend in the amount of $35,000, all of
which is paid by the Corporation. In addition, a meeting fee of $1,500 is paid
to Directors for each meeting of the Board of Directors attended. Directors
receive a fee of $1,500 for each Committee meeting attended. In those instances
where the Boards or Committees of the Corporation and Federal meet concurrently,
each shares proportionately in the payment of the fees. In addition, members of
the Finance Committee, the Executive Committee, the Organization & Compensation
Committee, the Audit Committee, the Nominating Committee and the Pension &
Profit Sharing Committee receive an annual stipend from the Corporation of
$7,500. The Chairmen of the Audit Committee and of the Organization &
Compensation Committee receive annual stipends from the Corporation of $15,000
for service on those Committees in lieu of the foregoing Committee stipends. As
members of the International Advisory Board of The Chubb Corporation, Messrs.
O'Hare, Scholey and Seitz received meeting fees of $5,000 each in 1998.
Directors who are officers of the Corporation receive meeting fees for
attendance at Directors' meetings only and do not receive stipends or fees for
Committee meetings.
Pursuant to the Deferred Compensation Plan for Non-Employee Directors
adopted by the Corporation in 1987, Directors may elect to defer, until a date
specified, receipt of all or a portion of their compensation. This plan provides
that, in addition to a Cash Account upon which amounts deferred earn interest
compounded quarterly, at the prime rate of Citibank, N.A. in effect on certain
specified dates, amounts deferred may also be allocated to a Market Value
Account, the value of which is based upon the market value of the Corporation's
Common Stock from time to time, a Shareholder's Equity Account, the value of
which is based upon the book value of the Corporation's Common Stock established
on an annual basis, or a combination of such accounts. At its regular Board
meeting in December 1995, the Board of Directors adopted guidelines suggesting
that eligible Non-Employee Directors voluntarily defer 50% of all stipends into
the Market Value Account starting in 1996. At March 8, 1999, deferred
compensation accounts were maintained for nine Directors, all of whom are
currently deferring compensation pursuant to this plan. For 1998, Directors
deferred $487,250 of compensation from the Corporation and its subsidiaries. At
December 31, 1998, the aggregate account values reflecting Directors' deferrals
and earnings on such deferrals were as follows: $2,208,906 for the Market Value
Account, $891,043 for the Shareholder's Equity Account and $23,328 for the Cash
Account.
8
<PAGE> 11
DIRECTOR'S CHARITABLE AWARD PROGRAM
Effective January 1, 1992, the Corporation established the Director's
Charitable Award Program. Under the Program, which is administered by the
Organization & Compensation Committee, each Non-Employee Director following his
or her first election to the Board of Directors by Shareholders may recommend
that the Corporation direct one or more charitable contributions totalling
$500,000 to eligible tax exempt organizations. Generally, eligible Directors are
paired, and contributions are made to the organizations selected by a Director
upon the death of the second paired Director. At March 8, 1999, 12 eligible
Directors were participating in the Program. The Program may be funded by the
Corporation through, among other vehicles, the purchase of life insurance
policies on the lives of the Directors. Individual Directors derive no financial
benefit from this Program since all charitable deductions accrue solely to the
Corporation. The Program may be terminated at any time by the Organization &
Compensation Committee.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1988)
was adopted by the Board of Directors and approved by Shareholders in 1988 and
was amended, extended and renamed The Chubb Corporation Stock Option Plan for
Non-Employee Directors (1992) by the Board of Directors and approved by
Shareholders in 1992. Upon the recommendation of the Board of Directors, it was
again extended, amended and approved by Shareholders in 1996 as The Chubb
Corporation Stock Option Plan for Non-Employee Directors (1996) (the "1996
Non-Employee Directors Plan"). The 1996 Non-Employee Directors Plan provides
that an aggregate of 400,000 shares of Common Stock of the Corporation be
available for issuance upon exercise of options granted thereunder. The 1996
Non-Employee Directors Plan shall terminate on the day following the 2001 Annual
Meeting of Shareholders.
The 1996 Non-Employee Directors Plan is administered by the Board of
Directors. Only Eligible Directors, as defined, may receive options under the
1996 Non-Employee Directors Plan. There are currently 14 Eligible Directors.
Following the election of Directors, as of the date of each Annual Meeting that
occurs while the 1996 Non-Employee Directors Plan is in effect, each individual
who is then an Eligible Director will be granted an option to purchase 4,000
shares of Common Stock of the Corporation. The purchase price per share of the
Common Stock deliverable upon exercise of the option shall be 100% of the fair
market value per share of Common Stock on the day the option is granted.
Options granted under the 1996 Non-Employee Directors Plan are
non-statutory options. The options shall be exercisable in whole or in part at
all times after the date of grant and are transferable to certain members of the
optionee's immediate family. All outstanding options held by an optionee shall
be automatically canceled upon termination of the optionee's service as an
Eligible Director, except for terminations due to retirement and under certain
other specified circumstances.
In the case of certain mergers, consolidations or combinations of the
Corporation with or into other corporations, or in the event of a Change of
Control of the Corporation, as defined, the holder of each option then
outstanding shall have, unless the Board of Directors determines otherwise, the
right to receive on the date or effective date of such event a cash payment in
an amount calculated as set forth in the Non-Employee Directors Plans.
9
<PAGE> 12
EXECUTIVE COMPENSATION AND CERTAIN TRANSACTIONS
I. SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- -----------------------
AWARDS PAYOUTS
---------- ----------
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
STOCK OPTIONS/ LTIP COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) AWARDS(3) SARS(4) PAYOUTS(5) SATION(6)
- - --------------------------- ---- --------- -------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dean R. O'Hare........... 1998 $925,424 $ 850,000 $250,184 73,245 $826,775 $290,660
Chairman and 1997 882,001 1,542,400 327,642 99,250 673,920 216,669
Chief Executive Officer 1996 837,732 1,268,267 180,747 117,650 379,506 181,187
John J. Degnan........... 1998 350,193 400,000 156,387 28,500 308,651 115,842
President 1997 312,693 615,254 204,608 33,000 240,697 77,569
1996 287,693 455,917 90,402 27,360 120,327 58,487
Thomas F. Motamed........ 1998 296,154 425,000 187,593 23,755 110,237 88,798
Executive Vice President 1997 187,235 431,045 204,608 8,000 132,352 39,844
1996 171,847 117,718 -- 7,500 -- 26,987
David B. Kelso........... 1998 387,116 325,000 156,387 23,755 330,710 111,261
Executive Vice President 1997 362,500 528,750 204,608 30,000 -- 28,610
1996 175,000 200,000 57,855 16,000 -- --
Michael O'Reilly......... 1998 351,520 325,000 156,387 23,755 220,473 103,580
Executive Vice President 1997 334,062 437,081 204,608 18,000 307,364 58,619
1996 316,155 185,762 -- 16,730 228,852 57,590
</TABLE>
- - ---------------
(1) Includes directors fees for 1998, 1997 and 1996 of $11,000, $12,000 and
$11,000 for Mr. O'Hare.
(2) Includes for Messrs. O'Hare, Degnan, Kelso and Motamed amounts paid for such
years under the Annual Incentive Compensation Plan (including certain
amounts for 1998 that were deferred at the election of certain of these
executives) and for 1996 and 1997 under the Profit Sharing Plan (1987) and
for Mr. O'Reilly amounts paid for 1997 and 1998 under the Annual Incentive
Compensation Plan, amounts paid for 1996 under the annual segment of the
Investment Department Incentive Plan and amounts paid for 1996 and 1997
under the Profit Sharing Plan (1987).
(3) For 1998, represents the fair market value of performance-based restricted
stock awarded at 100% of fair market value as of the March 11, 1999 award
date ($59.7813 per share) without diminution in value attributable to the
restrictions on such stock under the Long-Term Stock Incentive Plan. The
awards generally become vested three years after the date of grant, but may
vest earlier upon death, disability, retirement or other termination with
the consent of the Organization & Compensation Committee. Dividends declared
on the common stock of the Corporation are paid on outstanding restricted
stock awards. For the purposes of the Securities and Exchange Commission's
compensation reporting rules, outstanding performance share awards are
treated as equivalent to restricted stock units. The total number and value
(based on a per share price at December 31, 1998 of $64.75) of performance
shares outstanding for the three year periods ending December 1999 and 2000
are 22,530 ($1,458,818) for Mr. O'Hare, 11,325 ($733,294) for Mr. Degnan,
7,560 ($489,510) for Mr. Motamed, 10,645 ($689,264) for Mr. Kelso and 8,375
($542,281) for Mr. O'Reilly. The total outstanding nonvested Restricted
Stock award balances as of March 11, 1999 were 11,505 shares ($724,155) for
Mr. O'Hare, 6,793 shares ($426,849) for Mr. Degnan, 5,729 shares ($355,361)
for Mr. Motamed, 6,222 shares ($389,876) for Mr. Kelso and 5,207 shares
($324,155) for Mr. O'Reilly. Dollar values are based on a value per share of
$64.75 on December 31, 1998 for awards outstanding on such date and $59.7813
per share on March 11, 1999 for awards granted on such date.
10
<PAGE> 13
(4) Includes options granted in such years under the Long-Term Stock Incentive
Plan. See Options/SAR Grants table below for more information on the 1998
grants.
(5) Includes payments made in settlement of performance share awards for Messrs.
O'Hare, Degnan and O'Reilly for the three year periods ended December 31,
1996, 1997 and 1998, for Mr. Motamed for the three year periods ended
December 31, 1997 and 1998 and for Mr. Kelso for the three year period ended
December 31, 1998. Also includes for Mr. O'Reilly deferred payments under
the long-term segment of the Investment Department Incentive Plan paid in
1996, 1997 and 1998 for performance periods ended December 31, 1992, 1993
and 1994, respectively.
(6) Includes allocations for 1998, 1997 and 1996 under the qualified Capital
Accumulation Plan and the Capital Accumulation Excess Benefit Plan of
$96,577, $84,733 and $73,069 for Mr. O'Hare, $38,008, $30,508 and $23,668
for Mr. Degnan, $28,846, $12,023 and $10,874 for Mr. Motamed and $33,727,
$23,975 and $23,046 for Mr. O'Reilly and allocations for 1998, 1997 and 1996
under the ESOP qualified plan and the ESOP excess plan of $194,083, $131,936
and $108,118 for Mr. O'Hare, $77,834, $47,061 and $34,819 for Mr. Degnan,
$59,952, $27,821 and $16,113 for Mr. Motamed and $69,853, $34,644 and
$34,544 for Mr. O'Reilly. Includes for Mr. Kelso allocations for 1998 and
1997 under the qualified Capital Accumulation Plan and the Capital
Accumulation Excess Benefit Plan of $36,485 and $7,442 and allocations for
1998 and 1997 under the ESOP qualified plan and the ESOP excess plan of
$74,776 and $21,168.
II. OPTIONS/SAR GRANTS TABLE
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZED
% OF VALUE
TOTAL AT ASSUMED
NUMBER OF OPTIONS/ ANNUAL RATES
SECURITIES SARS OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS/ EMPLOYEES OR BASE OPTION TERM(3)
SARS IN FISCAL PRICE -----------------------
NAME GRANTED(1) YEAR(2) PER SHARE EXPIRATION DATE 5% 10%
---- ---------- ---------- --------- --------------- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Dean R. O'Hare............. 73,245 3.6% $78.9688 March 4, 2008 $3,637,570 $9,218,318
John J. Degnan............. 28,500 1.4% 78.9688 March 4, 2008 1,415,397 3,586,894
Thomas Motamed............. 23,755 1.2% 78.9688 March 4, 2008 1,179,746 2,989,708
David B. Kelso............. 23,755 1.2% 78.9688 March 4, 2008 1,179,746 2,989,708
Michael O'Reilly........... 23,755 1.2% 78.9688 March 4, 2008 1,179,746 2,989,708
</TABLE>
- - ---------------
(1) The number of shares for each person represents a stock option granted under
the Long-Term Stock Incentive Plan without a related stock appreciation
right. The options that expire on March 4, 2008 are exercisable for 50% of
the number of shares shown on March 5, 1999, and 100% on March 5, 2000. The
exercise price for each stock option is not less than the fair market value
of the Corporation's Common Stock on the date of grant. After they become
exercisable, these options are transferable to certain members of the
optionee's immediate family. There is an option restoration feature with
each option which provides that the optionee can receive a separate option
grant when previously owned shares are exchanged in a stock-for-stock
exercise if the market price on date of exercise is at least 25% higher than
the exercise price. The restoration option will be a non-statutory option,
the number of option shares will equal the number of exchanged shares used
to exercise the original option, the exercise price will be the fair market
value on the grant date of the restoration option, the term will be for the
length of time remaining in the original option and the restoration option
will be immediately exercisable. The restoration feature does not apply to
options transferred by the optionee.
(2) Based on total grants in 1998 of 2,036,422 shares.
(3) The assumed 5% and 10% annual rates of stock price appreciation used in the
table are prescribed by the proxy rules and are not intended to forecast
possible future appreciation in the price of the Corporation's Common Stock.
11
<PAGE> 14
III. AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END
OPTION/SAR VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END AT FY-END(1)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- --------------- -------- ------------- --------------------
<S> <C> <C> <C> <C>
Dean R. O'Hare........... -- -- 296,901/122,870 $5,349,882/$198,500
John J. Degnan........... -- -- 89,860/45,000 1,776,108/66,000
Thomas Motamed........... 2,000 $ 77,875 18,160/27,755 293,859/16,000
David B. Kelso........... 1,000 37,969 30,000/38,755 319,688/60,000
Michael O'Reilly......... 3,000 192,956 90,130/32,755 2,230,084/36,000
</TABLE>
- - ---------------
(1) Based on a value per share at December 31, 1998 of $64.75.
IV. LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS
NUMBER OF OTHER PERIOD UNDER NON-STOCK PRICE-BASED
SHARES, UNITS UNTIL PLANS (UNITS OR $)
OR OTHER MATURATION OR -----------------------------
NAME RIGHTS(1) PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------- -------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Dean R. O'Hare............................... 10,130 1998-00 5,065 10,130 15,195
John J. Degnan............................... 5,700 1998-00 2,850 5,700 8,550
Thomas Motamed............................... 5,460 1998-00 2,730 5,460 8,190
David B. Kelso............................... 5,220 1998-00 2,610 5,220 7,830
Michael O'Reilly............................. 4,750 1998-00 2,375 4,750 7,125
</TABLE>
- - ---------------
(1) Includes performance share awards granted under the Corporation's Long-Term
Stock Incentive Plan in 1998 with respect to the three year performance
cycle ending December 31, 2000. The number of shares earned is dependent on
the achievement of a specified earnings per share target established by the
Organization & Compensation Committee for the three year period. Settlement
of the awards may be in shares or cash or a combination of both at the
discretion of the Organization & Compensation Committee.
Notwithstanding anything to the contrary set forth in any of the
Corporation's previous filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
Performance Graph and the Organization & Compensation Committee Report on pages
14 through 17 shall not be incorporated by reference into any such filings.
12
<PAGE> 15
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG THE CORPORATION'S COMMON STOCK,
THE STANDARD & POOR'S 500 STOCK INDEX AND THE STANDARD & POOR'S
PROPERTY AND CASUALTY INDEX
FIVE YEAR COMPARISON
<TABLE>
<CAPTION>
CHUBB S&P 500(R) S&P P&C(R)
<S> <C> <C> <C>
1993 100 100 100
1994 102 101 105
1995 130 139 142
1996 148 171 173
1997 212 229 251
1998 184 294 234
</TABLE>
TEN YEAR COMPARISON
<TABLE>
<CAPTION>
CHUBB S&P 500(R) S&P P&CIIII(R)
<S> <C> <C> <C>
1988 100 100 100
1989 169 132 146
1990 198 128 143
1991 288 166 179
1992 339 179 209
1993 303 197 206
1994 309 200 216
1995 395 275 292
1996 449 338 355
1997 643 451 516
1998 560 580 481
</TABLE>
- - ---------------
* Assumes, for the five and ten year graphs, that the investment in the
Corporation's Common Stock and each index was $100 on December 31, 1993 and
December 31, 1988, respectively, and that all dividends were reinvested.
Making the same comparison of cumulative total return for the past one year
period ended December 31, 1998, an investment of $100 in the Corporation's
Common Stock, the Standard & Poor's 500 Stock Index and the Standard & Poor's
Property and Casualty Index would have yielded the following: Chubb, $87; S&P
500 Index, $129; and S&P Property and Casualty Index, $93.
13
<PAGE> 16
ORGANIZATION & COMPENSATION COMMITTEE REPORT
EXECUTIVE OFFICER COMPENSATION POLICIES
The Corporation's executive compensation program is designed to align
Shareholder interests with business strategy, company values and management
initiatives. It is based on the following four principles: (i) to link the
interests of management with those of Shareholders by making a substantial
portion of executive compensation depend upon the Corporation's financial
performance and by encouraging stock ownership in the Corporation, (ii) to
attract and retain superior executives by providing them with the opportunity to
earn total compensation packages that are among the most competitive in the
industry, (iii) to reward individual results by recognizing performance through
salary, annual cash incentive and long-term incentives and (iv) to manage
compensation based on the level of skill, knowledge, effort and responsibility
needed to perform the job successfully.
A position evaluation program establishes pay levels among all positions
reflecting the importance and value of similar positions to the Corporation. A
position's pay level determines a range of values within which the executive's
compensation is administered.
Executive officers' compensation includes: annual cash compensation
(consisting of base salary and annual incentive awards paid in cash) and
long-term incentive awards, as well as additional features which are available
to most other employees of the Corporation and its subsidiaries, including
profit sharing plans, pension plans, a stock purchase plan and an employee stock
ownership plan, all of which allocate payments generally based on an
individual's level of annual cash compensation.
It is the general policy of the Corporation that executive officer
compensation qualify for tax deductibility pursuant to the regulations under
Section 162(m) of the Internal Revenue Code. Under these regulations, which
became effective January 1, 1994, in order to qualify for tax deductibility,
payment of compensation in excess of $1 million to the chief executive officer
and the four other highest paid executive officers must be made in accordance
with performance criteria disclosed to and approved by Shareholders and pursuant
to pre-established arrangements which, among other things, limit the exercise of
discretion to increase the awards beyond the limits initially set. The Committee
believes that mathematical formulas cannot always anticipate and fairly address
every situation which may arise. For this reason, the Committee has historically
retained the authority to adjust compensation awarded in light of extraordinary,
unusual or non-recurring events. The Committee continues to believe that this
reservation of authority, and its exercise under appropriate circumstances,
operates in the best interests of the Corporation and its Shareholders even
though in exercising such authority, compensation might not be deductible.
The Committee determines annual cash incentives based upon both performance
against financial goals and performance relative to the insurance peer
companies. It varies the size of option, performance share, and
performance-based restricted stock grants based on the company's performance
compared to its goals and the need to stay competitive with other insurance
companies seeking people of the type Chubb seeks to attract, retain and
motivate. The value of stock options, performance shares and restricted stock is
tied directly to the stock price. The number of performance shares earned for a
three year performance period can vary from 0 to 1.5 times the targeted number
of shares based on performance against earnings per share and other selected
goals. The number of performance-based restricted shares granted is tied to the
number of performance shares earned and, thus, varies based on the same
performance measures. The value of the performance shares and performance-based
restricted shares varies up and down with the stock price.
The cornerstone of the Corporation's compensation program is to pay for
performance and the Committee believes that the Corporation's compensation
program has strong performance-based forms of executive compensation that link
the interests of management with those of shareholders. Other than base salary,
all major elements of the Corporation's executive compensation programs vary
directly with both corporate and individual performance. As part of that, the
Committee sets difficult performance targets for executives. The Committee
varies total compensation targets for executives depending on company perform-
14
<PAGE> 17
ance. The better the company's performance in relation to the competition, the
greater the compensation opportunity for executives and vice versa. Executives
have substantial portions of their compensation at risk for annual and long-term
performance, with the largest portion at risk for the most senior executives.
In 1998, the Committee requested a nationally recognized executive
compensation consultant to provide a comprehensive annual update of the
executive officer compensation strategy and competitive position to assist it in
its analysis of pay strategy, compensation levels and types of long-term
incentives used. This review resulted in affirmation by the Committee that the
executive compensation program and strategy are appropriate and working as
intended to pay for performance. The Committee firmly endorsed the concept that
for competitive analysis and financial comparison the Corporation's peer group
is first and foremost an industry comparison group composed of insurance
companies which compete for the type of people Chubb seeks to employ. A second
peer group of 21 companies in the insurance, financial services and banking
industries is also used to more broadly measure the competitive position of the
compensation potentially available to executive officers of the Corporation.
ANNUAL CASH COMPENSATION
Amounts paid as base salary, including merit salary increases, are
determined by the executive's performance, placement in the salary payband
established for the executive's position and the salaries offered in the
industry for comparable positions. Outside independent consultants are
periodically used to gather and analyze industry comparisons of salary data to
ensure that the positioning of salaries in the compensation program is
competitive for comparable positions. The Committee monitors and approves
changes in base salary for senior executive officers (including the executive
officers named in the Summary Compensation Table). Promotional salary increases
reflect the executive's movement to an increased level of responsibility and are
granted when earned.
The Committee sets and approves the formulas which establish the amounts
available for annual incentive awards. For 1998, incentive awards paid to most
executive officers were determined under the Annual Incentive Compensation Plan
(1996). This plan's formula measures the Corporation's performance, including
combined loss and expense ratio ("combined ratio"), net income and operating
income return on equity against the results of an industry comparison group. Net
income under this formula is the Corporation's investment income arising from
the property and casualty insurance business and underwriting profit or loss
from that business. Each year the Committee approves goals for the combined
ratio and net income based on the outlook for business conditions that year.
After the close of business each year, the formula takes into account how well
the Corporation performed against its own goals and how well it performed
against an industry comparison group's average combined ratio and operating
income return on equity. Included in this industry comparison group are two out
of the seven companies which, along with the Corporation, comprise the Standard
& Poor's Property and Casualty Index used in the Performance Graphs on page 13
as well as five other insurance companies against which the Corporation has over
time compared itself.
The annual incentive pool actually paid is determined by weighing the
combined ratio result as well as the net income and operating income return on
equity results to generate a total award pool under the Plan. A percent is
applied to the target dollar award pool for each payband to develop a final cash
award pool. The pool can range from 0% to 200% of the target dollar award for
all participants covered by the Plan.
Amounts actually paid for annual incentive awards to executives are based
on the executive's individual performance and payband. Where applicable,
individual performance is judged on the following considerations: profit,
growth, expense control, productivity, leadership, staff development, diversity
management, performance/compensation management, innovation, collaboration and
internal/external customer service. Awards are approved by the Committee based
upon recommendations by management after year end. Over the past several years,
annual cash compensation has been administered to slow the growth in base
salaries and place a greater proportion of the executive's annual cash
compensation at risk through the variable amounts available for an annual
incentive award.
15
<PAGE> 18
Other annual cash incentive plans in which certain executive officers
participate include The Chubb Corporation Investment Department/Chubb Asset
Managers, Inc. Incentive Compensation Plan (the "Investment Department Incentive
Plan") and The Profit Sharing Plan (1987). The Investment Department Incentive
Plan provides both annual and long-term cash awards which are competitive with
those provided by similar financial institutions, including property and
casualty insurance companies and banks. Such awards are granted to the
Corporation's investment professionals and are based on results measured against
market indices which represent standards of investment performance regularly
used by investment analysts to compare and analyze the performance of investment
professionals responsible for managing a particular asset class. The Profit
Sharing Plan (1987) provides employees of the Corporation and its participating
subsidiaries with cash awards on a sliding scale of 0% to 4% of a participant's
eligible compensation based on a schedule relating to the consolidated return on
premiums earned by the property and casualty insurance subsidiaries of the
Corporation.
LONG-TERM INCENTIVE AWARDS
Long-term incentive awards are made under the Long-Term Stock Incentive
Plan. The Long-Term Stock Incentive Plan, which is administered by the
Committee, is an omnibus plan and provides stock based awards to eligible
employees which include most levels of management as well as the Corporation's
executive officers. The Plan was designed in consultation with a nationally
recognized executive compensation consulting firm and periodically the Committee
obtains the advice of such consulting firms with regard to the ongoing
administration of the Plan. Awards granted to executive officers include stock
options, performance share awards and restricted stock awards.
Stock option awards are based on guidelines that provide for larger awards
commensurate with payband levels that reflect competitive grant practices within
a broad peer group of companies in the insurance, financial services and banking
industries. Included in the peer group are three of the seven companies which,
along with the Corporation, comprise the Standard & Poor's Property and Casualty
Index, and nine additional insurance companies against which the Corporation has
over time compared itself. The peer group also contains one insurance brokerage
and eight financial services and banking companies, reflecting the fact that the
Corporation also operates generally within the broader financial services
industry.
Performance share awards are generally granted annually and are earned
based on earnings per share targets or other selected corporate financial goals
for three year performance periods. As with options, the number of performance
shares granted is based on payband levels and the executive's most recent level
of performance. Payment values are dependent on the Corporation's stock price at
the end of the performance period, thus linking executives' interests directly
with Shareholders, as well as the achievement of selected corporate financial
goals. The number of performance shares actually earned and paid out for each
three year performance period can vary from 0% to 150% of the original target
award based on the attainment of these corporate goals. In 1998, a performance
goal was established for the three year performance period ending in 2000
reflecting a cumulative operating earnings per share target for such period. In
connection with the previously announced implementation of the cost control
initiative in the first quarter of 1998 and the sales activities in 1997
involving Bellemead Development Corporation, the Committee determined that it
would be appropriate to adjust the calculation of operating income for the three
year performance period ended December 31, 1998 so that the intended benefit of
such related awards, as initially proposed, was preserved.
The Committee in 1998 established an overall pool and, for selected senior
executives, individual maximum awards for performance-based restricted stock
awards. The overall pool established for the performance cycle ending December
31, 2000 was set not to exceed 15% of the same number of performance shares
deemed earned for the performance share cycle concluding on such date.
Allocations for selected senior executives were based on their potential
performance and long range contributions to the Corporation.
Regular restricted stock awards are generally granted as an alternative to
performance shares to a limited number of executive officers in positions
requiring specialized skills and knowledge that do not entail the broad
management responsibilities most appropriately tied to performance share grants
and performance-based restricted stock grants.
16
<PAGE> 19
CEO COMPENSATION
Mr. O'Hare is a participant in all of the aforementioned components of the
compensation program except regular restricted stock awards. The value of his
compensation from each component of the program is a direct reflection of both
his individual performance and the Corporation's performance as described below.
Over 80% of Mr. O'Hare's compensation is in the form of variable pay.
Mr. O'Hare's salary was reviewed in March 1999 under the Corporation's
normal merit guidelines. Based upon the Committee's judgment of his performance
during the 12 month review period, Mr. O'Hare received an increase of 4.9%. The
principal performance criteria considered by the Committee were the
Corporation's relative performance versus competitors in key financial measures
such as earnings per share, net income, operating income, return on equity and
revenue against established targets. Additional considerations were Mr. O'Hare's
achievement in 1998 in successfully implementing a major expense reduction
program, continued expansion of the Corporation's global business and the
initiation of a program to identify and accelerate new growth initiatives.
Working toward a goal of growing Chubb through strategic acquisitions, the
Committee also considered Mr. O'Hare's success in forging relationships with
seven companies. Chubb committed to investments in three insurance companies:
Italseguros Internacional, the business operations of Wellington Personal
Insurance Limited and Hiscox plc. In addition, Mr. O'Hare initiated negotiations
with Executive Risk Inc. which led to the merger agreement in February 1999.
Chubb also made two investments in insurance brokerages, USI and Willis Corroon
and formed Chubb Re, a reinsurance subsidiary. Additional criteria considered
were industry leadership, corporate citizenship and succession planning.
Mr. O'Hare's annual cash incentive award for 1998 was $850,000 which
represents a decrease of 43.3% from the incentive award paid for 1997. The
Corporation achieved a combined loss and expense ratio of 99.8%, which
outperformed the combined ratio average of 105.9% for the industry comparison
group referred to above under the discussion concerning Annual Cash
Compensation. In addition, the Corporation achieved 86.1% of its net income (as
defined) goal, recorded an operating earnings return on equity of 11.3% which
surpassed the industry comparison group's average of 8.2% and grew investment
income after taxes by 6.5% compared to the average of 2.9% for the industry
comparison group. The Committee considered these results as well as Mr. O'Hare's
leadership skills and financial management talent in determining the incentive
award paid to him.
In March 1998, Mr. O'Hare was granted 10,130 performance shares for the
three year performance period ending December 2000 and was granted stock options
for 73,245 shares. The Committee recognized that the Corporation achieved
outstanding results in 1997 as measured by, among other things, the principal
performance criteria described above. The Committee decided to award grants that
were very competitive within the peer group described under the general
discussion concerning Long-Term Incentive Awards.
With respect to performance shares granted in February 1996 for the three
year performance period which ended December 1998, the cumulative earnings per
share, as adjusted, during this performance period were slightly below the
target established by the Committee in 1996. On this basis, Mr. O'Hare earned
performance shares having a value of $826,775, compared with the performance
share award payment made last year of $673,920.
On March 11, 1999, Mr. O'Hare was awarded 4,185 shares of performance-based
restricted stock for 1998 results. The shares had a fair market value on the
award date of $250,184 (without regard to any diminution in value attributable
to the restrictions on the shares). This compares with his performance-based
restricted stock award for 1997 of $327,642. The Committee believes that the
percentage of the performance-based restricted stock pool awarded to Mr. O'Hare
reflects his contribution to the Corporation's results and directly relates to
the financial interests of Shareholders, management and employees.
The foregoing report has been furnished by the following members of the
Board of Directors of the Corporation who, along with Richard D. Wood who
retired from the Board of Directors on December 31, 1998, comprised the
Organization & Compensation Committee:
<TABLE>
<S> <C>
Lawrence M. Small (Chairman) David H. Hoag
Sheila P. Burke Warren B. Rudman
</TABLE>
17
<PAGE> 20
PENSION PROGRAM
Eligible employees of the Corporation and certain of its subsidiaries
participate in The Pension Plan of The Chubb Corporation, Chubb & Son Inc. and
Participating Affiliates (the "Pension Plan"). As in effect during 1998, the
Pension Plan provides to each such employee annual retirement income beginning
at age 65 equal to the product of (x) the total number of years of participation
in the Pension Plan (but not more than 35 years) and (y) the difference between
(i) 1 3/4% of average compensation for the five years in the last ten years of
participation prior to retirement during which the employee was most highly paid
("final average earnings") and (ii) an amount related to the employee's primary
Social Security benefit.
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Internal Revenue Code of 1986, as amended (the "Code"), impose maximum
limitations on the annual amount of a pension which may be paid under a funded
defined benefit plan such as the Pension Plan. The Pension Plan complies with
these limitations. The Board of Directors adopted, effective as of January 1,
1976, an unfunded benefit equalization plan of the type permitted by ERISA which
will provide annual payments to persons who are participants under the Pension
Plan and their beneficiaries. Such payments will be equal to the difference
between (a) the benefits which would be payable to such persons under the
Pension Plan, without taking into consideration the limitations imposed by ERISA
and the Code and (b) the maximum annual benefits to which such persons are
entitled under the Pension Plan by reason of such limitations.
The table which follows shows the estimated annual benefits payable upon
retirement to persons in specified remuneration and years-of-service
classifications under the Pension Plan and the unfunded benefit equalization
plan (referred to collectively as the "Pension Program"). The retirement
benefits shown are based upon retirement at the age of 65 and computed on the
basis of straight life annuity benefits. Such benefits, as shown in the
following table, are subject to an offset of an amount related to the primary
Social Security benefits in an amount approved by the Internal Revenue Service
in effect at the time of retirement.
ESTIMATED ANNUAL RETIREMENT BENEFITS PAYABLE AT AGE 65
STRAIGHT LIFE ANNUITY BASIS
TO AN EMPLOYEE RETIRING IN 1999
<TABLE>
<CAPTION>
FINAL
AVERAGE YEARS OF CREDITED SERVICE
EARNINGS --------------------------------------------------------------------
-------- 15 20 25 30 35 OR MORE
<C> <S> <C> <C> <C> <C> <C>
$ 100,000 ................. $ 26,250 $ 35,000 $ 43,750 $ 52,500 $ 61,250
200,000 ................. 52,500 70,000 87,500 105,000 122,500
400,000 ................. 105,000 140,000 175,000 210,000 245,000
600,000 ................. 157,500 210,000 262,500 315,000 367,500
800,000 ................. 210,000 280,000 350,000 420,000 490,000
1,000,000 ................. 262,500 350,000 437,500 525,000 612,500
1,300,000 ................. 341,250 455,000 568,750 682,500 796,250
1,600,000 ................. 420,000 560,000 700,000 840,000 980,000
1,800,000 ................. 472,500 630,000 787,500 945,000 1,102,500
2,000,000 ................. 525,000 700,000 875,000 1,050,000 1,225,000
2,200,000 ................. 577,500 770,000 962,500 1,155,000 1,347,500
2,400,000 ................. 630,000 840,000 1,050,000 1,260,000 1,470,000
2,600,000 ................. 682,500 910,000 1,137,500 1,365,000 1,592,500
2,800,000 ................. 735,000 980,000 1,225,000 1,470,000 1,715,000
3,000,000 ................. 787,500 1,050,000 1,312,500 1,575,000 1,837,500
</TABLE>
Remuneration covered by the Pension Program includes salary (including
salary contributed to the Capital Accumulation Plan of The Chubb Corporation,
Chubb & Son Inc. and Participating Affiliates),
18
<PAGE> 21
overtime and awards under The Chubb Corporation Annual Incentive Compensation
Plans, the Investment Department Incentive Plan and the Profit Sharing Plan
(1987) in the year paid rather than the year earned.
With respect to the individuals named in the Summary Compensation Table on
page 10, Messrs. Degnan, Kelso, Motamed, O'Hare and O'Reilly have, for the
purposes of the Pension Program, 7, 1 1/2, 20 1/2, 34 1/2 and 28 years of
credited service, respectively, and their 1998 remuneration for purposes of the
Pension Program was $965,447, $915,866, $727,199, $2,456,824 and $855,268,
respectively.
EXECUTIVE SEVERANCE AGREEMENTS
Pursuant to a recommendation by the Organization & Compensation Committee
and authorization by the Board of Directors, the Corporation has in force
severance agreements with five executive officers of the Corporation. Each
agreement becomes operative only upon a "Change in Control" that occurs when the
officer is in the employ of the Corporation. Under the agreements, a "Change in
Control" occurs if (a) following a tender or exchange offer for voting
securities of the Corporation, a proxy contest for election of the directors, or
a merger or consolidation or sale of all or substantially all of its business or
assets, its directors immediately prior to such event cease to constitute a
majority of the Board of Directors when such event occurs or within one year
thereafter or (b) any person or group acquires 25% or more of the outstanding
voting securities of the Corporation without prior approval by a majority of the
Directors then in office. Such agreements have an initial term of two years and
are automatically extended for successive two year periods unless the
Corporation gives one year's prior notice that it is terminating an agreement at
the end of the then current two year period.
If a change in control occurs and the officer's employment with the
Corporation terminates within two years thereafter (other than by reason of
death, disability, retirement at normal retirement age, discharge for cause, or
voluntary termination by the officer except for Good Reason), the officer
becomes entitled to the severance benefits described below. Termination for
"Good Reason" means termination because of, among other things, the involuntary
assignment of such officer to duties inconsistent with the officer's position
prior to such change in control; reduction of the officer's base salary or
bonus; the Corporation acting with adverse effect upon the officer's benefits
under any benefit plans in which the officer is participating at the time of
such change in control; or a determination made by the officer in good faith
that as a result of such change in control the officer cannot discharge the
officer's duties effectively.
Upon such termination, the officer's severance benefits shall equal a
multiple of the sum of (i) one year's salary at the annual rate in effect at the
time of the change in control and (ii) the average of the officer's annual
awards under the Corporation's incentive compensation plans for the three years
preceding such change in control. The multiple is four in the case of Mr. O'Hare
and two in the case of the other officers. Also, the Corporation must maintain
in force the insurance and disability benefits available to the officer
immediately prior to the change in control, or their equivalents, for two years
after such termination or until the earlier commencement of new, full-time
employment by the officer. The officer is not required to mitigate the amount of
any payments by seeking other employment. The Corporation must pay all legal
fees and expenses incurred by the officer as a result of such termination,
including any incurred in seeking to enforce the severance agreement.
As of March 8, 1999, payments to the officers with whom the Corporation has
severance agreements would have been as follows: Mr. John J. Degnan, $1,726,667;
Mr. David B. Kelso, $1,510,000; Mr. Thomas F. Motamed, $1,343,333; Mr. Dean R.
O'Hare, $8,680,000 and Mr. Michael O'Reilly, $1,490,400. The Corporation does
not believe that payment of these amounts would have a material adverse effect
on the financial or operating condition of the Corporation. The Long-Term Stock
Incentive Plans provide for the accelerated payment or vesting of awards granted
under such plans in the event of a Change in Control of the Corporation.
19
<PAGE> 22
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Organization & Compensation Committee is composed of Messrs. Small
(Chairman), Hoag, Rudman and Ms. Burke. Richard D. Wood, a Director who retired
effective December 31, 1998, was a member of the Committee prior to his
retirement. No current or former officers or employees of the Corporation or any
of its subsidiaries serves on the Organization & Compensation Committee. No
executive officer of the Corporation has served on the compensation committee of
another corporation except Mr. O'Hare who serves on the Organization and
Compensation Committee of the Fluor Corporation.
TRANSACTIONS WITH DIRECTORS AND THEIR ASSOCIATES
Mr. Percy Chubb, III retired as an officer of the Corporation and from
employment on February 1, 1997. Through January 31, 1999, Mr. Chubb served as a
consultant to the Corporation for which he was paid $100,000 per annum in
quarterly installments on the last day of each calendar quarter.
Mr. Joel J. Cohen is a Managing Director of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), which firm provides securities brokerage and
investment advisory services to the Corporation and its subsidiaries. In
addition, certain subsidiaries of the Corporation participate as limited
partners in an investment partnership of which DLJ Merchant Banking Inc. is the
managing general partner.
Sir David G. Scholey, CBE is Senior Advisor, Warburg Dillion Read, the
investment banking division of UBS AG. Warburg Dillon Read during 1998 provided
certain securities transaction services to the Corporation and its subsidiaries
through its affiliate companies.
Ambassador Raymond G. H. Seitz is a Vice Chairman of Lehman Bros.
International (Europe), which firm and its affiliated companies provide
securities transaction services to the Corporation and its subsidiaries.
The Corporation believes that the above transactions were effected on terms
as favorable to the Corporation and its subsidiaries as could have been obtained
from other sources in view of the nature of the services rendered.
In 1998, various subsidiaries of the Corporation had transactions in the
ordinary course of their business with certain Directors and officers of the
Corporation and their associates in connection with policies of insurance issued
to them by such subsidiaries. All employees of the Corporation and certain of
its subsidiaries are offered the opportunity to obtain property and casualty
personal insurance from various subsidiaries of the Corporation at a price
representing a maximum discount of 10% from the regular price.
TRANSACTIONS WITH CERTAIN SHAREHOLDERS
The Corporation has relationships with insurance companies which are
subsidiaries of Royal & Sun Alliance, an insurance holding company organized
under the laws of England (collectively, the "Sun Group"). As reported, the Sun
Group as of March 8, 1999 was the beneficial owner of approximately 5.6% of the
Corporation's Common Stock, acquired solely for the purpose of investment.
In the regular course of their international business, the Corporation's
property and casualty insurance subsidiaries may and do assume and cede
reinsurance to and from insurance companies which are subsidiaries of Royal &
Sun Alliance, as they do with other insurers on similar terms and conditions.
The Corporation believes that such transactions are all on terms as
favorable to the Corporation as those available from unrelated third parties.
20
<PAGE> 23
APPROVAL OF SELECTION OF
INDEPENDENT AUDITORS
The Board of Directors, acting upon the recommendation of the Audit
Committee, recommends for approval by the Shareholders the selection of Ernst &
Young LLP ("Ernst & Young") as the independent auditors of the Corporation for
the year 1999. Ernst & Young has acted as such auditors for the Corporation for
many years.
In addition to its principal service of auditing the financial statements
of the Corporation and its subsidiaries, Ernst & Young provided certain
non-audit services for the Corporation and its subsidiaries during 1998, and
such services were reviewed by the Audit Committee. In reviewing such services,
the Audit Committee determined that the nature of the services and the estimated
fees to be charged would have no adverse effect on the independence of the
auditors.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting and to have the opportunity to make a statement should they desire to do
so and to be available to respond to appropriate questions.
21
<PAGE> 24
ITEM 3 -- SHAREHOLDER PROPOSAL THAT ALL FUTURE STOCK OPTION GRANTS TO SENIOR
EXECUTIVES
SHALL BE PERFORMANCE-BASED.
We received a request from the AFL-CIO Staff Retirement Plan, 815 Sixteenth
Street, N.W., Washington, D.C. 20006 (the "Proponent") the beneficial owner of
26,900 shares of our common stock, par value $1 per share (the "Common Stock")
to include the following shareholder proposal and supporting statement
(collectively, the "Proposal") in this Proxy Statement.
The shareholder proposal: "RESOLVED: That the shareholders of The Chubb
Corporation (the "Company") urge the board of directors to adopt an executive
compensation policy that all future stock option grants to senior executives
shall be performance-based. For the purposes of this resolution, a stock-option
is performance-based if its exercise price is either 1) linked to an industry
index, such as Standard and Poor's Property-Casualty Insurance Index; or 2)
significantly above the current market price of the stock at the grant date."
SUPPORTING STATEMENT
As shareholders of the Company, we support compensation policies for senior
executives that provide challenging performance objectives and serve to motivate
executives to achieve long-term shareholder value. However, stock option grants
without performance-based targets can often excessively compensate executives
for stock increases due solely to a general stock market rise, rather than
improved or superior company performance.
Given the fact that the Company's stock price has substantially lagged
behind the S & P 500 Index and the S & P Property and Casualty Index over the
last five years, we believe it is particularly important that stock option
grants be designed to encourage senior executives to achieve superior
performance. For example, Chairman and CEO Dean O'Hare stands to gain nearly
$3.8 million from last year's grant of 99,250 stock options by achieving a mere
5% annual shareholder return over the term of the grant. To encourage senior
executives to achieve superior performance, we believe premium-priced or indexed
stock options are a far more appropriate form of stock option compensation.
Indexed stock options are options whose exercise price moves with an
appropriate market index composed of the Company's key competitors. By tying the
exercise price to a market index, these options ensure that executives are
rewarded for outperforming the competition, rather than simply benefiting from a
rise in the stock market as a whole. By downwardly adjusting the exercise price
of the option during a downturn in the industry, indexed options remove pressure
from the board to reprice stock options. Premium-priced stock options, which set
the exercise price above the market price of the stock at grant date, are also
an effective way to ensure that management is encouraged to maximize shareholder
value.
In response to shareholder concern about the absence of strong
performance-based forms of executive compensation, companies are increasingly
adopting stock option plans that require premium pricing or links to market
indices. According to Executive Compensation Reports, approximately 16% of the
biggest U.S. businesses granting options attached performance targets, up
substantially from 7% in 1993. Recently, leading companies such as Monsanto,
BankAmerica, Citicorp, and Colgate-Palmolive have adopted performance-based
stock option plans.
Leading corporate governance experts, including Institutional Shareholder
Services and the Council of Institutional Investors, support performance-based
stock options as an effective way to motivate executives to achieve long-term
shareholder value. Moreover, many compensation experts -- including Pearl Meyer,
Graef Crystal, and SCA Consulting -- have also backed performance-based stock
options.
For these reasons we urge shareholders to vote FOR this proposal.
22
<PAGE> 25
CORPORATION'S RESPONSE
The Corporation's Organization & Compensation Committee of the Board of
Directors is composed of five non-management directors and has responsibility
for the oversight of the Corporation's executive compensation program. The
Committee makes use of independent consulting firms to inform itself of
developments in the design of compensation plans and to stay abreast of the
comparability of the Corporation's total compensation package relative to
companies with which the Corporation competes for management talent.
The Corporation's executive compensation package has a financial value that
positions the corporation near the median of comparator groups composed of
property and casualty insurance companies as well as other financial services
corporations. Other than base salary, all major elements of the compensation
package are clearly designed to link the interests of executives with those of
shareholders. Additionally, the Corporation's executives hold significant
amounts of the Corporation's stock, with employees and directors as a whole
owning over 5% of the Corporation's outstanding shares. On balance, the
Corporation's management team enjoys a worldwide reputation for impeccable
integrity, customer focus and innovativeness, has demonstrated the ability to
attract and retain top quality people for decades and clearly has ample
compensation flexibility to keep executives motivated to enhance shareholder
value.
The Organization & Compensation Committee has considered the granting of
performance-based stock options and sees no motivational or competitive reason
to do so. The Corporation's current stock option program is of the type used by
the vast majority of U.S. corporations and in particular, by the companies with
which the Corporation competes for management talent. There are almost no
corporations that limit stock option grants exclusively to premium-priced or
indexed options. Those that use premium-priced options are a small minority of
U.S. corporations. Companies that have made grants of premium-priced options
have often accompanied them with traditional market values options and the
financial value of the awards has frequently been higher by multiples of the
values historically awarded to its executives. The Corporation sees no reason to
follow this pattern.
The Corporation grants stock options in accordance with a shareholder
approved plan. Indexed stock options are not permitted under this plan because
the option exercise price could fall below the market price of the stock on the
grant date. When indexed options are used, the difference between the stock's
market price and the option exercise price must be reflected in the quarterly
earnings of the Corporation until the option is exercised. Because of this,
indexed options are rare among U.S. corporations. The Committee believes that
the use of indexed options depresses and artificially adds volatility to the
Corporation's earnings and is not beneficial to shareholder interests.
The Corporation feels it is important to preserve the flexibility of its
compensation program so the Organization & Compensation Committee can choose
incentives to best motivate the Corporation's executives. The incentives needed
may change from year-to-year. The proposal would limit this flexibility.
FOR THE ABOVE REASONS, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE
PROPOSAL. PROXIES SOLICITED BY THE BOARD WILL BE VOTED AGAINST THE PROPOSAL
UNLESS A SHAREHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
ITEM 4 -- SHAREHOLDER PROPOSAL TO AMEND THE CORPORATION'S BY-LAWS WITH RESPECT
TO THE CORPORATION'S RIGHTS PLAN
We received a request from the National Retirement Fund of the Union of
Needletrades, Industrial and Textile Employees, 2100 L Street, N.W., Suite 210,
Washington, D.C. 20037 (the "Proponent"), the beneficial owner of 21,500 shares
of our common stock, par value $1 per share (the "Common Stock"), to include the
following shareholder proposal and supporting statement (collectively, the
"Proposal") in this proxy statement:
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<PAGE> 26
The shareholder proposal: "RESOLVED, pursuant to Section 2-9 of the New
Jersey Business Corporation Act and Article X of the By-Laws of the Chubb
Corporation ("Company"), the shareholders of the Company hereby amend the
By-Laws to add the following Article XI which is to take effect immediately
if approved:
"ARTICLE XI.
Treatment of Shareholder Rights Plans.
The Board of Directors shall not change the expiration date of the
shareholder rights plan or adopt any new shareholder rights plan,
without the approval of such actions by a majority of the votes
cast at the shareholder meeting where the matter is considered. If
this article is amended or rescinded by the Board of Directors,
then notwithstanding anything in these bylaws to the contrary,
holders of 10% of the outstanding shares may by notice to the
Company secretary, call a special meeting of stockholders to be
held on a date designated by such 10% holders, to vote on a
proposal to repeal such action taken by the Board. Such notice
shall be deemed to meet the requirements of Article III Section 4
of these By-Laws. Further, any amendment to the current shareholder
rights plan extending the expiration date and any new shareholder
rights plan adopted by the Board of Directors after June 12, 1999,
are hereby repealed and rescinded as of the date this bylaw is
adopted."
The supporting statement. In June 1989, the Company granted one quarter of
a right to purchase one one-hundredth of a share of Series A Participating
Cumulative Preferred Stock for each outstanding share of Chubb common stock
(a "Right"). These Rights are a type of corporate anti-takeover device
commonly known as a poison pill.
The Rights are due to expire on June 12, 1999. The Directors of the
Company currently have the power to reauthorize or otherwise extend these
Rights without shareholder approval.
We believe the terms of the Rights are designed to discourage or
thwart an unwanted takeover of our Company, at the expense of shareholders.
Shareholders should decide whether our Company needs a poison pill and
whether such a powerful tool should be used by our Board of Directors to
block a takeover. We have proposed an amendment to the Company's By-Laws to
give shareholders the power to make these decisions.
If adopted, this amendment will allow shareholders to hold a
referendum on any offer to acquire control of the Company. If shareholders
vote that the offer is in their best interests, the Board of Directors
would be required to stop using the poison pill to block the offer.
Meanwhile, there would be ample time for the Board to develop superior
alternatives for shareholders.
This By-Law would have the effect of requiring the Company's Board of
Directors to seek stockholder approval before renewing the existing poison
pill or adopting a new poison pill. If the Board of Directors unilaterally
extends the expiration date of the existing poison pill, or adopts a new
plan before this By-Law is adopted, the By-Law would repeal such action by
the Board.
We urge shareholders to vote FOR this resolution.
CORPORATION'S RESPONSE
Your Directors recommend a vote AGAINST this Proposal.
It is well-established under the case law of the Corporation's state of
incorporation, New Jersey, that by-law provisions contrary to statutory law are
illegal. Since the Proposal contemplates a by-law amendment that contradicts
specific provisions of the New Jersey Business Corporation Act (NJBCA), we
believe (based upon the advice of outside legal counsel) that the By-Law
amendment included in the Proposal would, if adopted, be invalid under New
Jersey law and therefore should not be adopted.
24
<PAGE> 27
The NJBCA confers broad management authority on the Board of Directors of a
New Jersey corporation, subject to any limitations contained in the
Corporation's Certificate of Incorporation or in the NJBCA. In particular, the
NJBCA provides a specific framework within which a Board of Directors may
exercise broad discretion in the area of corporate takeovers. Section 14A:6-1 of
the NJBCA provides that a director, in taking any action to discharge his or her
fiduciary duties and, in determining what he or she reasonably believes to be in
the best interests of the corporation, may consider, in addition to the effects
on shareholders, the effects of such action on other constituencies including
employees, suppliers, creditors, customers and the community in which the
corporation operates. A director may also consider the long-term as well as
short-term interests of the corporation and its shareholders, including the
possibility that these interests may best be served by the continued
independence of the corporation. On the basis of these considerations, if a
board of directors determines that any proposal to acquire the corporation is
not in the best interests of the corporation, the statute specifically provides
that the board may reject such proposal and, in doing so, has no duty to
facilitate, or refrain from impeding, the proposal.
Moreover, unlike the statutory law of some other states, the NJBCA contains
a provision known as a "shareholder rights plan endorsement statute" (rights
plan statute). This provision explicitly embraces the right of a New Jersey
corporation to adopt a shareholder rights plan and entrusts this right (and the
right to fix the terms thereof) to the corporation's board of directors, unless
the certificate of incorporation provides otherwise. In relevant part, the
rights plan statute provides that:
(1) Subject to any provisions . . . set forth in its certificate of
incorporation . . . a corporation may create or issue . . . rights or
options entitling the holders thereof to purchase from the corporation
shares of any class or series for such consideration and upon such
terms and conditions as may be fixed by the board. Such rights or
options shall be evidenced in such manner as the board shall approve .
. . A good faith judgment of the board as to the adequacy of the
consideration received for such right or options is conclusive.
(3) Notwithstanding [certain provisions of the NJBCA], and unless otherwise
provided in the certificate of incorporation . . . a corporation may .
. . authorize and issue rights or options which include conditions that
prevent the holder of a specified percentage of the outstanding shares
of the corporation . . . from exercising those rights or options or
which invalidate any rights or options beneficially owned by the holder
of a specified percentage of the outstanding shares of the corporation
. . . Section 14A:7-7 of the NJBCA (emphasis added).
Since the Corporation's Certificate of Incorporation does not restrict the
authority of the Corporation's Board to adopt a rights plan or to fix the terms
and conditions of the rights, the Board has the exclusive authority to amend the
terms of the Corporation's outstanding rights plan and/or to adopt a new rights
plan. Any limitation on the Board's authority in this respect must be contained
in the Corporation's Certificate of Incorporation. Although the NJBCA provides
that any provision required or permitted in a corporation's By-Laws may be set
forth in the corporation's certificate, there is no comparable provision
permitting provisions required or permitted to be set forth in the certificate
of incorporation to be set forth in the By-Laws.
On February 12, 1999, the Corporation received an opinion from our outside
legal counsel, Shanley & Fisher, P.C., which supports the foregoing legal
analyses and concludes that the By-Law amendment included in the Proposal would,
if adopted, be invalid under New Jersey law.
Pursuant to its authority under NJBCA and the Corporation's Certificate of
Incorporation and, in light of the advice of outside legal counsel, on March 12,
1999, your Board authorized the redemption of the rights issued under the 1989
rights plan (the "1989 Plan") and adopted a new rights plan (the "1999 Plan").
Pursuant to the 1999 Plan, similar to the 1989 Plan, a dividend of one preferred
stock purchase right for each outstanding share of Common Stock will be issued
to the holders of record as of the close of business on March 31, 1999. If
triggered, each new right would entitle its registered holder to acquire
additional shares of Common Stock (or, in certain limited cases, other
securities or property of the Corporation) at a substantial discount. Under the
1999 Plan, the new rights would be triggered ten days following a public
announcement
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that a person has accumulated, or has begun a tender offer for, 20% or more of
the Common Stock. The new rights will expire, unless earlier triggered, redeemed
or exchanged, on March 12, 2009. Please refer to the Summary of Rights to
Purchase Preferred Stock which will be mailed to shareholders on or about March
31, 1999.
In deciding to adopt the 1999 Plan your Board considered a variety of
factors. Our Corporation has never embraced the wide variety of antitakeover
devices utilized by many other corporations. For example, we do not have a
classified or "staggered" board of directors and there is no "fair price"
provision in our charter. Similarly, New Jersey law permits 10% of the
shareholders to convene special meetings upon a showing of good cause to the
appropriate court. In our judgment, the 1999 Plan provides some measure of
protection against potential raiders who are not willing or able to make a fair
offer to our shareholders. Moreover, several reputable studies have demonstrated
that the stockholders of companies with rights plans received takeover premiums
higher than those received by stockholders of companies not protected by such
plans. A study released in November 1997 by Georgeson & Co., a nationally
recognized proxy solicitation firm, also showed that the presence of a rights
plan did not increase the likelihood of defeat of a hostile takeover bid nor the
withdrawal of a friendly bid and that the takeover rate was similar for
companies with and without rights plans.
There are two important differences between the 1999 Plan and the 1989
Plan.
First, and most importantly, the 1999 plan provides for periodic review by
a committee of independent directors who will evaluate whether the 1999 Plan
continues to be in the best interests of the Corporation and you, our
shareholders. This review will occur annually. This committee will also evaluate
the plan in the event the Corporation is subject to an unsolicited takeover
offer. If the committee concludes that maintaining the plan is no longer in the
best interests of our shareholders or the Corporation (because, for example, the
bidder is offering a fair and adequate price and has structured the offer to
treat all shareholders fairly), the rights under the plan will be redeemed. This
independent director review is designed to ensure that board members who are not
subject to possible conflicts of interest which might arise from employment by
the Corporation are satisfied that the Plan continues to serve the purposes
underlying its adoption.
Second, the 1999 Plan is triggered by the acquisition of, or commencement
of a tender offer for, 20% or more of the Corporation's shares whereas the 1989
Plan had a trigger of 25%. We believe that lowering the trigger to 20% brings
our plan more in line with the preponderance of rights plans adopted by major
corporations.
The Corporation has not determined what action, if any, it would take in
the event that the Proposal is approved at the Annual Meeting. The Corporation
reserves the right to challenge the validity of the By-Law amendment included in
the Proposal in appropriate court proceedings.
FOR THE ABOVE REASONS, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE
PROPOSAL. PROXIES SOLICITED BY THE BOARD WILL BE VOTED AGAINST THE PROPOSAL
UNLESS A SHAREHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
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<PAGE> 29
VOTING, SOLICITATION OF PROXIES, SHAREHOLDER
PROPOSALS AND NOMINATIONS
The Proxy, if returned properly executed and not subsequently revoked by
written notice delivered to the Secretary of the Corporation, will be voted in
accordance with the choice made by the Shareholder with respect to the proposals
listed thereon. If a choice is not made with respect to such proposals and
authority to vote for Directors is not withheld, the Proxy will be voted in
favor of the proposal to approve the selection of independent auditors for the
year 1999, against the shareholder proposal regarding performance-based stock
options, against the shareholder proposal to amend the Corporation's By-Laws
with respect to the Corporation's rights plan and voted for the election of the
Board of Director nominees as Directors as described under "Election of
Directors" above.
Under New Jersey law and the Corporation's By-Laws, each share of Common
Stock outstanding on the record date is entitled to one vote at the Annual
Meeting of Shareholders, and the presence in person or by proxy of the holders
of shares entitled to cast a majority of the votes constitutes a quorum. Votes
are tabulated by the Corporation's transfer agent using the transfer agent's
automated system. Under New Jersey law, Directors are elected by a plurality of
the votes cast at the meeting. Approval of the selection of independent auditors
and approval of each of the shareholder proposal regarding performance-based
stock options and the shareholder proposal to amend the Corporation's By-Laws as
respects the Corporation's rights plan require the affirmative vote of a
majority of the votes cast by Shareholders entitled to vote at the Annual
Meeting. Proxies submitted with abstentions and broker non-votes are included in
determining whether or not a quorum is present. Votes withheld for the election
of Directors have no impact on the election of Directors, except that votes
withheld may result in another individual receiving a higher number of votes.
Abstentions will not be counted in tabulating the votes with respect to the
approval of selection of independent auditors and the two shareholder proposals.
Broker non-votes will not be counted in tabulating the votes with respect to the
proposals presented to Shareholders.
The Board of Directors is aware of no matters other than those specifically
stated in the Notice of Annual Meeting which are to be presented for action at
the meeting. However, should any further matter requiring a vote of the
Shareholders arise, it is the intention of the persons named in the Proxy to
vote the Proxy in accordance with their judgment.
The cost of this solicitation of proxies is being borne by the Corporation.
In addition to the solicitation of proxies by use of the mails, the Corporation
may use the services of one or more Directors, officers or other regular
employees of the Corporation (who will receive no additional compensation for
their services in such solicitation) to solicit proxies personally and by
telephone. Arrangements will be made with brokerage firms and other custodians,
nominees and fiduciaries to forward solicitation material to the beneficial
owners of the shares held of record by such persons and the Corporation will
reimburse them for reasonable expenses actually incurred by them in so doing. In
addition, the Corporation has retained Georgeson & Company Inc., New York, New
York, to aid in the solicitation of proxies by mail, in person and by telephone
for a fee which is estimated not to exceed $25,000 plus out-of-pocket expenses.
Proposals by Shareholders intended to be presented at the 2000 Annual
Meeting must be received by the Corporation no later than November 25, 1999 in
order to be qualified for inclusion in the Corporation's Proxy Statement and
form of proxy for such meeting. Under the Corporation's By-Laws, proposals
intended to be presented at an Annual Meeting without inclusion in the
Corporation's Proxy Statement for the meeting, and/or nominations of persons for
election as directors at an Annual Meeting, may be made by a stockholder who was
a stockholder of record at the time of the giving of notice to the Corporation
of such proposal or nomination, who is entitled to vote at such Annual Meeting
and who complies with the notice procedures set forth in the Corporation's
By-Laws. For such business and/or nominations to be properly brought before an
Annual Meeting, written notice thereof shall be delivered to the Secretary of
the Corporation at the principal executive offices of the Corporation not less
than 90 nor more than 120 days prior to the first anniversary of the preceding
year's Annual Meeting. Such notice shall set forth (A) as to such business that
the stockholder proposes to bring before the meeting, a brief description of
such business, the reasons for conducting such business at the meeting, any
material interest of such stockholder in such business and the beneficial owner,
if any, on whose behalf the proposal is made, (B) as to each person whom the
stockholder proposes to nominate for election as a director, all information
relating to such person that would be required to be disclosed in a
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<PAGE> 30
solicitation of proxies for the election of such person as a director pursuant
to Regulation 14A under the Securities Exchange Act of 1934 (including such
person's written consent to being named in the Proxy Statement as a nominee and
to serving as a director if so elected); and (C) as to the stockholder giving
the notice and the beneficial owner, if any, on whose behalf the proposal or
nomination is made (1) the name and address of such stockholder, as they appear
on the Corporation's books, and of such beneficial owner and (2) the class and
number of shares of the Corporation which are owned beneficially and of record
by such stockholder and such beneficial owner.
A copy of Article III, Section 10, of the Corporation's By-Laws, which
covers the foregoing matters, is available without charge to stockholders of
record upon written request to the Corporation at its principal executive
offices, attention: Henry G. Gulick, Vice President and Secretary, 15 Mountain
View Road, P.O. Box 1615, Warren, New Jersey 07061-1615.
By order of the Board of Directors,
HENRY G. GULICK
Vice President and Secretary
March 24, 1999
28
<PAGE> 31
THE CHUBB CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION FOR THE ANNUAL MEETING TO BE HELD ON APRIL 27, 1999
P The undersigned shareholder of THE CHUBB CORPORATION (the "Corporation")
R acknowledges receipt of the Notice of the Annual Meeting of Shareholders
O and Proxy Statement each dated March 24, 1999 and the undersigned revokes
X all prior proxies and appoints DEAN R. O'HARE, HENRY G. GULICK and PHILIP
Y J. SEMPIER, and each of them, proxies for the undersigned to vote all
shares of Common Stock of the Corporation, which the undersigned would be
entitled to vote at the Annual Meeting of Shareholders to be held at 15
Mountain View Road, Warren, New Jersey at 11:00 a.m. on April 27, 1999 and
any adjournment or postponement thereof, on all matters coming properly
before said meeting.
On matters for which you do not specify a choice, your shares will be voted
in accordance with the recommendation of the Board of Directors.
Nominees for the Election of Directors are:
1. Zoe Baird 9. Thomas C. MacAvoy
2. John C. Beck 10. Dean R. O'Hare
3. Sheila P. Burke 11. Warren B. Rudman
4. James I. Cash, Jr. 12. Sir David G. Scholey, CBE
5. Percy Chubb, III 13. Raymond G. H. Seitz
6. Joel J. Cohen 14. Lawrence M. Small
7. James M. Cornelius 15. James M. Zimmerman
8. David H. Hoag
PLEASE MARK, SIGN, DATE AND RETURN PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
-----------
SEE REVERSE
SIDE
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<PAGE> 32
Please mark your
[X] votes as in this 1816
example.
WHEN PROPERLY EXECUTED THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2 AND AGAINST PROPOSALS 3 AND 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" BOARD PROPOSALS 1 AND 2
FOR WITHHELD
1. Election of Directors / / / /
(see reverse)
To withhold authority to vote for any nominee, specify name below:
_________________________________________________________________
2. On independent accountants FOR AGAINST ABSTAIN
/ / / / / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE
FOLLOWING SHAREHOLDER PROPOSALS.
FOR AGAINST ABSTAIN
3. Shareholder Proposal that all
future Stock Option grants to / / / / / /
senior executives shall be
performance-based.
FOR AGAINST ABSTAIN
4. Shareholder Proposal to amend
the Corporation's By-Laws with / / / / / /
respect to the Corporation's
Rights Plan.
SIGNATURE(S)_________________________________________________ DATE______________
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If the signer is a corporation, sign the full corporate
name by duly authorized offer.
