<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the quarterly period ended June 30, 2000
-------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the transition period from to
-------------- --------------
Commission file number 1-8661
------------
THE CHUBB CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 13-2595722
------------------------------- --------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
15 MOUNTAIN VIEW ROAD, WARREN, NEW JERSEY 07061-1615
----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 903-2000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
---------------- ----------------
The number of shares of common stock outstanding as of July 31, 2000 was
174,752,165.
<PAGE> 2
THE CHUBB CORPORATION
INDEX
Page Number
-----------
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999.......................... 1
Consolidated Statements of Income for the
Three Months and Six Months Ended
June 30, 2000 and 1999....................................... 2
Consolidated Statements of Comprehensive Income
for the Three Months and Six Months Ended
June 30, 2000 and 1999....................................... 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999...................... 4
Notes to Consolidated Financial Statements.................... 5
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations.............. 8
Part II. Other Information:
Item 6 - Exhibits and Reports on Form 8-K....................... 16
<PAGE> 3
Page 1
THE CHUBB CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, Dec. 31,
2000 1999
-------- --------
(in millions)
<S> <C> <C>
Assets
Invested Assets
Short Term Investments............................... $ 531.3 $ 731.1
Fixed Maturities
Held-to-Maturity - Tax Exempt (market $1,692.4
and $1,801.0)..................................... 1,637.9 1,741.9
Available-for-Sale
Tax Exempt (cost $7,982.6 and $7,889.3)........... 8,043.8 7,867.5
Taxable (cost $5,311.8 and $5,054.7).............. 5,181.3 4,909.7
Equity Securities (cost $830.9 and $715.0)........... 863.0 769.2
--------- ---------
TOTAL INVESTED ASSETS......................... 16,257.3 16,019.4
Cash................................................... 18.7 22.7
Securities Lending Collateral.......................... 678.8 469.5
Accrued Investment Income.............................. 242.2 242.9
Premiums Receivable.................................... 1,350.6 1,234.7
Reinsurance Recoverable on Unpaid Claims............... 1,732.0 1,685.9
Prepaid Reinsurance Premiums........................... 224.5 240.1
Deferred Policy Acquisition Costs...................... 811.8 779.7
Real Estate Assets..................................... 679.0 699.4
Deferred Income Tax.................................... 610.9 584.2
Goodwill............................................... 497.3 507.2
Other Assets........................................... 1,187.1 1,051.3
--------- ---------
TOTAL ASSETS.................................. $24,290.2 $23,537.0
========= =========
Liabilities
Unpaid Claims.......................................... $11,687.4 $11,434.7
Unearned Premiums...................................... 3,415.6 3,323.1
Securities Lending Payable............................. 678.8 469.5
Long Term Debt......................................... 754.0 759.2
Dividend Payable to Shareholders....................... 57.6 56.2
Accrued Expenses and Other Liabilities................. 1,220.7 1,222.5
--------- ---------
TOTAL LIABILITIES............................. 17,814.1 17,265.2
--------- ---------
Shareholders' Equity
Common Stock - $1 Par Value; 178,438,759 and
177,272,322 Shares.................................... 178.4 177.3
Paid-In Surplus........................................ 452.2 418.4
Retained Earnings...................................... 6,231.6 6,008.6
Accumulated Other Comprehensive Income
Unrealized Depreciation of Investments................ (37.2) (112.6)
Foreign Currency Translation Losses, Net of Tax....... (56.5) (44.8)
Receivable from Employee Stock Ownership Plan.......... (68.8) (74.9)
Treasury Stock, at Cost - 3,978,439 and
1,782,489 Shares...................................... (223.6) (100.2)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.................... 6,476.1 6,271.8
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $24,290.2 $23,537.0
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 4
Page 2
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
PERIODS ENDED JUNE 30
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Revenues
Premiums Earned....................... $1,519.9 $1,377.5 $3,011.8 $2,757.3
Investment Income..................... 233.9 215.9 471.5 424.8
Real Estate........................... 14.1 47.3 45.8 56.7
Realized Investment Gains............. 6.1 45.9 11.9 77.4
-------- -------- -------- --------
Total Revenues................. 1,774.0 1,686.6 3,541.0 3,316.2
-------- -------- -------- --------
Claims and Expenses
Insurance Claims...................... 996.8 924.3 2,024.2 1,832.3
Amortization of Deferred Policy
Acquisition Costs.................... 406.7 373.7 809.2 747.4
Other Insurance Operating Costs
and Expenses......................... 108.6 90.1 213.2 182.3
Real Estate Cost of Sales and Expenses 14.9 48.1 47.5 58.4
Investment Expenses................... 3.3 3.0 8.5 8.2
Corporate Expenses.................... 19.5 11.5 40.1 25.1
-------- -------- -------- --------
Total Claims and Expenses...... 1,549.8 1,450.7 3,142.7 2,853.7
-------- -------- -------- --------
Income Before Federal and Foreign
Income Tax............................. 224.2 235.9 398.3 462.5
Federal and Foreign Income Tax.......... 39.6 42.6 60.0 82.3
-------- -------- -------- --------
Net Income.............................. $ 184.6 $ 193.3 $ 338.3 $ 380.2
======== ======== ======== ========
Average Common Shares Outstanding....... 175.1 161.3 174.9 161.4
Average Common and Potentially Dilutive
Shares Outstanding..................... 180.2 163.9 178.3 163.6
Net Income Per Share
Basic.................................. $1.05 $1.19 $1.93 $2.35
Diluted................................ 1.02 1.18 1.89 2.32
Dividends Declared Per Share............ .33 .32 .66 .64
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 5
Page 3
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PERIODS ENDED JUNE 30
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Net Income................................ $ 184.6 $ 193.3 $ 338.3 $ 380.2
------- ------- ------- -------
Other Comprehensive Income (Loss)
Change in Unrealized Appreciation or
Depreciation of Investments,
Net of Tax............................. (2.6) (206.1) 75.4 (286.6)
Foreign Currency Translation Losses,
Net of Tax............................. (6.7) (13.3) (11.7) (8.4)
------- ------- ------- -------
(9.3) (219.4) 63.7 (295.0)
------- ------- ------- -------
Comprehensive Income (Loss)............... $ 175.3 $(26.1) $ 402.0 $ 85.2
======= ====== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 6
Page 4
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30
<TABLE>
<CAPTION>
2000 1999
---- ----
(in millions)
<S> <C> <C>
Cash Flows from Operating Activities
Net Income............................................ $ 338.3 $ 380.2
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Increase in Unpaid Claims, Net..................... 206.6 295.6
Increase in Unearned Premiums, Net................. 108.1 82.4
Increase in Premiums Receivable.................... (115.9) (54.3)
Increase in Deferred Policy Acquisition Cost....... (32.1) (17.6)
Change in Deferred Federal Income Tax.............. (21.1) .9
Depreciation....................................... 39.9 31.2
Realized Investment Gains.......................... (11.9) (77.4)
Other, Net......................................... (77.2) 26.8
--------- ---------
Net Cash Provided by Operating Activities............. 434.7 667.8
--------- ---------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities............... 1,217.6 828.9
Proceeds from Maturities of Fixed Maturities.......... 364.6 354.2
Proceeds from Sales of Equity Securities.............. 166.3 740.8
Purchases of Fixed Maturities......................... (1,848.5) (1,673.9)
Purchases of Equity Securities........................ (260.9) (311.5)
Purchase of Interest in Hiscox plc.................... - (145.3)
Decrease (Increase) in Short Term Investments, Net.... 199.8 (241.9)
Purchases of Fixed Assets, Net........................ (61.3) (42.5)
Other, Net............................................ (13.4) .3
--------- ---------
Net Cash Used in Investing Activities................. (235.8) (490.9)
--------- ---------
Cash Flows from Financing Activities
Repayment of Long Term Debt........................... (5.2) (5.5)
Dividends Paid to Shareholders........................ (113.9) (102.4)
Repurchase of Shares.................................. (132.1) (75.2)
Other, Net............................................ 48.3 23.3
--------- ---------
Net Cash Used in Financing Activities................. (202.9) (159.8)
--------- ---------
Net Increase (Decrease) in Cash......................... (4.0) 17.1
Cash at Beginning of Year............................... 22.7 8.3
--------- ---------
Cash at End of Period................................. $ 18.7 $ 25.4
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 7
Page 5
THE CHUBB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) General
The amounts included in this report are unaudited but include those
adjustments, consisting of normal recurring items, which management
considers necessary for a fair presentation. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes in the 1999 Annual Report to Shareholders.
2) Adoption of New Accounting Pronouncement
Effective January 1, 2000, the Corporation adopted Statement of
Position (SOP) 98-7, Deposit Accounting: Accounting for Insurance and
Reinsurance Contracts That Do Not Transfer Insurance Risk, which was
issued by the American Institute of Certified Public Accountants. This SOP
provides guidance on how to account for insurance and reinsurance
contracts that do not transfer insurance risk. The adoption of SOP 98-7
did not have a significant effect on the Corporation's financial position
or results of operations.
3) Investments
Short term investments, which have an original maturity of one year
or less, are carried at amortized cost which approximates market value.
Fixed maturities classified as held-to-maturity are carried at amortized
cost. Fixed maturities classified as available-for-sale and equity
securities are carried at market value as of the balance sheet date.
The net change in unrealized appreciation or depreciation of
investments carried at market value was as follows:
<TABLE>
<CAPTION>
Periods Ended June 30
------------------------------------
Second Quarter Six Months
---------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Change in unrealized appreciation of
equity securities................... $ (26.1) $ (15.1) $ (22.1) $ (69.8)
Change in unrealized appreciation or
depreciation of fixed maturities.... 23.5 (301.9) 97.5 (371.1)
------- ------- ------- --------
(2.6) (317.0) 75.4 (440.9)
Deferred income tax (credit)......... (.9) (110.9) 26.4 (154.3)
Increase (decrease) in valuation
allowance........................... .9 - (26.4) -
------- ------- ------- --------
Change in unrealized appreciation or
depreciation of investments, net.... $ (2.6) $(206.1) $ 75.4 $ (286.6)
======= ======= ======= ========
</TABLE>
<PAGE> 8
Page 6
4) Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Periods Ended June 30
-----------------------------------
Second Quarter Six Months
-------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions,
except per share amounts)
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income............................... $184.6 $193.3 $338.3 $380.2
====== ====== ====== ======
Weighted average number of common
shares outstanding...................... 175.1 161.3 174.9 161.4
====== ====== ====== ======
Basic earnings per share................. $ 1.05 $ 1.19 $ 1.93 $ 2.35
====== ====== ====== ======
Diluted earnings per share:
Net income............................... $184.6 $193.3 $338.3 $380.2
====== ====== ====== ======
Weighted average number of common
shares outstanding...................... 175.1 161.3 174.9 161.4
Additional shares from assumed exercise
of stock-based compensation awards...... 5.1 2.6 3.4 2.2
------ ------ ------ ------
Weighted average number of common shares
and potential common shares assumed
outstanding for computing diluted
earnings per share...................... 180.2 163.9 178.3 163.6
======= ====== ====== ======
Diluted earnings per share............... $ 1.02 $ 1.18 $ 1.89 $ 2.32
====== ====== ====== ======
</TABLE>
5) Segments Information
The property and casualty operations include three reportable
underwriting segments and the investment function. The underwriting
segments are personal, standard commercial and specialty commercial. The
personal and commercial segments are managed separately because they
target different customers. The commercial business is further
distinguished by those classes of business that are generally available in
broad markets and are of a more commodity nature (standard) and those
classes available in more limited markets that require specialized
underwriting and claim settlement (specialty). Standard commercial classes
include multiple peril, casualty and workers' compensation. Specialty
commercial classes include property and marine, executive protection,
financial institutions and other commercial classes.
<PAGE> 9
Page 7
Revenues and income before income tax of the operating segments were
as follows:
<TABLE>
<CAPTION>
Periods Ended June 30
---------------------------------------
Second Quarter Six Months
------------------ -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C>
Revenues
Property and casualty insurance
Premiums earned
Personal......................... $ 396.4 $ 355.3 $ 784.7 $ 700.4
Standard commercial.............. 447.6 492.9 916.6 993.3
Specialty commercial............. 675.9 529.3 1,310.5 1,063.6
-------- -------- -------- --------
1,519.9 1,377.5 3,011.8 2,757.3
Investment income.................. 218.7 199.4 439.0 395.3
-------- -------- -------- --------
Total property and casualty
insurance....................... 1,738.6 1,576.9 3,450.8 3,152.6
Corporate and other.................. 29.3 63.8 78.3 86.2
Realized investment gains............ 6.1 45.9 11.9 77.4
-------- -------- -------- --------
Total revenues................... $1,774.0 $1,686.6 $3,541.0 $3,316.2
======== ======== ======== ========
Income (loss) before income tax
Property and casualty insurance
Underwriting
Personal......................... $ 3.9 $ 38.7 $ 17.5 $ 80.5
Standard commercial.............. (24.3) (87.6) (105.5) (175.4)
Specialty commercial............. 38.5 26.1 45.9 74.9
-------- -------- -------- --------
18.1 (22.8) (42.1) (20.0)
Increase in deferred policy
acquisition costs............... 3.1 12.5 32.1 17.6
-------- -------- -------- --------
Underwriting income (loss)....... 21.2 (10.3) (10.0) (2.4)
Investment income.................. 216.1 196.7 432.1 388.4
Amortization of goodwill and
other charges..................... (13.4) (.3) (24.8) (2.3)
-------- -------- -------- --------
Total property and casualty
insurance....................... 223.9 186.1 397.3 383.7
Corporate and other.................. (5.8) 3.9 (10.9) 1.4
Realized investment gains............ 6.1 45.9 11.9 77.4
-------- -------- -------- --------
Total income before income tax... $ 224.2 $ 235.9 $ 398.3 $ 462.5
======== ======== ======== ========
</TABLE>
<PAGE> 10
Page 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
AND FOR THE QUARTERS ENDED JUNE 30, 2000 AND 1999
SUMMARY OF FINANCIAL RESULTS
The following is a summary of the Corporation's operating results for the
second quarter and six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Periods Ended June 30
---------------------------------------
Second Quarter Six Months
---------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
PROPERTY AND CASUALTY INSURANCE
Underwriting
Net Premiums Written........... $1,530.6 $1,433.8 $3,119.9 $2,839.7
Increase in Unearned Premiums.. (10.7) (56.3) (108.1) (82.4)
-------- -------- -------- --------
Premiums Earned............. 1,519.9 1,377.5 3,011.8 2,757.3
-------- -------- -------- --------
Claims and Claim Expenses...... 996.8 924.3 2,024.2 1,832.3
Operating Costs and Expenses... 498.4 465.7 1,016.4 924.4
Increase in Deferred Policy
Acquisition Costs............. (3.1) (12.5) (32.1) (17.6)
Dividends to Policyholders..... 6.6 10.3 13.3 20.6
-------- -------- -------- --------
Underwriting Income (Loss)..... 21.2 (10.3) (10.0) (2.4)
-------- -------- -------- --------
Investments
Investment Income Before
Expenses...................... 218.7 199.4 439.0 395.3
Investment Expenses............ 2.6 2.7 6.9 6.9
-------- -------- -------- --------
Investment Income.............. 216.1 196.7 432.1 388.4
-------- -------- -------- ---------
Amortization of Goodwill and
Other Charges.................. (13.4) (.3) (24.8) (2.3)
-------- -------- -------- --------
Property and Casualty Income.... 223.9 186.1 397.3 383.7
CORPORATE AND OTHER.............. (5.8) 3.9 (10.9) 1.4
-------- -------- -------- --------
CONSOLIDATED OPERATING INCOME
BEFORE INCOME TAX............... 218.1 190.0 386.4 385.1
Federal and Foreign Income Tax... 37.4 26.5 55.8 55.2
-------- -------- -------- --------
CONSOLIDATED OPERATING INCOME.... 180.7 163.5 330.6 329.9
REALIZED INVESTMENT GAINS
AFTER INCOME TAX................ 3.9 29.8 7.7 50.3
-------- -------- -------- --------
CONSOLIDATED NET INCOME.......... $ 184.6 $ 193.3 $ 338.3 $ 380.2
======== ======== ======== ========
PROPERTY AND CASUALTY INVESTMENT
INCOME AFTER INCOME TAX......... $ 180.8 $ 166.4 $ 362.1 $ 329.4
======== ======== ======== ========
</TABLE>
<PAGE> 11
Page 9
In July 1999, the Corporation completed its acquisition of Executive Risk
Inc. Executive Risk is a specialty insurance company offering directors and
officers, errors and omissions and professional liability coverages. The
acquisition has been accounted for using the purchase method of accounting.
Therefore, the results of operations of Executive Risk are included in the
Corporation's consolidated results of operations from the date of acquisition.
PROPERTY AND CASUALTY INSURANCE
Earnings from our property and casualty business were modestly higher in
the first six months of 2000 compared with the same period of 1999 due to an
increase in investment income. Earnings in the second quarter of 2000 were
significantly higher than in the comparable period in 1999 due to improved
underwriting results, caused in part by lower catastrophe losses, as well as an
increase in investment income. Property and casualty income before taxes
amounted to $397.3 million in the first six months of 2000 and $223.9 million in
the second quarter compared with $383.7 million and $186.1 million,
respectively, in 1999.
Net premiums written were $3.1 billion in the first six months of 2000, an
increase of 9.9% compared with the same period in 1999. Net premiums written
were $1.5 billion in the second quarter of 2000, an increase of 6.8% over the
comparable period of 1999. Premium growth in the first six months and second
quarter of 2000 was affected by (1) the inclusion of Executive Risk premiums
written in the 2000 results and (2) the change in the reporting of the results
of our European operations, which is discussed below.
In the first quarter of 2000, we eliminated the one-quarter lag in
reporting the results of our European operations. As a result of this change,
our reported first and second quarter premiums included the first and second
quarter 2000 premiums, respectively, of our European operations whereas our
reported first and second quarter 1999 premiums included Europe's fourth quarter
1998 and first quarter 1999 premiums, respectively. This change inflated our
premium growth in the first quarter of 2000 and deflated such growth in the
second quarter because the first quarter has historically been by far the
highest in premium volume for our European operations. On a year-to-date basis
as of June 30, 2000, the effect of the change on premium growth was minimal. The
change in reporting the results of our European operations had virtually no
impact on consolidated operating income or net income in the first six months of
2000.
Excluding premiums written by Executive Risk and the effect of the change
in reporting our European results, premium growth was about 4.5% for the first
six months of 2000 and 6% for the second quarter. Premium growth in personal
lines remained strong. In commercial lines, competition in the worldwide
marketplace has made profitable premium growth difficult. However, our strategy
to increase the pricing in the standard commercial classes, which include
multiple peril, casualty and workers' compensation, has shown increasing success
in the first six months of 2000. Further, many of our competitors have also
insisted on higher prices since the latter part of 1999. As a result, the
pricing outlook in the standard commercial classes continues to improve.
Substantial premium growth in the first six months of 2000 was achieved outside
the United States.
<PAGE> 12
Page 10
Underwriting results were near breakeven in the first six months of both
2000 and 1999. Underwriting results were profitable in the second quarter of
2000 compared with near breakeven results in the same period in 1999. Our
combined loss and expense ratio was 100.2% in the first six months of 2000 and
98.6% in the second quarter compared with 99.7% and 100.3%, respectively, in
1999.
The loss ratio was 67.5% for the first six months of 2000 and 65.9% for
the second quarter compared with 66.9% and 67.6%, respectively, in the prior
year. The loss ratios in both years, but more so in 1999, were adversely
affected by catastrophe losses. Catastrophe losses during the first six months
of 2000 amounted to $54.6 million which represented 1.8 percentage points of the
loss ratio compared with $86.9 million or 3.2 percentage points in 1999.
Catastrophe losses for the second quarter of 2000 amounted to $24.3 million or
1.6 percentage points of the loss ratio compared with $46.8 million or 3.4
percentage points in 1999. The catastrophe losses in both years resulted
primarily from storms in the United States.
Our expense ratio was 32.7% for both the first six months and second
quarter of 2000 compared with 32.8% and 32.7%, respectively, in the prior year.
Underwriting results during 2000 and 1999 by class of business were as
follows:
<TABLE>
<CAPTION>
Six Months Ended June 30
---------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
--------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Personal Insurance
Automobile........................ $ 192.0 $ 166.5 94.9% 85.9%
Homeowners........................ 443.3 396.7 106.2 94.6
Other............................. 196.4 177.2 72.5 69.2
-------- -------- ----- -----
Total Personal................ 831.7 740.4 95.8 86.7
-------- -------- ----- -----
Standard Commercial Insurance
Multiple Peril.................... 335.4 366.0 111.3 126.7
Casualty.......................... 393.9 431.7 116.5 114.9
Workers' Compensation............. 165.7 156.8 104.4 113.4
-------- -------- ----- -----
Total Standard Commercial..... 895.0 954.5 112.4 119.3
-------- -------- ----- -----
Specialty Commercial Insurance
Property and Marine............... 254.2 261.5 116.0 102.6
Executive Protection.............. 649.4 490.8 84.7 83.9
Financial Institutions............ 256.5 212.8 87.9 89.2
Other............................. 233.1 179.7 105.5 91.8
-------- -------- ----- -----
Total Specialty Commercial.... 1,393.2 1,144.8 94.5 90.5
-------- -------- ----- -----
Total Commercial.............. 2,288.2 2,099.3 101.8 104.2
-------- -------- ----- -----
Total......................... $3,119.9 $2,839.7 100.2% 99.7%
======== ======== ===== =====
</TABLE>
<PAGE> 13
Page 11
<TABLE>
<CAPTION>
Quarter Ended June 30
---------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
--------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Personal Insurance
Automobile........................ $ 103.3 $ 89.3 92.7% 88.6%
Homeowners........................ 245.8 218.8 102.7 88.4
Other............................. 106.1 97.6 75.3 72.1
-------- -------- ----- -----
Total Personal................ 455.2 405.7 94.1 84.7
-------- -------- ----- -----
Standard Commercial Insurance
Multiple Peril.................... 154.0 176.9 111.6 133.2
Casualty.......................... 171.5 217.7 112.5 113.0
Workers' Compensation............. 64.7 60.8 101.0 111.7
-------- -------- ----- -----
Total Standard Commercial..... 390.2 455.4 110.2 120.8
-------- -------- ----- -----
Specialty Commercial Insurance
Property and Marine............... 109.5 133.8 110.8 106.9
Executive Protection.............. 333.2 247.4 84.6 85.9
Financial Institutions............ 121.1 103.5 83.6 95.1
Other............................. 121.4 88.0 113.3 85.4
-------- -------- ----- -----
Total Specialty Commercial.... 685.2 572.7 93.9 92.4
-------- -------- ----- -----
Total Commercial.............. 1,075.4 1,028.1 100.1 105.9
-------- -------- ----- -----
Total......................... $1,530.6 $1,433.8 98.6% 100.3%
======== ======== ===== =====
</TABLE>
PERSONAL INSURANCE
Premiums from personal insurance coverages, which represent 27% of the
premiums written by our property and casualty subsidiaries, increased by 12.3%
in the first six months of 2000 and 12.2% in the second quarter compared with
the similar periods in 1999. Our in-force policy count for automobile,
homeowners and other personal coverages continued to grow. Such growth was
achieved while maintaining our disciplined approach to pricing and risk
selection. Premiums outside the United States grew significantly in the first
six months of 2000, although from a small base.
Our personal insurance business produced less profitable underwriting
results in 2000 compared with the highly profitable results in 1999. The
combined loss and expense ratios were 95.8% for the first six months of 2000 and
94.1% for the second quarter compared with 86.7% and 84.7%, respectively, in
1999.
Homeowners results were unprofitable in 2000 compared with profitable
results in 1999. The deterioration in 2000 was due primarily to a higher
frequency of large non-catastrophe losses and, to a lesser extent, an increase
in catastrophe losses. Homeowners results were unprofitable outside the United
States in 2000 and 1999 as we are still building the critical mass necessary to
absorb the costs of operating the franchise. Catastrophe losses represented 11.7
percentage points of the loss ratio for this class in the first six months of
2000 and 10.4 percentage points in the second quarter compared with 8.6
percentage points and 5.8 percentage points, respectively, in 1999.
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Our automobile business produced less profitable results in 2000 compared
with 1999. The deterioration in 2000 was due to an increase in the frequency and
severity of losses in the liability component of this business.
Other personal coverages, which include insurance for personal valuables
and excess liability, produced highly profitable results in both years due to
continued favorable loss experience.
STANDARD COMMERCIAL INSURANCE
Premiums from standard commercial insurance, which represent 29% of our
total writings, decreased by 6.2% in the first six months of 2000 and 14.3% in
the second quarter compared with the similar periods in 1999. Excluding the
effect of the change in reporting our European results, premiums decreased by
about 6% and 9% in the first six months and second quarter, respectively. The
decreases were the result of the strategy we put in place in late 1998 to renew
good business at adequate prices and not renew underperforming accounts where we
cannot attain price adequacy. As a result, during 1999 and into the first six
months of 2000, retention levels have declined. On the business that was
renewed, rates have increased steadily and such increases accelerated in the
first six months of 2000.
Our standard commercial insurance business produced substantial
underwriting losses in both 2000 and 1999, but more so in 1999. The combined
loss and expense ratio was 112.4% for the first six months of 2000 and 110.2%
for the second quarter compared with 119.3% and 120.8%, respectively, in 1999.
The improvement in the second quarter of 2000 was due primarily to fewer large
losses and, to a lesser extent, the progress in our initiative to increase
rates.
Multiple peril results remained unprofitable in 2000 but improved
considerably compared with the highly unprofitable results in 1999. The
improvement in 2000 occurred in both the property and liability components of
this business due to a lower frequency of large losses. Results in the property
component also benefited in 2000 from an absence of catastrophe losses. There
were virtually no catastrophe losses for this class in the first six months and
second quarter of 2000. Catastrophe losses represented 5.8 percentage points and
4.9 percentage points, respectively, of the loss ratio for this class in the
same periods of 1999.
Results for our casualty business were similarly unprofitable in 2000 and
1999. Casualty results were adversely affected in both years, but more so in
1999, by incurred losses relating to asbestos-related and toxic waste claims.
The excess liability component of our casualty coverages produced near breakeven
underwriting results in 2000 compared with modestly unprofitable results in
1999. Results in the primary liability component improved in the first six
months of 2000 due to fewer large losses, but remained unprofitable. Results in
the automobile component were highly unprofitable in both years due in large
part to inadequate prices, a consequence of the prolonged soft market.
Workers' compensation results improved significantly in 2000, but remained
unprofitable. The improvement in 2000 was due to a lower frequency of losses.
Results continued to reflect the cumulative effect of price reductions over the
past several years.
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SPECIALTY COMMERCIAL INSURANCE
Premiums from specialty commercial insurance, which represent 44% of our
total writings, increased by 21.7% in the first six months of 2000 and 19.6% in
the second quarter compared with the same periods in 1999. Excluding premiums
written by Executive Risk and the effect of the change in reporting our European
results, premium growth was about 8.5% and 14% in the first six months and
second quarter, respectively. Our strategy of working closely with our customers
and our ability to differentiate our products continue to enable us to renew a
large percentage of our executive protection and financial institutions
business. However, a competitive market continues to put prices under pressure
for this business. Property and marine premium growth in 2000 was restricted by
the effect on retention levels of pricing initiatives and non-renewing certain
unprofitable accounts. Growth in our other specialty commercial business was
primarily from Chubb Re, our reinsurance business that began operations in 1999.
Our specialty commercial business produced highly profitable underwriting
results in both 2000 and 1999. The combined loss and expense ratio was 94.5% for
the first six months of 2000 and 93.9% for the second quarter compared with
90.5% and 92.4%, respectively, in 1999.
Property and marine results were highly unprofitable in 2000 compared with
the modestly unprofitable results in the prior year. The deterioration in 2000
was due to an increase in the frequency of large losses, both in the United
States and overseas, offset in part by lower catastrophe losses. Results in the
second quarter of 1999 were adversely affected by substantially higher
catastrophe losses. Catastrophe losses represented 1.9 percentage points of the
loss ratio for this class in the first six months of 2000 and 2.1 percentage
points in the second quarter compared with 11.6 percentage points and 20.1
percentage points, respectively, in 1999.
Executive protection results were highly profitable in 2000 and 1999 due
to favorable loss experience on business worldwide, particularly in the
directors and officers liability and fiduciary liability components. Employment
practices liability results, however, were unprofitable in both years. Our
financial institutions business also produced highly profitable results in the
first six months of 2000 and 1999 due to the favorable loss experience in the
fidelity component.
Results in our other commercial classes were unprofitable in 2000 compared
with profitable results in 1999. Results deteriorated in the second quarter of
2000 due primarily to one $8 million surety loss as well as an increase in
losses in our accident business.
LOSS RESERVES
Gross loss reserves were $11,687.4 million and $11,434.7 million at June
30, 2000 and December 31, 1999, respectively. Reinsurance recoverables on such
loss reserves were $1,732.0 million and $1,685.9 million at June 30, 2000 and
December 31, 1999, respectively.
Loss reserves, net of reinsurance recoverable, increased by $206.6 million
during the first six months of 2000. Substantial reserve growth continued to
occur in those liability classes, primarily executive protection and excess
liability, that are characterized by delayed loss reporting and extended periods
of settlement.
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Losses incurred related to asbestos and toxic waste claims were
$14.1 million in the first six months of 2000 and $24.3 million for the same
period in 1999.
INVESTMENTS
Investment income after taxes increased by 9.9% in the first six months of
2000 and 8.7% in the second quarter compared with the same periods in 1999. The
growth was due in part to an increase in invested assets since the second
quarter of 1999 and in part to the inclusion of Executive Risk investment income
in the 2000 results. The effective tax rate on investment income increased to
16.2% in the first six months of 2000 from 15.2% in the comparable period in
1999 due to holding a somewhat larger proportion of our investment portfolio in
taxable fixed income securities.
Cash available for investment in the first six months of 2000 was invested
in taxable bonds. New cash available for investment was lower in the first six
months of 2000 than in the comparable period in 1999 due primarily to higher
claim payments.
The property and casualty subsidiaries maintain sufficient investments in
highly liquid, short term securities to provide for immediate cash needs.
CORPORATE AND OTHER
Corporate and other includes investment income earned on corporate
invested assets, interest expense and other expenses not allocable to the
operating subsidiaries, and the results of our real estate subsidiary. Corporate
and other produced a loss before taxes of $10.9 million in the first six months
of 2000 compared with income before taxes of $1.4 million in the first six
months of 1999 due primarily to higher interest expense resulting from the
inclusion of interest expense on Executive Risk debt in the 2000 results.
INVESTMENT GAINS AND LOSSES
Decisions to sell securities are governed principally by considerations of
investment opportunities and tax consequences. As a result, realized investment
gains and losses may vary significantly from period to period. Net realized
investment gains before taxes were $11.9 million in the first six months of 2000
compared with net gains of $77.4 million for the same period in 1999.
CAPITAL RESOURCES
In March 1997, the Board of Directors authorized the repurchase of up to
17,500,000 shares of common stock. In July 1998, the Board of Directors
authorized the repurchase of up to an additional 12,500,000 shares. Through June
30, 2000, the Corporation repurchased 22,944,100 shares under the 1997 and 1998
authorizations, including 2,352,500 shares repurchased in open-market
transactions in the first six months of 2000 at a cost of $132.1 million. As of
June 30, 2000, 7,055,900 shares remained under the current share repurchase
authorizations.
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The long-term debt obligations of Executive Risk remained in place
subsequent to the acquisition. Chubb Executive Risk Inc., a wholly-owned
subsidiary of the Corporation, has outstanding $75 million of unsecured 7 1/8%
notes due in 2007. Executive Risk Capital Trust, wholly-owned by Chubb Executive
Risk, has outstanding $125 million of 8.675% capital securities due in 2027. In
April 2000, the Corporation announced its unconditional guarantee of the
unsecured notes and an unconditional, subordinated guarantee of the capital
securities.
The Corporation's $200 million short term revolving credit facility, which
was to have terminated on July 5, 2000, was extended to July 4, 2001. There have
been no borrowings under this agreement.
SUBSEQUENT EVENT
In July, the Corporation announced that it reached a definitive agreement
to sell its ownership interest in Associated Aviation Underwriters Inc. to
British Aviation Insurance Group (BAIG). Subject to regulatory approval, the
transaction is expected to close in September or October. The Corporation
expects to recognize a gain on the sale. The Corporation also agreed that its
property and casualty insurance subsidiaries would participate in an aviation
insurance pool managed by BAIG.
FORWARD LOOKING INFORMATION
Certain statements in this document may be considered to be "forward
looking statements" as that term is defined in the Private Securities Litigation
Reform Act of 1995, such as statements that include words or phrases "will
result", "is expected to", "will continue", or similar expressions. Such
statements are subject to certain risks and uncertainties. The factors which
could cause actual results to differ materially from those suggested by any such
statements include, but are not limited to, those discussed or identified from
time to time in the Corporation's public filings with the Securities and
Exchange Commission and specifically to: risks or uncertainties associated with
the Corporation's expectations with respect to business retention estimates or
anticipated transaction closing dates; and, more generally, to: general economic
conditions including changes in interest rates and the performance of the
financial markets, changes in domestic and foreign laws, regulations and taxes,
changes in competition and pricing environments, regional or general changes in
asset valuations, the occurrence of significant natural disasters, the inability
to reinsure certain risks economically, the adequacy of loss reserves, as well
as general market conditions, competition, pricing and restructurings.
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PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibit 10 - Material Contracts
- The Chubb Corporation Long-Term Stock Incentive Plan (2000) incorporated
by reference to Exhibit A of the Registrant's definitive proxy statement
for the Annual Meeting of Shareholders held on April 25, 2000.
B. Reports on Form 8-K - There were no reports on Form 8-K filed for the three
months ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
The Chubb Corporation has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
THE CHUBB CORPORATION
(Registrant)
By: /s/Henry B. Schram
-------------------------------
Henry B. Schram
Senior Vice-President and
Chief Accounting Officer
Date: August 11, 2000
