<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended March 31, 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 April 30, 2000
was 174,956,936.
<PAGE> 2
THE CHUBB CORPORATION
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999......................... 1
Consolidated Statements of Income for the
Three Months Ended March 31, 2000 and 1999................... 2
Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 2000 and 1999........... 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999................... 4
Notes to Consolidated Financial Statements.................... 5
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations.............. 9
Part II. Other Information:
Item 2 - Changes in Securities and Use of Proceeds.............. 16
Item 4 - Submission of Matters to a Vote of Security Holders.... 17
Item 6 - Exhibits and Reports on Form 8-K....................... 18
</TABLE>
<PAGE> 3
Page 1
THE CHUBB CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
2000 1999
-------- --------
(in millions)
<S> <C> <C>
Assets
Invested Assets
Short Term Investments............................... $ 461.4 $ 731.1
Fixed Maturities
Held-to-Maturity - Tax Exempt (market $1,739.1
and $1,801.0)..................................... 1,683.6 1,741.9
Available-for-Sale
Tax Exempt (cost $7,918.7 and $7,889.3)........... 7,964.5 7,867.5
Taxable (cost $5,275.6 and $5,054.7).............. 5,137.0 4,909.7
Equity Securities (cost $786.9 and $715.0)........... 845.1 769.2
--------- ---------
TOTAL INVESTED ASSETS......................... 16,091.6 16,019.4
Cash................................................... 16.9 22.7
Securities Lending Collateral.......................... 665.3 469.5
Accrued Investment Income.............................. 241.2 242.9
Premiums Receivable.................................... 1,342.0 1,234.7
Reinsurance Recoverable on Unpaid Claims............... 1,728.5 1,685.9
Prepaid Reinsurance Premiums........................... 245.1 240.1
Deferred Policy Acquisition Costs...................... 808.7 779.7
Real Estate Assets..................................... 680.4 699.4
Deferred Income Tax.................................... 595.6 584.2
Goodwill............................................... 502.2 507.2
Other Assets........................................... 1,234.9 1,051.3
--------- ---------
TOTAL ASSETS.................................. $24,152.4 $23,537.0
========= =========
Liabilities
Unpaid Claims.......................................... $11,612.3 $11,434.7
Unearned Premiums...................................... 3,425.5 3,323.1
Securities Lending Payable............................. 665.3 469.5
Long Term Debt......................................... 754.1 759.2
Dividend Payable to Shareholders....................... 57.7 56.2
Accrued Expenses and Other Liabilities................. 1,242.1 1,222.5
--------- ---------
TOTAL LIABILITIES............................. 17,757.0 17,265.2
--------- ---------
Shareholders' Equity
Common Stock - $1 Par Value; 177,817,830 and
177,272,322 Shares.................................... 177.8 177.3
Paid-In Surplus........................................ 429.3 418.4
Retained Earnings...................................... 6,104.6 6,008.6
Accumulated Other Comprehensive Income
Unrealized Depreciation of Investments................ (34.6) (112.6)
Foreign Currency Translation Losses, Net of Tax....... (49.8) (44.8)
Receivable from Employee Stock Ownership Plan.......... (74.9) (74.9)
Treasury Stock, at Cost - 2,940,859 and
1,782,489 Shares...................................... (157.0) (100.2)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.................... 6,395.4 6,271.8
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $24,152.4 $23,537.0
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 4
Page 2
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
2000 1999
-------- --------
(in millions)
<S> <C> <C>
Revenues
Premiums Earned..................................... $1,491.9 $1,379.8
Investment Income................................... 237.6 208.9
Real Estate......................................... 31.7 9.4
Realized Investment Gains........................... 5.8 31.5
-------- --------
Total Revenues............................... 1,767.0 1,629.6
-------- --------
Claims and Expenses
Insurance Claims.................................... 1,027.4 908.0
Amortization of Deferred Policy Acquisition Costs... 402.5 373.7
Other Insurance Operating Costs and Expenses........ 104.6 92.2
Real Estate Cost of Sales and Expenses.............. 32.6 10.3
Investment Expenses................................. 5.2 5.2
Corporate Expenses.................................. 20.6 13.6
-------- --------
Total Claims and Expenses.................... 1,592.9 1,403.0
-------- --------
Income Before Federal and Foreign Income Tax.......... 174.1 226.6
Federal and Foreign Income Tax........................ 20.4 39.7
-------- --------
Net Income............................................ $ 153.7 $ 186.9
======== ========
Average Common Shares Outstanding..................... 174.7 161.4
Average Common and Potentially Dilutive
Shares Outstanding................................... 176.3 163.2
Net Income Per Share
Basic................................................ $.88 $1.16
Diluted.............................................. .87 1.14
Dividends Declared Per Share.......................... .33 .32
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 5
Page 3
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
2000 1999
-------- --------
(in millions)
<S> <C> <C>
Net Income............................................ $153.7 $186.9
------ ------
Other Comprehensive Income (Loss)
Change in Unrealized Appreciation or Depreciation
of Investments, Net of Tax......................... 78.0 (80.5)
Foreign Currency Translation Gains (Losses),
Net of Tax......................................... (5.0) 4.9
------ ------
73.0 (75.6)
------ ------
Comprehensive Income.................................. $226.7 $111.3
====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 6
Page 4
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
2000 1999
-------- --------
(in millions)
<S> <C> <C>
Cash Flows from Operating Activities
Net Income.............................................. $ 153.7 $ 186.9
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Increase in Unpaid Claims, Net....................... 135.0 198.7
Increase in Unearned Premiums, Net................... 97.4 26.1
Increase in Premiums Receivable...................... (107.3) (11.5)
Increase in Deferred Policy Acquisition Cost......... (29.0) (5.1)
Change in Deferred Federal Income Tax................ (9.2) 21.2
Depreciation......................................... 21.3 15.4
Realized Investment Gains............................ (5.8) (31.5)
Other, Net........................................... (98.7) (34.2)
------- -------
Net Cash Provided by Operating Activities............... 157.4 366.0
------- -------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities................. 563.2 393.2
Proceeds from Maturities of Fixed Maturities............ 189.6 205.6
Proceeds from Sales of Equity Securities................ 63.4 435.8
Purchases of Fixed Maturities........................... (959.8) (752.0)
Purchases of Equity Securities.......................... (119.9) (204.0)
Purchase of Interest in Hiscox plc...................... - (145.3)
Decrease (Increase) in Short Term Investments, Net...... 269.7 (197.5)
Increase (Decrease) in Net Payable from Security
Transactions not Settled............................... (14.2) 46.0
Purchases of Fixed Assets, Net.......................... (33.6) (15.3)
Other, Net.............................................. (3.8) (8.6)
------- -------
Net Cash Used in Investing Activities................... (45.4) (242.1)
------- -------
Cash Flows from Financing Activities
Repayment of Long Term Debt............................. (5.1) (.4)
Dividends Paid to Shareholders.......................... (56.2) (50.3)
Repurchase of Shares.................................... (66.1) (75.2)
Other, Net.............................................. 9.6 3.6
------- -------
Net Cash Used in Financing Activities................... (117.8) (122.3)
------- -------
Net Increase (Decrease) in Cash........................... (5.8) 1.6
Cash at Beginning of Year................................. 22.7 8.3
------- -------
Cash at End of Period................................... $ 16.9 $ 9.9
======= =======
</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>
Three Months Ended
March 31
---------------------
2000 1999
-------- --------
(in millions)
<S> <C> <C>
Change in unrealized appreciation of equity securities................................... $ 4.0 $(54.7)
Change in unrealized appreciation or depreciation of fixed maturities.................... 74.0 (69.2)
------ ------
78.0 (123.9)
Deferred income tax (credit)............................................................. 27.3 (43.4)
Decrease in valuation allowance.......................................................... (27.3) -
------ ------
Change in unrealized appreciation or depreciation of investments, net.................... $ 78.0 $(80.5)
====== ======
</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>
Three Months Ended
March 31
---------------------
2000 1999
-------- --------
(in millions,
except per share amounts)
<S> <C> <C>
Basic earnings per share:
Net income..................................... $153.7 $186.9
====== ======
Weighted average number of common
shares outstanding............................ 174.7 161.4
====== ======
Basic earnings per share....................... $ .88 $ 1.16
====== ======
Diluted earnings per share:
Net income..................................... $153.7 $186.9
====== ======
Weighted average number of common
shares outstanding............................ 174.7 161.4
Additional shares from assumed exercise
of stock-based compensation awards............ 1.6 1.8
------ ------
Weighted average number of common shares and
potential common shares assumed outstanding
for computing diluted earnings per share...... 176.3 163.2
====== ======
Diluted earnings per share..................... $ .87 $ 1.14
====== ======
</TABLE>
<PAGE> 9
Page 7
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.
Revenues and income before income tax of the operating segments
were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------
2000 1999
-------- --------
(in millions)
<S> <C> <C>
Revenues
Property and casualty insurance
Premiums earned
Personal................................. $ 388.3 $ 345.1
Standard commercial...................... 469.0 500.4
Specialty commercial..................... 634.6 534.3
-------- --------
1,491.9 1,379.8
Investment income.......................... 220.3 195.9
-------- --------
Total property and casualty insurance.... 1,712.2 1,575.7
Corporate and other.......................... 49.0 22.4
Realized investment gains.................... 5.8 31.5
-------- --------
Total revenues........................... $1,767.0 $1,629.6
======== ========
</TABLE>
<PAGE> 10
Page 8
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------
2000 1999
-------- --------
(in millions)
<S> <C> <C>
Income (loss) before income tax
Property and casualty insurance
Underwriting
Personal................................. $ 13.6 $ 41.8
Standard commercial...................... (81.2) (87.8)
Specialty commercial..................... 7.4 48.8
-------- --------
(60.2) 2.8
Increase in deferred policy acquisition
costs................................... 29.0 5.1
-------- --------
Underwriting income (loss)............... (31.2) 7.9
Investment income.......................... 216.0 191.7
Amortization of goodwill and
other charges............................. (11.4) (2.0)
-------- --------
Total property and casualty insurance.... 173.4 197.6
Corporate and other.......................... (5.1) (2.5)
Realized investment gains.................... 5.8 31.5
-------- --------
Total income before income tax........... $ 174.1 $ 226.6
======== ========
</TABLE>
<PAGE> 11
Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2000 AND 1999
SUMMARY OF FINANCIAL RESULTS
The following is a summary of the Corporation's operating results for
the first quarter of 2000 and 1999:
<TABLE>
<CAPTION>
Quarter Ended
March 31
------------------
2000 1999
---- ----
(in millions)
<S> <C> <C>
PROPERTY AND CASUALTY INSURANCE
Underwriting
Net Premiums Written................................. $1,589.3 $1,405.9
Increase in Unearned Premiums........................ (97.4) (26.1)
-------- --------
Premiums Earned................................... 1,491.9 1,379.8
-------- --------
Claims and Claim Expenses............................ 1,027.4 908.0
Operating Costs and Expenses......................... 518.0 458.7
Increase in Deferred Policy Acquisition Costs........ (29.0) (5.1)
Dividends to Policyholders........................... 6.7 10.3
-------- --------
Underwriting Income (Loss)........................... (31.2) 7.9
-------- --------
Investments
Investment Income Before Expenses.................... 220.3 195.9
Investment Expenses.................................. 4.3 4.2
-------- --------
Investment Income.................................... 216.0 191.7
-------- --------
Amortization of Goodwill and Other Charges............ (11.4) (2.0)
-------- --------
Property and Casualty Income.......................... 173.4 197.6
CORPORATE AND OTHER.................................... (5.1) (2.5)
-------- --------
CONSOLIDATED OPERATING INCOME BEFORE INCOME TAX........ 168.3 195.1
Federal and Foreign Income Tax......................... 18.4 28.7
-------- --------
CONSOLIDATED OPERATING INCOME.......................... 149.9 166.4
REALIZED INVESTMENT GAINS AFTER INCOME TAX............. 3.8 20.5
-------- --------
CONSOLIDATED NET INCOME................................ $ 153.7 $ 186.9
======== ========
PROPERTY AND CASUALTY INVESTMENT INCOME
AFTER INCOME TAX...................................... $ 181.3 $ 163.0
======== ========
</TABLE>
<PAGE> 12
Page 10
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 lower in the
first quarter of 2000 compared with the same period of 1999 due to a decline in
underwriting results. Investment income increased in the first quarter of 2000
compared with 1999. Property and casualty income before taxes amounted to
$173.4 million in the first quarter of 2000 compared with $197.6 million in
1999.
Net premiums written were $1.6 billion in the first quarter of 2000, an
increase of 13.0% compared with the first quarter of 1999. Premium growth in
the first quarter of 2000 was due in large part to (1) the inclusion of
Executive Risk premiums written in the 2000 results and (2) a 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 quarter 2000 premiums included the first quarter 2000
premiums of our European operations whereas our reported first quarter 1999
premiums included Europe's fourth quarter 1998 premiums. This change inflated
our premium growth in the first quarter of 2000 because the first quarter has
historically been by far the highest in premium volume for our European
operations. The effect of the change on premium growth will be reversed in the
second quarter when we will be comparing Europe's second quarter of 2000, a low
volume quarter, with the high volume first quarter of 1999. The change in
reporting the results of our European operations had virtually no impact on
consolidated operating income or net income in the first quarter.
Excluding premiums written by Executive Risk and the effect of the
change in reporting our European results, premium growth was about 3% for the
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, continued to show success in the first quarter 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 quarter
of 2000 was achieved outside the United States.
Underwriting results were unprofitable in the first quarter of 2000
compared with profitable results in 1999. Our combined loss and expense ratio
was 101.9% in the first quarter of 2000 compared with 99.2% in 1999.
The loss ratio was 69.2% for the first quarter of 2000 compared with
66.3% in 1999. Catastrophe losses during the first quarter of 2000 amounted to
$30.3 million which represented 2.0 percentage points of the loss ratio
compared with $40.1 million or 2.9 percentage points in 1999. Catastrophe
losses in both years resulted primarily from winter storms in the United
States.
<PAGE> 13
Page 11
Our expense ratio was 32.7% for the first quarter of 2000 compared with
32.9% in 1999.
Underwriting results during 2000 and 1999 by class of business were as
follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
--------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
--------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Personal Insurance
Automobile........................ $ 88.7 $ 77.2 97.1% 83.1%
Homeowners........................ 197.5 177.9 109.7 101.4
Other............................. 90.3 79.6 69.5 66.2
-------- -------- ----- -----
Total Personal................ 376.5 334.7 97.5 88.9
-------- -------- ----- -----
Standard Commercial Insurance
Multiple Peril.................... 181.4 189.1 111.2 120.4
Casualty.......................... 222.4 214.0 120.6 116.8
Workers' Compensation............. 101.0 96.0 109.1 116.3
-------- ------ ----- -----
Total Standard................ 504.8 499.1 114.9 117.9
-------- ------ ----- -----
Specialty Commercial Insurance
Property and Marine............... 144.7 127.7 121.3 98.7
Executive Protection.............. 316.2 243.4 84.8 81.9
Financial Institutions............ 135.4 109.3 92.2 83.3
Other............................. 111.7 91.7 94.5 98.5
-------- -------- ----- -----
Total Specialty Commercial.... 708.0 572.1 95.1 88.6
-------- -------- ----- -----
Total Commercial.............. 1,212.8 1,071.2 103.5 102.6
-------- -------- ----- -----
Total......................... $1,589.3 $1,405.9 101.9% 99.2%
======== ======== ===== =====
</TABLE>
PERSONAL INSURANCE
Premiums from personal insurance coverages, which represent 24% of
total premiums written, increased by 12.5% in the first quarter of 2000
compared with the same quarter 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 quarter of 2000, although from a small base.
Our personal insurance business produced less profitable underwriting
results in the first quarter of 2000 compared with the highly profitable
results in 1999. The combined loss and expense ratio for our personal insurance
business was 97.5% in the first quarter of 2000 compared with 88.9% in 1999.
Homeowners results were unprofitable in 2000 compared with breakeven
results in 1999. The deterioration in 2000 was due primarily to a higher
frequency of large non-catastrophe losses, some of which were weather-related.
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 13.0 percentage points
of the loss ratio for this class in the first quarter of 2000 compared with
11.4 percentage points in 1999.
<PAGE> 14
Page 12
Our automobile business produced less profitable results in 2000
compared with 1999. The deterioration in 2000 was due to an increase in the
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 2000 and
1999 due to continued favorable loss experience.
STANDARD COMMERCIAL INSURANCE
Premiums from standard commercial insurance, which represent 32% of our
total writings, increased by 1.1% in the first quarter of 2000 compared with
the same period a year ago. Excluding the effect of the change in reporting our
European results, premiums decreased by 2.8%. The decrease was the result of
the strategy we put in place in late 1998 to renew good business at adequate
prices and not renew underperforming business where we cannot attain price
adequacy. As a result, during 1999 and into the first quarter of 2000,
retention levels have declined. On the business that was renewed, rates have
increased steadily and such increases accelerated in the first quarter of 2000.
It will be the latter part of 2000 before our pricing initiative is expected to
have a significant positive effect on our standard commercial results.
Our standard commercial insurance business produced substantial
underwriting losses in the first quarter of 2000 and 1999. The combined loss
and expense ratio was 114.9% for the first quarter of 2000 compared with 117.9%
in 1999.
Multiple peril results remained unprofitable in 2000 as pricing
remained inadequate. However, such results improved considerably compared with
the highly unprofitable results in 1999. The improvement in 2000 was in the
property component of this business. Property results in 1999 were adversely
affected by catastrophe losses and several large overseas losses. Results in
the liability component deteriorated somewhat in 2000. Catastrophe losses
represented 0.1 of a percentage point of the loss ratio for this class in the
first quarter of 2000 compared with 6.8 percentage points in 1999.
Results for our casualty business were 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 breakeven results in
2000 compared with modestly unprofitable results in 1999. Results in the
primary liability component and in the commercial 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 were unprofitable in 2000 and 1999, but
more so in 1999. The improvement in 2000 was due to a lower frequency of
losses. Results in both periods reflect the cumulative effect of price
reductions over the past several years.
SPECIALTY COMMERCIAL INSURANCE
Premiums from specialty commercial insurance, which represent 44% of
our total writings, increased by 23.8% in the first quarter of 2000 compared
with the same period a year ago. Excluding premiums written by Executive Risk
and the effect of the change in reporting our European results, premium growth
was 3.3% for the quarter. Our strategy of working closely with our customers
and
<PAGE> 15
Page 13
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 for this
business under pressure. 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 during 1999.
Our specialty commercial business produced less profitable underwriting
results in the first quarter of 2000 compared with the highly profitable
results in 1999. The combined loss and expense ratio was 95.1% for the first
quarter of 2000 compared with 88.6% in 1999. The deterioration in 2000 was
primarily in the property and marine business.
Property and marine results were highly unprofitable in 2000 compared
with modestly profitable results in 1999. The deterioration in 2000 was due
primarily to several severe losses, both in the United States and overseas.
Catastrophe losses represented 1.8 percentage points of the loss ratio for this
class in the first quarter of 2000 compared with 3.6 percentage points 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. Our
financial institutions business produced less profitable results in 2000
compared with the highly profitable results in 1999 due to deterioration in the
standard commercial business written on financial institutions.
Our other specialty commercial classes produced profitable results in
2000 compared with the modestly profitable results in 1999. Our surety business
produced highly profitable results in both years. Results in our aviation
business were modestly profitable in 2000 compared with the highly unprofitable
results in 1999.
LOSS RESERVES
Gross loss reserves were $11,612.3 million and $11,434.7 million at
March 31, 2000 and December 31, 1999, respectively. Reinsurance recoverables on
such loss reserves were $1,728.5 million and $1,685.9 million at March 31, 1999
and December 31, 1999, respectively.
Loss reserves, net of reinsurance recoverable, increased by $135.0
million during the first quarter of 2000. Substantial reserve growth continued
to occur in those liability classes, primarily excess liability and executive
protection, that are characterized by delayed loss reporting and extended
periods of settlement.
Losses incurred related to asbestos and toxic waste claims were $7.1
million in the first quarter of 2000 and $12.8 million for the same period in
1999.
INVESTMENTS
The growth in investment income in 2000 was due to an increase in
invested assets since the first quarter of 1999. The effective tax rate on
investment income increased to 16.1% in the first quarter of 2000 from 15.0% in
the comparable period in 1999 due to holding a larger proportion of our
investment
<PAGE> 16
Page 14
portfolio in taxable fixed income securities. Investment income after taxes
increased by 11.2% in the first quarter of 2000 compared with the same period
in 1999. Excluding the investment income of Executive Risk, such growth was
about 4% in the first quarter of 2000.
Cash available for investment in the first quarter of 2000 was invested
in taxable bonds. During the first quarter of 2000, new cash available for
investment was not significant 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 $5.1 million in the first
quarter of 2000 compared with $2.5 million in the first quarter of 1999.
INVESTMENT GAINS AND LOSSES
Decisions to sell securities are governed principally by considerations
of investment opportunities and tax consequences. As a result, realized
investment gains and losses may vary significantly from period to period. Net
realized investment gains before taxes were $5.8 million in the first quarter
of 2000 compared with net gains of $31.5 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
March 31, 2000, the Corporation repurchased 21,916,600 shares under the 1997
and 1998 authorizations, including 1,325,000 shares repurchased in open-market
transactions in the first quarter of 2000 at a cost of $66.1 million. As of
March 31, 2000, 8,083,400 shares remained under the current share repurchase
authorizations.
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 also announced that it had received the
consent from the requisite majority of holders of the notes and the capital
securities to effect certain administrative amendments mainly to conform the
provisions of the Chubb Executive Risk indentures to those of the existing
Chubb Corporation indentures.
<PAGE> 17
Page 15
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 profitability or business
retention estimates; 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.
<PAGE> 18
Page 16
PART II. OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds
A. The rights of the holders of the 7 1/8% Senior Notes due 2007 (the Notes)
of Chubb Executive Risk Inc. (Chubb Executive Risk), a wholly-owned
subsidiary of the Registrant, under their governing indenture (the Notes
Indenture) were modified by a supplemental indenture dated as of April
18, 2000, executed and delivered by Chubb Executive Risk, the Registrant,
as guarantor, and The Chase Manhattan Bank, as Trustee. The rights of the
holders of the Notes have been modified as follows.
1. The Registrant delivered an unconditional guarantee to the holders
of the Notes of the due and punctual payment of the principal of,
and interest on, the Notes, when such amount becomes due and
payable, whether at maturity or upon redemption or upon declaration
of acceleration or otherwise according to the terms of the Notes and
of the Notes Indenture.
2. In addition, certain administrative amendments were effected mainly
to conform the provisions of the Notes Indenture to those of
existing indentures of the Registrant.
B. The rights of the holders of the 8.675% Series B Junior Subordinated
Deferrable Interest Debentures due February 1, 2027 (the Subordinated
Debentures), and of the holders of the 8.675% Series B Capital Securities
(the Capital Securities) of Executive Risk Capital Trust, governed by an
indenture (the Subordinated Debentures Indenture) and a guarantee
agreement (the Guarantee Agreement), were modified by a supplemental
indenture and an Amended and Restated Guarantee Agreement, each dated as
of April 18, 2000, and executed and delivered by the Registrant, Chubb
Executive Risk, and The Chase Manhattan Bank, as Trustee. The rights of
the holders of the Subordinated Debentures and the Capital Securities
were modified as follows.
1. The Registrant delivered (1) an unconditional, subordinated
guarantee to the holders of the Subordinated Debentures of the due
and punctual payment of the principal of, premium, if any, and
interest on, the Subordinated Debentures, when such amount becomes
due and payable, whether at maturity or upon redemption or upon
declaration of acceleration or otherwise according to the terms of
the Subordinated Debentures and of the Subordinated Debentures
Indenture, and (2) an unconditional, subordinated guarantee to the
holders of the Capital Securities of payments and distributions on
the Capital Securities to which they were entitled under the terms
of the governing documents of Executive Risk Capital Trust.
2. The Subordinated Debentures Indenture and the Guarantee
Agreement were modified to permit Chubb Executive Risk to declare
dividends and other distributions, to make payments on its debt
securities and on its guarantees of its subsidiaries' debt
securities without restriction. In addition, certain administrative
amendments were effected mainly to conform the provisions of the
Subordinated Notes Indenture to those of existing indentures of the
Registrant.
<PAGE> 19
Page 17
Item 4 - Submission of Matters to a Vote of Security Holders
A. Chubb Executive Risk Inc., a wholly-owned subsidiary of the Registrant,
solicited the consent of (1) the holders of record on March 31, 2000 of
its 7 1/8% Senior Notes Due 2007 (the Notes) to the amendments described
in Item 2(A) hereof (except the guarantee by the Registrant, for which
consents were not solicited) and (2) the holders of record on March 31,
2000 of the 8.675% Series B Capital Securities (the Capital Securities)
of Executive Risk Capital Trust, to the amendments described in Item 2(B)
hereof (except the guarantees by the Registrant, for which consents were
not solicited). The consent solicitation for each series of securities
was launched on April 3, 2000 and expired on April 17, 2000. The valid
and unrevoked consents of the holders of a majority in aggregate
principal amount of the Notes and a majority in aggregate liquidation
amount of the Capital Securities was required and obtained for the
amendments. Holders of an aggregate principal amount of $66,420,000 of
Notes outstanding, and holders of an aggregate liquidation amount of
$119,275,000 of Capital Securities outstanding, delivered valid and
unrevoked consents. Upon the delivery of the consents, a consent fee of
$1.00 was paid to these holders for each $1,000 face value security with
respect to which consent was delivered.
B. The Annual Meeting of Shareholders of The Chubb Corporation was held on
April 25, 2000. Matters submitted to Shareholders at the meeting were as
follows:
Votes were cast in the following manner in connection with the election
of each Director to serve until the next Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
Votes Against
Director Votes For or Withheld
- -------- --------- -------------
<S> <C> <C>
Zoe Baird 146,779,821 3,049,357
John C. Beck 147,044,230 2,784,948
Sheila P. Burke 147,065,346 2,763,832
James I. Cash, Jr. 147,018,770 2,810,408
Percy Chubb, III 147,055,864 2,773,314
Joel J. Cohen 146,025,642 3,803,536
James M. Cornelius 147,060,563 2,768,615
David H. Hoag 147,024,090 2,805,088
Dean R. O'Hare 146,807,477 3,021,701
Warren B. Rudman 146,921,985 2,907,193
David G. Scholey 146,578,405 3,250,773
Raymond G. H. Seitz 145,880,946 3,948,232
Lawrence M. Small 147,036,325 2,792,853
James M. Zimmerman 147,059,535 2,769,643
</TABLE>
There were no broker non-votes cast.
Votes were cast in the following manner in connection with the proposal
to approve the selection of Ernst & Young LLP as the independent auditors of
the Registrant for the year 2000.
<TABLE>
<CAPTION>
Votes For Votes Against
--------- -------------
<S> <C>
148,501,627 793,306
</TABLE>
There were 534,245 abstaining votes and no broker non-votes cast.
<PAGE> 20
Page 18
Votes were cast in the following manner in connection with the proposal
to approve The Chubb Corporation Long-Term Stock Incentive Plan (2000).
<TABLE>
<CAPTION>
Votes For Votes Against
--------- -------------
<S> <C>
109,717,499 18,126,761
</TABLE>
There were 943,718 abstaining votes and 21,041,200 broker non-votes
cast.
Votes were cast in the following manner in connection with the proposal
to act on a shareholder proposal for a special executive compensation review and
report.
<TABLE>
<CAPTION>
Votes For Votes Against
--------- -------------
<S> <C>
7,773,945 112,178,613
</TABLE>
There were 8,835,420 abstaining votes and 21,041,200 broker non-votes
cast.
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibit 4 - Instruments defining the rights of security holders, including
indentures.
Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument which
defines the rights of holders of long-term debt of the Registrant and its
subsidiaries is filed herewith. The Registrant hereby agrees to furnish a
copy of any such instrument to the Securities and Exchange Commission upon
request.
Exhibit 27- Financial Data Schedule
- Financial Data Schedule filed herewith.
B. Reports on Form 8-K - There were no reports on Form 8-K filed for the
three months ended March 31, 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: May 12, 2000
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 13,102<F1>
<DEBT-CARRYING-VALUE> 1,684<F2>
<DEBT-MARKET-VALUE> 1,739<F3>
<EQUITIES> 845
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 16,092
<CASH> 17
<RECOVER-REINSURE> 115<F4>
<DEFERRED-ACQUISITION> 809
<TOTAL-ASSETS> 24,152
<POLICY-LOSSES> 11,612<F5>
<UNEARNED-PREMIUMS> 3,426<F6>
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 754<F7>
0
0
<COMMON> 178
<OTHER-SE> 6,217<F8>
<TOTAL-LIABILITY-AND-EQUITY> 24,152
1,492
<INVESTMENT-INCOME> 238
<INVESTMENT-GAINS> 6
<OTHER-INCOME> 32<F9>
<BENEFITS> 1,027
<UNDERWRITING-AMORTIZATION> 403
<UNDERWRITING-OTHER> 105
<INCOME-PRETAX> 174
<INCOME-TAX> 20
<INCOME-CONTINUING> 154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154
<EPS-BASIC> .88
<EPS-DILUTED> .87
<RESERVE-OPEN> 0<F10>
<PROVISION-CURRENT> 0<F10>
<PROVISION-PRIOR> 0<F10>
<PAYMENTS-CURRENT> 0<F10>
<PAYMENTS-PRIOR> 0<F10>
<RESERVE-CLOSE> 0<F10>
<CUMULATIVE-DEFICIENCY> 0<F10>
<FN>
<F1>DEBT-HELD-FOR-SALE REPRESENTS FIXED MATURITY INVESTMENTS CLASSIFIED AS
AVAILABLE-FOR-SALE AND CARRIED AT MARKET VALUE AS PRESCRIBED BY SEAS NO. 115.
<F2>DEBT-CARRYING-VALUE REPRESENTS FIXED MATURITY INVESTMENTS CLASSIFIED AS
HELD-TO-MATURITY AND CARRIED AT AMORTIZED COST AS PRESCRIBED BY SEAS NO. 115.
<F3>DEBT-MARKET-VALUE REPRESENTS THE RELATED MARKET VALUE OF FIXED MATURITIES
CLASSIFIED AS HELD-TO-MATURITY.
<F4>RECOVER-REINSURE REPRESENTS REINSURANCE RECOVERABLE ON PAID CLAIMS.
<F5>POLICY-LOSSES EXCLUDE THE REDUCTIONS FOR REINSURANCE RECOVERABLES ON UNPAID
CLAIMS ($1,729). AS PRESCRIBED BY SEAS NO 113. SUCH AMOUNTS ARE INCLUDED IN
TOTAL ASSETS.
<F6>UNEARNED-PREMIUMS EXCLUDE THE REDUCTION FOR PREPAID REINSURANCE PREMIUMS
($245)
AS PRESCRIBED BY SEAS NO. 113. THIS PREPAID AMOUNT IS INCLUDED IN TOTAL ASSETS.
<F7>NOTES-PAYABLE INCLUDES LONG-TERM DEBT OF $754.
<F8>OTHER-SE INCLUDES PAID IN SURPLUS; RETAINED EARNINGS. FOREIGN CURRENCY
TRANSLATION LOSSES. NET OF INCOME TAX; UNREALIZED APPRECIATION OF INVESTMENTS.
NET RECEIVABLE FROM ESOP AND TREASURY STOCK
<F9>OTHER-INCOME REPRESENTS REVENUES FROM REAL ESTATE OPERATIONS.
<F10>AMOUNTS FOR SECURITIES ACT INDUSTRY GUIDE 6 AND EXCHANGE ACT INDUSTRY GUIDE 4
DISCLOSURES ARE REQUIRED FOR ANNUAL FILINGS ONLY. ACCORDINGLY, NO AMOUNTS WILL
BE REPORTED FOR INTERIM FILINGS.
</FN>
</TABLE>
