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As Filed with the Securities and Exchange Commission on March 28, 1997
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO________
Commission File No. 1-8661
THE CHUBB CORPORATION
(Exact name of registrant as specified in its charter)
NEW JERSEY 13-2595722
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
15 MOUNTAIN VIEW ROAD, P.O. BOX 1615
WARREN, NEW JERSEY 07061-1615
(Address of principal executive offices) (Zip Code)
(908) 903-2000
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Common Stock, par value $1 per share New York Stock Exchange
Series A Participating Cumulative
Preferred Stock Purchase Rights New York Stock Exchange
(Title of each class) (Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(Title of class)
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. .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $10,155,793,133 as of March 3, 1997.
172,956,346
Number of shares of common stock outstanding as of March 3, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Portions of The Chubb Corporation 1996 Annual Report to Shareholders are
incorporated by reference in Parts I, II and IV of this Form 10-K. Portions of
the definitive Proxy Statement for the Annual Meeting of Shareholders on April
22, 1997 are incorporated by reference in Part III herein.
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PART I.
ITEM 1. BUSINESS
GENERAL
The Chubb Corporation (the Corporation) was incorporated as a business
corporation under the laws of the State of New Jersey in June 1967. The
Corporation is a holding company with subsidiaries principally engaged in two
industries: property and casualty insurance and real estate. On February 23,
1997, the Corporation entered into a definitive agreement to sell its life and
health insurance subsidiaries to Jefferson-Pilot Corporation. Accordingly, the
life and health insurance subsidiaries have been classified as discontinued
operations in the consolidated financial statements. The Corporation and its
subsidiaries employed approximately 11,600 persons on December 31, 1996,
including approximately 1,100 persons employed by the life and health insurance
subsidiaries.
Revenues, income from continuing operations before income tax and
identifiable assets for each industry segment for the three years ended December
31, 1996 are included in Note (15) of the notes to consolidated financial
statements incorporated by reference from the Corporation's 1996 Annual Report
to Shareholders.
The property and casualty insurance subsidiaries provide insurance
coverages principally in the United States, Canada, Europe, Australia and the
Far East. The real estate subsidiaries have no international operations.
Revenues, income from operations before income tax and identifiable assets of
the property and casualty insurance subsidiaries by geographic area for the
three years ended December 31, 1996 are included in Note (16) of the notes to
consolidated financial statements incorporated by reference from the
Corporation's 1996 Annual Report to Shareholders.
PROPERTY AND CASUALTY INSURANCE GROUP
The Property and Casualty Insurance Group (the Group) is composed of
Federal Insurance Company (Federal), Pacific Indemnity Company (Pacific
Indemnity), Vigilant Insurance Company (Vigilant), Great Northern Insurance
Company (Great Northern), Chubb Custom Insurance Company (Chubb Custom), Chubb
National Insurance Company (Chubb National), Chubb Indemnity Insurance Company
(Chubb Indemnity), Chubb Insurance Company of New Jersey (Chubb New Jersey),
Texas Pacific Indemnity Company, Northwestern Pacific Indemnity Company, Chubb
Insurance Company of Canada, Chubb Insurance Company of Europe, S.A., Chubb
Insurance Company of Australia, Limited and Chubb Atlantic Indemnity Ltd.
The Group presently underwrites most forms of property and casualty
insurance. All members of the Group write non-participating policies. Several
members of the Group also write participating policies, particularly in the
workers' compensation class of business, under which dividends are paid to the
policyholders.
Premiums Written
An analysis of the Group's premiums written during the past three years is
shown in the following table.
DIRECT REINSURANCE REINSURANCE NET
PREMIUMS PREMIUMS PREMIUMS PREMIUMS
YEAR WRITTEN ASSUMED(A) CEDED(A) WRITTEN
---------- ------------ ---------- ---------
(IN THOUSANDS)
1994........................ $4,578,061 $681,316 $1,308,168 $3,951,209
1995........................ 4,907,320 747,320 1,348,648 4,305,992
1996........................ 5,166,471 436,840 829,558 4,773,753
- ---------------
(a) Intercompany items eliminated.
The net premiums written during the last five years for major classes of
the Group's business are incorporated by reference from page 22 of the
Corporation's 1996 Annual Report to Shareholders.
One or more members of the Group are licensed and transact business in each
of the 50 states of the United States, the District of Columbia, Puerto Rico,
the Virgin Islands, Canada, Australia and parts of Europe and the Far East. In
1996, approximately 85% of the Group's direct business was produced in the
United States, where the Group's businesses enjoy broad geographic distribution
with a particu-
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larly strong market presence in the Northeast. The four states accounting for
the largest amounts of direct premiums written were New York with 14%,
California with 11%, New Jersey with 6% and Pennsylvania with 5%. No other state
accounted for 5% or more of such premiums. Approximately 4% of the Group's
direct premiums written was produced in Canada.
Underwriting Results
A frequently used industry measurement of property and casualty insurance
underwriting results is the combined loss and expense ratio. This ratio is the
sum of the ratio of incurred losses and related loss adjustment expenses to
premiums earned (loss ratio) plus the ratio of underwriting expenses to premiums
written (expense ratio) after reducing both premium amounts by dividends to
policyholders. When the combined ratio is under 100%, underwriting results are
generally considered profitable; when the combined ratio is over 100%,
underwriting results are generally considered unprofitable. Investment income,
other non-underwriting income or expense and income taxes are not reflected in
the combined ratio. The profitability of property and casualty insurance
companies depends on income from both underwriting operations and investments.
The net premiums and the loss, expense and combined loss and expense ratios
of the Group for the last five years are shown in the following table.
NET PREMIUMS COMBINED
(IN THOUSANDS) LOSS AND
------------------------- LOSS EXPENSE EXPENSE
YEAR WRITTEN EARNED RATIOS RATIOS RATIOS
------- ------ ------ ---------- ---------
1992......................... $ 3,242,506 $ 3,163,288 66.7% 34.4% 101.1%
1993......................... 3,646,295 3,504,838 82.5 32.3 114.8
1994......................... 3,951,209 3,776,283 67.0 32.5 99.5
1995......................... 4,305,992 4,147,162 64.7 32.1 96.8
1996......................... 4,773,753 4,569,256 66.2 32.1 98.3
---------- ---------- ----- ----- ---------
Total for five years ended
December 31, 1996......... $19,919,755 $19,160,827 69.1% 32.6% 101.7%
========== ========== ========== ========== =========
Results for 1993 include the effects of a $675 million increase in unpaid
claims related to an agreement for the settlement of asbestos-related litigation
and a $125 million return premium to the Group related to the commutation of a
medical malpractice reinsurance agreement. Excluding the effects of these items,
the loss ratio, the expense ratio and the combined loss and expense ratio were
65.5%, 33.5% and 99.0%, respectively, for the year 1993 and 66.0%, 32.8% and
98.8%, respectively, for the five years ended December 31, 1996.
The combined loss and expense ratios during the last five years for major
classes of the Group's business are incorporated by reference from page 22 of
the Corporation's 1996 Annual Report to Shareholders.
Another frequently used measurement in the property and casualty insurance
industry is the ratio of statutory net premiums written to policyholders'
surplus. At December 31, 1996 and 1995, such ratio for the Group was 1.81 and
1.89, respectively.
Producing and Servicing of Business
In the United States and Canada, the Group is represented by approximately
3,600 independent agents and accepts business on a regular basis from an
estimated 400 insurance brokers. In most instances, these agents and brokers
also represent other companies which compete with the Group. The offices
maintained by the Group assist these agents and brokers in producing and
servicing the Group's business. In addition to the administrative offices of
Chubb & Son Inc. in Warren, New Jersey, the Group operates 5 zone administrative
offices and 61 branch and service offices in the United States and Canada.
The Group's overseas business is developed by its foreign agents and
brokers through local branch offices of the Group and by its United States and
Canadian agents and brokers. Overseas business has also been obtained from
reinsurance assumed on a quota share basis from certain subsidiaries of the
Royal & Sun Alliance Insurance Group plc (Sun Alliance). Effective January 1,
1997, this reinsurance
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agreement was terminated. In conducting its overseas business, the Group reduces
the risks relating to currency fluctuations by maintaining investments in those
foreign currencies in which the Group transacts business, with characteristics
similar to the liabilities in those currencies. The net asset or liability
exposure to the various foreign currencies is regularly reviewed.
Business for the Group is also produced through participation in a number
of underwriting pools and syndicates including, among others, Associated
Aviation Underwriters, Cargo Reinsurance Association, American Cargo War Risk
Reinsurance Exchange and American Accident Reinsurance Group. Such pools and
syndicates provide underwriting capacity for risks which an individual insurer
cannot prudently underwrite because of the magnitude of the risk assumed or
which can be more effectively handled by one organization due to the need for
specialized loss control and other services.
Reinsurance
In accordance with the normal practice of the insurance industry, the Group
assumes and cedes reinsurance with other insurers or reinsurers. These
reinsurance arrangements provide greater diversification of business and
minimize the Group's maximum net loss arising from large risks or from hazards
of potential catastrophic events.
A large portion of the Group's reinsurance is effected under contracts
known as treaties under which all risks meeting prescribed criteria are
automatically covered. A portion of the Group's ceded reinsurance has been on a
quota share basis with a subsidiary of Sun Alliance, which is rated A by A.M.
Best. Effective January 1, 1997, this reinsurance agreement was terminated.
Additional information related to the Group's ceded reinsurance with the
subsidiary of Sun Alliance is included in Note (13) of the notes to consolidated
financial statements incorporated by reference from the Corporation's 1996
Annual Report to Shareholders and in Item 7 on pages 18 and 19 of this report.
Most of the Group's remaining treaty reinsurance arrangements consist of excess
of loss and catastrophe contracts with other insurers or reinsurers which
protect against a specified part or all of certain types of losses over
stipulated amounts arising from any one occurrence or event. In certain
circumstances, reinsurance is also effected by negotiation on individual risks.
The amount of each risk retained by the Group is subject to maximum limits which
vary by line of business and type of coverage. Retention limits are continually
reviewed and are revised periodically as the Group's capacity to underwrite
risks changes. Additional information related to the Group's reinsurance
programs is included in Item 7 of this report on pages 18 and 19. Reinsurance
contracts do not relieve the Group of its obligation to the policyholders.
The collectibility of reinsurance is subject to the solvency of the
reinsurers. The Group is selective in regard to its reinsurers, placing
reinsurance with only those reinsurers with strong balance sheets and superior
underwriting ability. The Group monitors the financial strength of its
reinsurers on an ongoing basis. As a result, uncollectible amounts have not been
significant.
The severity of catastrophes in recent years has demonstrated to insurers,
including the Group, that most assumptions on the damage potential of
catastrophes were too optimistic. The Group maintains records showing
concentrations of risks in catastrophe prone areas such as California
(earthquakes and brush fires) and the Southeast coast of the United States
(hurricanes). The Group continually assesses its concentration of underwriting
exposures in catastrophe prone areas and develops strategies to manage its
exposure to catastrophic events, subject to regulatory constraints. In recent
years, the Group has increased its initial retention limit for each catastrophic
event. The Group has also raised its reinsurance coverage limits for each event.
The Group's current principal catastrophe reinsurance program provides coverage
for individual catastrophic events of approximately 73% of losses between $100
million and $450 million.
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Unpaid Claims and Claim Adjustment Expenses and Related Amounts Recoverable
from Reinsurers
Insurance companies are required to establish a liability in their accounts
for the ultimate costs (including claim adjustment expenses) of claims which
have been reported but not settled and of claims which have been incurred but
not reported. Insurance companies are also required to report as assets the
portion of such liability that will be recovered from reinsurers.
The process of establishing the liability for unpaid claims and claim
adjustment expenses is an imprecise science subject to variables that are
influenced by both internal and external factors. This is true because claim
settlements to be made in the future will be impacted by changing rates of
inflation (particularly medical cost inflation) and other economic conditions,
changing legislative, judicial and social environments and changes in the
Group's claim handling procedures. In many liability cases, significant periods
of time, ranging up to several years or more, may elapse between the occurrence
of an insured loss, the reporting of the loss to the Group and the settlement of
the loss. Approximately 60% of the Group's unpaid claims and claim adjustment
expenses at December 31, 1996 were for IBNR--claims which had not yet been
reported to the Group, some of which were not yet known to the insured, and
future development on reported claims. In spite of this imprecision, financial
reporting requirements dictate that insurance companies report a single amount
as the estimate of unpaid claims and claim adjustment expenses as of each
evaluation date. These estimates are continually reviewed and updated. Any
resulting adjustments are reflected in current operating results.
The Group's estimates of losses for reported claims are established
judgmentally on an individual case basis. Such estimates are based on the
Group's particular experience with the type of risk involved and its knowledge
of the circumstances surrounding each individual claim. These estimates are
reviewed on a regular basis or as additional facts become known. The reliability
of the estimation process is monitored through comparison with ultimate
settlements.
The Group's estimates of losses for unreported claims are principally
derived from analyses of historical patterns of the development of paid and
reported losses by accident year for each class of business. This process relies
on the basic assumption that past experience, adjusted for the effects of
current developments and likely trends, is an appropriate basis for predicting
future outcomes. For certain classes of business where anticipated loss
experience is less predictable because of the small number of claims and/or
erratic claim severity patterns, the Group's estimates are based on both
expected and actual reported losses. Salvage and subrogation estimates are
developed from patterns of actual recoveries.
The Group's estimates of unpaid claim adjustment expenses are based on
analyses of the relationship of projected ultimate claim adjustment expenses to
projected ultimate losses for each class of business. Claim staff has discretion
to override these expense formulas where judgment indicates such action is
appropriate.
The Group's estimates of reinsurance recoverable related to reported and
unreported claims and claim adjustment expenses represent the portion of such
liabilities that will be recovered from reinsurers. Amounts recoverable from
reinsurers are recognized as assets at the same time and in a manner consistent
with the liabilities associated with the reinsured policies.
The anticipated effect of inflation is implicitly considered when
estimating liabilities for unpaid claims and claim adjustment expenses.
Estimates of the ultimate value of all unpaid claims are based in part on the
development of paid losses, which reflect actual inflation. Inflation is also
reflected in the case estimates established on reported open claims which, when
combined with paid losses, form another basis to derive estimates of reserves
for all unpaid claims. There is no precise method for subsequently evaluating
the adequacy of the consideration given to inflation, since claim settlements
are affected by many factors.
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The following table provides a reconciliation of the beginning and ending
liability for unpaid claims and claim adjustment expenses, net of reinsurance
recoverable, and a reconciliation of the ending net liability to the
corresponding liability on a gross basis for the years ended December 31, 1996,
1995 and 1994.
YEARS ENDED DECEMBER 31
-----------------------------
1996 1995 1994
------- ------- -------
(IN MILLIONS)
Net liability, beginning of year....................... $7,614.5 $6,932.9 $6,450.0
------- ------- -------
Net incurred claim and claim adjustment expenses
Provision for claims occurring in the current year... 3,053.6 2,705.8 2,549.1
Decrease in estimates for claims occurring in prior
years............................................. (42.8) (35.8) (29.7)
------- ------- -------
3,010.8 2,670.0 2,519.4
------- ------- -------
Net payments for claims occurring in
Current year......................................... 980.0 737.7 764.5
Prior years.......................................... 1,889.4 1,250.7 1,272.0
------- ------- -------
2,869.4 1,988.4 2,036.5
------- ------- -------
Net liability, end of year............................. 7,755.9 7,614.5 6,932.9
Reinsurance recoverable, end of year................... 1,767.8 1,973.7 1,980.3
------- ------- -------
Gross liability, end of year........................... $9,523.7 $9,588.2 $8,913.2
======= ======= =======
As reestimated at December 31, 1996, the liability for unpaid claims and
claim adjustment expenses, net of reinsurance recoverable, as established at the
previous year-end was redundant by $42.8 million. This compares with favorable
development of $35.8 million and $29.7 million during 1995 and 1994,
respectively. Such redundancies were reflected in the Group's operating results
in these respective years. Each of the past three years benefited from favorable
claim severity trends for certain liability classes; this was offset each year
in varying degrees by increases in claims and claim adjustment expenses relating
to asbestos and toxic waste claims.
Unpaid claims and claim adjustment expenses, net of reinsurance
recoverable, increased 2% in 1996, after increases of 10% and 7% in 1995 and
1994, respectively. The 1996 increase would have been greater except that loss
reserves were reduced as the result of significant payments during the year
related to the settlement of asbestos-related claims against Fibreboard
Corporation. Excluding the Fibreboard reserves, loss reserves increased 9% in
1996 and 12% in both 1995 and 1994. The Fibreboard reserves and related loss
payments are presented in the table on page 7. The Fibreboard settlement is
further discussed in Item 7 of this report on pages 21 through 23. Substantial
reserve growth has occurred each year in those liability coverages, primarily
excess liability and executive protection, that are characterized by delayed
loss reporting and extended periods of settlement. These coverages represent a
significant portion of the Group's business. The Group continues to emphasize
early and accurate reserving, inventory management of claims and suits, and
control of the dollar value of settlements. The number of outstanding claims at
year-end 1996 was approximately 7% higher than the number at year-end 1995,
which was in turn 11% higher than that at year-end 1994. Such increases were due
in part to a shift for certain classes toward a book of business with more
frequent and less severe claims.
The uncertainties relating to unpaid claims, particularly for asbestos and
toxic waste claims on insurance policies written many years ago, are discussed
in Item 7 of this report on pages 21 through 24.
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The following table provides a reconciliation of the beginning and ending
liability for unpaid claims and claim adjustment expenses, net of reinsurance
recoverable, related to asbestos and toxic waste claims for the years ended
December 31, 1996, 1995 and 1994. Reinsurance recoveries related to such claims
are not significant.
YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
FIBREBOARD ALL FIBREBOARD ALL FIBREBOARD ALL
RELATED OTHER TOTAL RELATED OTHER TOTAL RELATED OTHER TOTAL
---------- ------ -------- ---------- ------ -------- ---------- ------ --------
(IN MILLIONS)
Net liability, beginning of year.... $999.2 $343.8 $1,343.0 $1,049.4 $240.9 $1,290.3 $1,218.5 $214.4 $1,432.9
Net incurred claim and claim
adjustment expenses............... 5.0 145.7 150.7 10.0 171.8 181.8 35.1 80.1 115.2
Net payments for claims............. 461.5 73.6 535.1 60.2 68.9 129.1 204.2 53.6 257.8
---------- ------ -------- ---------- ------ -------- ---------- ------ --------
Net liability, end of year.......... $542.7 $415.9 $ 958.6 $ 999.2 $343.8 $1,343.0 $1,049.4 $240.9 $1,290.3
========== ====== ======= ========== ====== ======= ========== ====== =======
There were approximately 3,900 asbestos claims outstanding at December 31,
1996 compared with 4,700 asbestos claims outstanding at December 31, 1995 and
3,400 at December 31, 1994. In 1996, approximately 1,800 claims were opened and
2,600 claims were closed. In 1995, approximately 2,600 claims were opened and
1,300 claims were closed. In 1994, approximately 1,800 claims were opened and
the same number were closed. Generally, an asbestos claim is established for
each lawsuit against an insured where potential liability has been determined to
exist under a policy issued by a member of the Group. However, when multiple
insurers respond to one or more lawsuits involving an insured and a member of
the Group is not the principal insurer in directing the litigation, generally,
all asbestos litigation involving that insured is counted as one claim.
Therefore, a counted claim can have from one to thousands of claimants. As a
result, management does not believe the above claim count data is meaningful for
analysis purposes. Indemnity payments per claim have varied over time due
primarily to wide variations in insureds, policy terms and types of claims.
Management cannot predict whether indemnity payments per claim will increase,
decrease or remain the same.
There were approximately 800 toxic waste claims outstanding at December 31,
1996 compared with 700 toxic waste claims outstanding at December 31, 1995 and
600 toxic waste claims outstanding at December 31, 1994. Approximately 400
claims were opened in 1996 and 300 claims were opened in both 1995 and 1994.
There were approximately 300 claims closed in 1996, 200 claims closed in 1995
and 300 claims closed in 1994. Generally, a toxic waste claim is established for
each lawsuit, or alleged equivalent, against an insured where potential
liability has been determined to exist under a policy issued by a member of the
Group. Because indemnity payments to date for toxic waste claims have not been
significant in the aggregate and have varied from claim to claim, management
cannot determine whether past claims experience will prove to be representative
of future claims experience.
The table on page 9 presents the subsequent development of the estimated
year-end liability for unpaid claims and claim adjustment expenses, net of
reinsurance recoverable, for the ten years prior to 1996. The top line of the
table shows the estimated liability for unpaid claims and claim adjustment
expenses recorded at the balance sheet date for each of the indicated years.
This liability represents the estimated amount of losses and loss adjustment
expenses for claims arising in all prior years that are unpaid at the balance
sheet date, including losses that had been incurred but not yet reported to the
Group.
The upper section of the table shows the reestimated amount of the
previously recorded net liability based on experience as of the end of each
succeeding year. The estimate is increased or decreased as more information
becomes known about the frequency and severity of claims for each individual
year. The increase or decrease is reflected in the current year's operating
results. The "cumulative deficiency (redundancy)" as shown in the table
represents the aggregate change in the reserve estimates from the original
balance sheet dates through December 31, 1996. The amounts noted are cumulative
in nature; that is, an increase in a loss estimate that related to a prior
period
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occurrence generates a deficiency in each intermediate year. For example, a
deficiency recognized in 1993 relating to losses incurred prior to December 31,
1986, such as the $675 million increase in loss reserves related to the
Fibreboard settlement, would be included in the cumulative deficiency amount for
each year in the period 1986 through 1992. Yet, the deficiency would be
reflected in operating results only in 1993. The effect of changes in estimates
of the liabilities for claims occurring in prior years on income before income
taxes in each of the past three years is shown in the reconciliation table on
page 6.
The cumulative net deficiencies in liability estimates from 1986 through
1992 relate primarily to additional provisions for asbestos and toxic waste
claims, particularly the Fibreboard settlement. The cumulative net deficiencies
experienced relating to asbestos and toxic waste claims were, to varying
degrees, the result of: (1) an increase in the actual number of claims filed;
(2) an increase in the number of unasserted claims estimated; (3) an increase in
the severity of actual and unasserted claims; and (4) an increase in litigation
costs associated with such claims. The cumulative net deficiencies
(redundancies) from 1987 through 1995 reflect, to varying degrees, decreases in
reserves for certain liability classes as the result of favorable claim severity
trends.
Conditions and trends that have affected development of the liability for
unpaid claims and claim adjustment expenses in the past will not necessarily
recur in the future. Accordingly, it is not appropriate to extrapolate future
redundancies or deficiencies based on the data in this table.
The middle section of the table on page 9 shows the cumulative amount paid
with respect to the reestimated liability as of the end of each succeeding year.
For example, in the 1986 column, as of December 31, 1996 the Group had paid
$2,993.0 million of the currently estimated $4,264.8 million of claims and claim
adjustment expenses that were unpaid at the end of 1986; thus, an estimated
$1,271.8 million of losses incurred through 1986 remain unpaid as of December
31, 1996, approximately 40% of which relates to the Fibreboard settlement.
The lower section of the table shows the gross liability, reinsurance
recoverable and net liability recorded at each year-end beginning with 1992 and
the reestimation of these amounts as of December 31, 1996. Amounts for years
prior to the implementation of Statement of Financial Accounting Standards No.
113, Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts, have not been presented.
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ANALYSIS OF CLAIM AND CLAIM ADJUSTMENT EXPENSE DEVELOPMENT
DECEMBER 31
-------------------------------------------------------------------------------------------------
YEAR ENDED 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ------------------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN MILLIONS)
Net Liability for Unpaid Claims
and Claim Adjustment
Expenses......................$2,141.3 $2,818.6 $3,374.3 $3,880.1 $4,301.1 $4,743.9 $5,267.6 $6,450.0 $6,932.9 $7,614.5 $7,755.9
Net Liability Reestimated as
of:
One year later............... 2,238.6 2,776.9 3,360.5 3,846.2 4,272.3 4,716.3 5,932.4 6,420.3 6,897.1 7,571.7
Two years later.............. 2,313.9 2,835.9 3,336.0 3,854.2 4,244.7 5,368.5 5,904.1 6,363.1 6,874.5
Three years later............ 2,433.2 2,831.0 3,359.8 3,839.8 4,933.0 5,336.5 5,843.5 6,380.4
Four years later............. 2,493.3 2,891.7 3,385.1 4,567.4 4,941.7 5,302.6 5,894.6
Five years later............. 2,585.8 2,961.0 4,203.9 4,602.5 4,969.5 5,389.5
Six years later.............. 2,687.2 3,897.2 4,265.2 4,686.3 5,079.3
Seven years later............ 3,745.2 3,993.7 4,387.6 4,800.4
Eight years later............ 3,865.7 4,157.1 4,522.5
Nine years later............. 4,067.8 4,304.9
Ten years later.............. 4,264.8
Cumulative Net Deficiency
(Redundancy).................. 2,123.5 1,486.3 1,148.2 920.3 778.2 645.6 627.0 (69.6) (58.4) (42.8)
Cumulative Net Deficiency
Related to Asbestos and Toxic
Waste Claims................. 2,062.1 1,996.1 1,905.1 1,776.1 1,631.1 1,383.3 1,223.4 447.7 332.5 150.7
Cumulative Amount of
Net Liability Paid as of:
One year later............... 651.3 694.7 761.6 880.4 919.1 931.2 1,039.9 1,272.0 1,250.7 1,889.4
Two years later.............. 1,061.6 1,108.3 1,226.3 1,383.9 1,407.2 1,479.9 1,858.5 1,985.7 2,550.7
Three years later............ 1,362.9 1,419.1 1,555.1 1,715.9 1,808.7 2,083.0 2,332.3 3,015.8
Four years later............. 1,595.7 1,651.6 1,778.8 1,958.6 2,292.0 2,386.9 3,181.4
Five years later............. 1,775.3 1,818.2 1,966.1 2,346.9 2,490.2 3,125.8
Six years later.............. 1,907.1 1,961.9 2,307.9 2,500.9 3,174.7
Seven years later............ 2,032.9 2,281.0 2,422.7 3,120.6
Eight years later............ 2,333.6 2,370.5 3,009.5
Nine years later............. 2,412.6 2,952.4
Ten years later.............. 2,993.0
Gross Liability, End of Year... $7,220.9 $8,235.4 $8,913.2 $9,588.2 $9,523.7
Reinsurance Recoverable, End of
Year......................... 1,953.3 1,785.4 1,980.3 1,973.7 1,767.8
------- ------- ------- ------- -------
Net Liability, End of Year..... $5,267.6 $6,450.0 $6,932.9 $7,614.5 $7,755.9
======= ======= ======= ======= =======
Reestimated Gross Liability.... $7,883.5 $8,346.6 $9,011.7 $9,611.8
Reestimated Reinsurance
Recoverable.................. 1,988.9 1,966.2 2,137.2 2,040.1
------- ------- ------- -------
Reestimated Net Liability...... $5,894.6 $6,380.4 $6,874.5 $7,571.7
======= ======= ======= =======
Cumulative Gross Deficiency.... $ 662.6 $ 111.2 $ 98.5 $ 23.6
======= ======= ======= =======
- ---------------
The cumulative deficiencies for the years 1986 through 1992 include the effect
of the $675 million increase in claims and claim adjustment expenses related to
the Fibreboard settlement.
9
10
Members of the Group are required to file annual statements with insurance
regulatory authorities prepared on an accounting basis prescribed or permitted
by such authorities (statutory basis). The differences between the liability for
unpaid claims and claim adjustment expenses, net of reinsurance recoverable,
reported in the accompanying consolidated financial statements in accordance
with generally accepted accounting principles (GAAP) and that reported in the
annual statutory statements of the U.S. subsidiaries are as follows:
DECEMBER 31
--------------------
1996 1995
------- -------
(IN MILLIONS)
Net liability reported on a statutory basis -- U.S.
subsidiaries................................................. $7,305.2 $7,235.9
Additions (reductions):
Unpaid claims and claim adjustment expenses of foreign
subsidiaries.............................................. 528.8 433.0
Other reserve differences.................................... (78.1) (54.4)
-------- --------
Net liability reported on a GAAP basis......................... $7,755.9 $7,614.5
======== ========
Investments
For each member of the Group, current investment policy is implemented by
management which reports to its Board of Directors.
The main objectives of the investment portfolio of the Group are to
maximize after-tax investment income and total investment returns while
minimizing credit risks as well as to provide maximum support to the insurance
underwriting operations. To accomplish this, the investment function must be
highly integrated with the operating functions and capable of responding to the
changing conditions in the marketplace. Investment strategies are developed
based on many factors including underwriting results and the Group's resulting
tax position, fluctuations in interest rates and regulatory requirements.
The investment portfolio of the Group is primarily comprised of high
quality bonds, principally tax-exempt, U.S. Treasury, government agency,
mortgage-backed securities and corporate issues. In addition, the portfolio
includes equity securities held primarily with the objective of capital
appreciation.
In 1996, the Group invested new cash primarily in mortgage-backed
securities and tax-exempt bonds. In 1995, the Group invested new cash primarily
in tax-exempt bonds. In each year, the Group tried to achieve the appropriate
mix in its portfolio to balance both investment and tax strategies. At December
31, 1996, 68% of the Group's fixed maturity portfolio was invested in tax-exempt
bonds compared with 73% at the previous year-end.
The investment results of the Group for each of the past three years are
shown in the following table.
AVERAGE PERCENT EARNED
INVESTED INVESTMENT -----------------------
YEAR ASSETS(A) INCOME(B) BEFORE TAX AFTER TAX
----------- ---------- ---------- ---------
(IN THOUSANDS)
1994........................... $ 8,715,877 $560,481 6.4% 5.4%
1995........................... 9,342,295 602,987 6.5 5.4
1996........................... 10,333,819 646,056 6.3 5.3
- ---------------
(a) Average of amounts for the years presented with fixed maturity
securities at amortized cost and equity securities at market value.
(b) Investment income after deduction of investment expenses, but before
applicable income tax.
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CHUBB & SON INC.
Chubb & Son Inc., a wholly-owned subsidiary of the Corporation, was
incorporated in 1959 under the laws of New York as a successor to the
partnership of Chubb & Son which was organized in 1882 by Thomas Caldecot Chubb
to act as underwriter and manager of insurance companies. Chubb & Son Inc. is
the manager of Federal, Vigilant, Great Northern, Chubb Custom, Chubb National,
Chubb Indemnity and Chubb New Jersey. Chubb & Son Inc. also provides certain
services to Pacific Indemnity and other members of the Property and Casualty
Insurance Group for which it is reimbursed.
Acting subject to the supervision and control of the Boards of Directors of
the members of the Group, Chubb & Son Inc. provides day to day executive
management and operating personnel and makes available the economy and
flexibility inherent in the common operation of a group of insurance companies.
Chubb & Son Inc. also acts as the manager for the United States branch of
an unaffiliated South Korean insurance company, Samsung Fire & Marine Insurance
Company, Ltd.
REAL ESTATE GROUP
The Real Estate Group is composed of Bellemead Development Corporation and
its subsidiaries. The Real Estate Group is involved with commercial and
residential real estate development.
In October 1996, the Corporation announced it was exploring the possible
sale of all or a significant portion of its real estate assets. During February
1997, indications of interest in purchasing substantially all of the commercial
properties were received from several parties. In March 1997, the Corporation
announced that it had entered into an agreement with a prospective purchaser to
perform due diligence in anticipation of executing a contract for the sale of
these properties. In addition, the Corporation is continuing to explore the sale
of its residential and retail properties. The Corporation plans to retain
approximately $380 million of undeveloped land, which is expected to be
developed in the future, as well as certain commercial properties and land
parcels under lease. Additional information related to the potential sale of
real estate assets is included in Item 7 of this report on pages 25 through 27.
Over the past several years, revenues from commercial real estate
activities have come primarily from ongoing income from owned properties and
from management and financing activities related to previously sold properties
or properties held in joint ventures. The Real Estate Group's commercial
development activities traditionally centered around acquiring suburban,
multi-site land parcels in locations considered prime for office development and
then developing the land in progressive stages. In the late 1980s, the Real
Estate Group expanded its activities to include a few metropolitan office
building projects. Commercial development activities are primarily in northern
and central New Jersey with additional operations in Connecticut, Florida,
Illinois, Kansas, Maryland, Michigan, Pennsylvania, Texas and the District of
Columbia.
The Real Estate Group owns 4,521,000 square feet of office and industrial
space, of which 90% is leased. The Real Estate Group has varying interests in an
additional 5,570,000 square feet of office and industrial space which is 97%
leased.
Residential development activities of the Real Estate Group consist of the
development and sale of condominiums and townhomes in central Florida and
northern New Jersey.
The Real Estate Group has undeveloped land holdings of approximately 4,050
acres, with primary holdings in New Jersey and Florida and lesser holdings in 5
additional states.
DISCONTINUED OPERATIONS
The Life and Health Insurance Group (Life Group) includes Chubb Life
Insurance Company of America (Chubb Life) and its wholly-owned subsidiaries,
Chubb Colonial Life Insurance Company (Colonial) and Chubb Sovereign Life
Insurance Company (Sovereign).
11
12
In October 1996, the Corporation announced it was reviewing strategic
alternatives for the Life Group. The Life Group operates in a highly competitive
industry in which it does not hold a significant market share. The consolidation
now taking place in the life insurance sector is resulting in an industry
dominated by large, efficient companies. As a result, the Life Group faced a
growing competitive disadvantage against these competitors. These changing
fundamentals in the life insurance industry led to the Corporation's decision to
sell the Life Group. The Corporation entered into a definitive agreement, dated
February 23, 1997, to sell Chubb Life Insurance Company of America for
$875,000,000 in cash, subject to various closing adjustments and other customary
conditions. The sale is subject to regulatory approvals and is expected to be
completed by the end of the second quarter of 1997. The sale of the Life Group
is further discussed in Item 7 of this report on pages 28 and 29.
The Life Group, which markets a wide variety of insurance and investment
products, is principally engaged in the sale of personal and group life and
health insurance as well as annuity contracts. These products, some of which
combine life insurance and investment attributes, include traditional insurance
products such as term life and whole life, as well as fixed premium
interest-sensitive life, universal life and variable universal life insurance
and mutual funds.
One or more of the companies in the Life Group are licensed and transact
business in each of the 50 states of the United States, the District of
Columbia, Puerto Rico, Guam and the Virgin Islands. Personal life and health
insurance is produced primarily through approximately 1,600 personal producing
general agents. Group life and traditional health insurance is produced through
approximately 2,500 brokers.
The executive, accounting, actuarial and administrative activities of the
Life Group are primarily located at the Chubb Life headquarters in Concord, New
Hampshire. The personal insurance operations are in Concord and Chattanooga,
Tennessee. The group insurance operations are mainly located in Parsippany, New
Jersey.
The following table presents revenues by class of the Life Group for each
of the past three years.
PREMIUM AND POLICY CHARGE REVENUES BY CLASS
PERSONAL GROUP
------------------------------------------------------ ------------------------------------
ACCIDENT AND ACCIDENT AND
ORDINARY LIFE HEALTH ANNUITIES LIFE HEALTH
----------------- ---------------- --------------- ---------------- -----------------
YEAR AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- --------------- -------- ------- ------- ------- ------ ------- ------- ------- -------- -------
(IN THOUSANDS)
1994........... $248,850 29.8% $19,426 2.3% $3,670 .4% $44,301 5.3% $520,046 62.2%
1995........... 285,323 45.8 20,207 3.2 5,745 .9 22,925 3.7 288,737 46.4
1996........... 313,894 55.8 19,617 3.5 4,271 .8 11,848 2.1 212,428 37.8
The portfolio of the Life Group is primarily comprised of mortgage-backed
securities and corporate bonds. The Life Group invests predominantly in
investment grade fixed-income securities with cash flows and maturities which
are consistent with life insurance liability characteristics. The investment
results of the Life Group for each of the past three years are shown in the
following table.
AVERAGE
INVESTED INVESTMENT PERCENT
YEAR ASSETS(A) INCOME(B) EARNED
------------------------------------- --------- ---------- ------
(IN THOUSANDS)
1994................................. $2,544,945 $205,451 8.1%
1995................................. 2,740,921 229,181 8.4
1996................................. 2,992,820 239,665 8.0
- ---------------
(a) Average of amounts for the years presented with fixed maturity
securities at amortized cost and equity securities at market value.
(b) Investment income after deduction of investment expenses, but before
applicable income tax, excluding income from real estate.
12
13
Reinsurance
The Life Group, in accordance with common industry practice, reinsures with
other companies portions of the life insurance risks it underwrites. At the
present time, the maximum amount of life insurance retained on any one life by
the Life Group is $1,250,000, excluding accidental death benefits. Including
accidental death benefits, the Life Group accepts a maximum net retention of
$1,400,000.
Policy Liabilities
Premium receipts from universal life and other interest-sensitive contracts
are established as policyholder account balances. Charges for the cost of
insurance and policy administration are assessed against the policyholder
account balance. The amount remaining after such charges represents the policy
liability before applicable surrender charges.
Benefit reserves on individual life insurance contracts with fixed and
guaranteed premiums and benefits are computed so that amounts, with additions
from actuarial net premiums to be received and with interest on such reserves
compounded annually at certain assumed rates, will be sufficient to meet
expected policy obligations. In accordance with generally accepted accounting
principles, certain additional factors are considered in the reserve computation
as more fully set forth in Note (3)(b) of the notes to consolidated financial
statements incorporated by reference from the Corporation's 1996 Annual Report
to Shareholders.
REGULATION, PREMIUM RATES AND COMPETITION
The Corporation is a holding company with subsidiaries primarily engaged in
the insurance business and is therefore subject to regulation by certain states
as an insurance holding company. All states have enacted legislation which
regulates insurance holding company systems such as the Corporation and its
subsidiaries. This legislation generally provides that each insurance company in
the system is required to register with the department of insurance of its state
of domicile and furnish information concerning the operations of companies
within the holding company system which may materially affect the operations,
management or financial condition of the insurers within the system. All
transactions within a holding company system affecting insurers must be fair and
equitable. Notice to the insurance commissioners is required prior to the
consummation of transactions affecting the ownership or control of an insurer
and of certain material transactions between an insurer and any person in its
holding company system and, in addition, certain of such transactions cannot be
consummated without the commissioners' prior approval.
Property and Casualty Insurance
The Property and Casualty Insurance Group is subject to regulation and
supervision in the states in which it does business. In general, such regulation
is for the protection of policyholders rather than shareholders. The extent of
such regulation varies but generally has its source in statutes which delegate
regulatory, supervisory and administrative powers to a department of insurance.
The regulation, supervision and administration relate to, among other things,
the standards of solvency which must be met and maintained; the licensing of
insurers and their agents; restrictions on insurance policy terminations; unfair
trade practices; the nature of and limitations on investments; premium rates;
restrictions on the size of risks which may be insured under a single policy;
deposits of securities for the benefit of policyholders; approval of policy
forms; periodic examinations of the affairs of insurance companies; annual and
other reports required to be filed on the financial condition of companies or
for other purposes; limitations on dividends to policyholders and shareholders;
and the adequacy of provisions for unearned premiums, unpaid claims and claim
adjustment expenses, both reported and unreported, and other liabilities.
The extent of insurance regulation on business outside the United States
varies significantly among the countries in which the Group operates. Some
countries have minimal regulatory requirements, while others regulate insurers
extensively. Foreign insurers in many countries are faced with greater
restrictions than domestic competitors. In certain countries, the Group has
incorporated insurance subsidiaries locally to improve its position.
13
14
In December 1993, the National Association of Insurance Commissioners
adopted a risk-based capital formula for property and casualty insurance
companies which was applied for the first time as of year-end 1994. This formula
is used by state regulatory authorities to identify insurance companies which
may be undercapitalized and which merit further regulatory attention. The
formula prescribes a series of risk measurements to determine a minimum capital
amount for an insurance company, based on the profile of the individual company.
The ratio of a company's actual policyholders' surplus to its minimum capital
requirement will determine whether any state regulatory action is required. At
December 31, 1996, each member of the Group had more than sufficient capital to
meet the risk-based capital requirement.
Regulatory requirements applying to premium rates vary from state to state,
but generally provide that rates not be "excessive, inadequate or unfairly
discriminatory." Rates for many lines of business, including automobile and
homeowners insurance, are subject to prior regulatory approval in many states.
However, in certain states, prior regulatory approval of rates is not required
for most lines of insurance which the Group underwrites. Ocean marine insurance
rates are exempt from regulation.
Subject to regulatory requirements, the Group's management determines the
prices charged for its policies based on a variety of factors including claim
and claim adjustment expense experience, inflation, tax law and rate changes,
and anticipated changes in the legal environment, both judicial and legislative.
Methods for arriving at rates vary by type of business, exposure assumed and
size of risk. Underwriting profitability is affected by the accuracy of these
assumptions, by the willingness of insurance regulators to approve changes in
those rates which they control and by such other matters as underwriting
selectivity and expense control.
The property and casualty insurance industry is highly competitive both as
to price and service. Members of the Group compete not only with other stock
companies but also with mutual companies, other underwriting organizations and
alternative risk sharing mechanisms. Some competitors obtain their business at a
lower cost through the use of salaried personnel rather than independent agents
and brokers. Rates are not uniform for all insurers and vary according to the
types of insurers and methods of operation. The Group competes for business not
only on the basis of price, but also on the basis of availability of coverage
desired by customers and quality of service, including claim adjustment service.
The Group's products and services are generally designed to serve specific
customer groups or needs and to offer a degree of customization that is of value
to the insured.
There are more than 3,000 property and casualty insurance companies in the
United States operating independently or in groups and no single company or
group is dominant. According to A.M. Best, the Group is the 13th largest United
States property and casualty insurance group based on 1995 net premiums written.
The relatively large size and underwriting capacity of the Group provide
opportunities not available to smaller companies.
The property and casualty insurance industry has a history of cyclical
performance with successive periods of deterioration and improvement over time.
Price competition increased in the property and casualty marketplace during 1987
and has continued through 1996, particularly in the commercial classes. The
Group continues to be selective in the writing of new business and to reinforce
the sound relationships with customers who appreciate the stability, expertise
and added value the Group provides.
In all states, insurers authorized to transact certain classes of property
and casualty insurance are required to become members of an insolvency fund. In
the event of the insolvency of a licensed insurer writing a class of insurance
covered by the fund in the state, all members are assessed to pay certain claims
against the insolvent insurer. Fund assessments are proportionately based on the
members' written premiums for the classes of insurance written by the insolvent
insurer. A portion of these assessments is recovered in certain states through
premium tax offsets and policyholder surcharges. In 1996, such assessments to
the members of the Group amounted to approximately $3 million. The amount of
future assessments cannot be reasonably estimated.
State insurance regulation requires insurers to participate in assigned
risk plans, reinsurance facilities and joint underwriting associations, which
are mechanisms that generally provide applicants with various basic insurance
coverages when they are not available in voluntary markets. Such
14
15
mechanisms are most prevalent for automobile and workers' compensation
insurance, but a majority of states also mandate participation in Fair Plans or
Windstorm Plans, which provide basic property coverages. Some states also
require insurers to participate in facilities that provide homeowners, crime and
medical malpractice insurance. Participation is based upon the amount of a
company's voluntary written premiums in a particular state for the classes of
insurance involved. These involuntary market plans generally are underpriced and
produce unprofitable underwriting results.
In several states, insurers, including members of the Group, participate in
market assistance plans. Typically, a market assistance plan is voluntary, of
limited duration and operates under the supervision of the insurance
commissioner to provide assistance to applicants unable to obtain commercial and
personal liability and property insurance. The assistance may range from
identifying sources where coverage may be obtained to pooling of risks among the
participating insurers.
Life and Health Insurance
The members of the Life Group are subject to regulation and supervision in
each state in which they do business. Such regulation and supervision is
generally of the character indicated in the first paragraph under the preceding
caption, "Property and Casualty Insurance." The risk-based capital formula for
life and health insurers was first effective as of year-end 1993. Each member of
the Life Group had more than sufficient capital at December 31, 1996 to meet the
risk-based capital requirement.
There are more than 1,700 legal reserve life insurance companies in the
United States. According to the National Underwriter, a trade publication, as of
January 1, 1996, Chubb Life, Sovereign and Colonial ranked 59th, 163rd and
203rd, respectively, among such companies based on total insurance in-force.
Legislative and Judicial Developments
Although the federal government and its regulatory agencies generally do
not directly regulate the business of insurance, federal initiatives often have
an impact on the business in a variety of ways. Current and proposed federal
measures which may significantly affect the insurance business include
securities litigation reform, tort reform, toxic waste removal and liability
measures, containment of medical costs, employee benefits regulation, automobile
safety regulation, financial services deregulation including the removal of
barriers preventing banks from engaging in the insurance business and the
taxation of insurance companies.
Insurance companies are also affected by a variety of state and federal
legislative and regulatory measures as well as by decisions of their courts that
define and extend the risks and benefits for which insurance is provided. These
include redefinitions of risk exposure in areas such as product liability and
commercial general liability as well as extension and protection of employee
benefits, including pension, workers' compensation and disability benefits.
Legislative and judicial developments pertaining to asbestos and toxic
waste exposures are discussed in Item 7 of this report on pages 21 through 24.
ITEM 2. PROPERTIES
The executive offices of the Corporation and the administrative offices of
the Property and Casualty Group are in Warren, New Jersey. The Real Estate
Group's corporate headquarters is located in Roseland, New Jersey. The Life
Group has its administrative offices in Concord, New Hampshire; Parsippany, New
Jersey and Chattanooga, Tennessee. The insurance subsidiaries maintain zone
administrative and branch offices in major cities throughout the United States,
and members of the Property and Casualty Insurance Group also have offices in
Canada, Europe, Australia, the Far East and Latin America. Office facilities are
leased with the exception of buildings in Branchburg, New Jersey and
Chattanooga, and a portion of the Life Group's home office complex in Concord.
Management considers its office facilities suitable and adequate for the current
level of operations. See Note (12) of the notes to consolidated financial
statements incorporated by reference from the Corporation's 1996 Annual Report
to Shareholders.
15
16
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are defendants in various lawsuits
arising out of their businesses. It is the opinion of management that the final
outcome of these matters will not materially affect the consolidated financial
position of the registrant.
Information regarding certain litigation to which property and casualty
insurance subsidiaries of the Corporation are a party is included in Item 7 of
this report on pages 21 through 24.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the last
quarter of the year ended December 31, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
YEAR OF
AGE(A) ELECTION(B)
------ ----------
Dean R. O'Hare, Chairman of the Corporation................................. 54 1972
Douglas A. Batting, Executive Vice President of Chubb & Son Inc. ........... 54 1996
John P. Cavoores, Executive Vice President of Chubb & Son Inc............... 39 1996
Robert P. Crawford, Jr., Executive Vice President of the Corporation........ 55 1994
John J. Degnan, President of the Corporation................................ 52 1994
Gail E. Devlin, Senior Vice President of the Corporation.................... 58 1981
Edward Dunlop, Senior Vice President of the Corporation..................... 56 1995
David S. Fowler, Senior Vice President of the Corporation................... 51 1989
Henry G. Gulick, Vice President and Secretary of the Corporation............ 53 1975
David B. Kelso, Executive Vice President of the Corporation................. 44 1996
Charles M. Luchs, Executive Vice President of Chubb & Son Inc. ............. 57 1996
Brian W. Nocco, Senior Vice President of the Corporation.................... 45 1994
Donn H. Norton, Executive Vice President of the Corporation................. 55 1985
Michael O'Reilly, Senior Vice President of the Corporation.................. 53 1976
Robert Rusis, Senior Vice President and General Counsel of the
Corporation............................................................... 63 1990
Henry B. Schram, Senior Vice President of the Corporation................... 50 1985
Theresa M. Stone, Executive Vice President of the Corporation............... 52 1990
- ---------------
(a) Ages listed above are as of April 22, 1997.
(b) Date indicates year first elected or designated as an executive
officer.
All of the foregoing officers serve at the pleasure of the Board of
Directors of the Corporation or listed subsidiary and have been employees of the
Corporation or a subsidiary of the Corporation for more than five years except
for Brian W. Nocco and David B. Kelso. Mr. Nocco, who joined the Corporation in
1994, was previously Treasurer of Continental Bank Corp. Prior to joining Chubb
in 1996, Mr. Kelso was Executive Vice President of First Commerce Corporation in
New Orleans, where he has also served as Chief Financial Officer. Mr. Kelso was
previously a partner and head of the North American Banking Practice for The MAC
Group (now known as Gemini Consulting), an international general management
consulting firm.
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PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Incorporated by reference from the Corporation's 1996 Annual Report to
Shareholders, page 67.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31, 1996 are
incorporated by reference from the Corporation's 1996 Annual Report to
Shareholders, pages 40 and 41.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion presents our past results and our expectations for
the near term future. The supplementary financial information and the
consolidated financial statements and related notes, all of which are integral
parts of the following analysis of our results and our financial position, are
incorporated by reference from the Corporation's 1996 Annual Report to
Shareholders, pages 21, 22 and 42 through 64.
Certain statements in this document, as well as certain statements
incorporated by reference herein, may be considered to be "forward looking
statements" as that term is defined in the Private Securities Litigation Reform
Act of 1995, such as statements that include the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions. In particular, this report includes forward
looking statements relating, but not limited to, the Corporation's recent sale
activities, reinsurance programs, and future premium and investment income
growth. 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 & Exchange Commission and specifically to: risks or
uncertainties associated with the Corporation's announced sale activities
relating to portions of its non-property and casualty business, or associated
with its expectations of proceeds deployment, asset valuations, or premium and
investment income growth projections, product initiatives, and new cash
available for investment, 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
valuation, 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.
Net income amounted to $513 million in 1996 compared with $697 million in
1995 and $528 million in 1994. Net income in 1996 reflects a fourth quarter
charge of $160 million after taxes related to the write-down of the carrying
value of certain real estate assets.
The Corporation entered into a definitive agreement, dated February 23,
1997, to sell its life and health insurance operations to Jefferson-Pilot
Corporation for $875 million in cash, subject to various closing adjustments and
other customary conditions. The sale is subject to regulatory approvals and is
expected to be completed by the end of the second quarter of 1997. In light of
the decision to sell, the life and health insurance operations have been
classified as discontinued operations. For a further discussion of the
discontinued life and health insurance operations, see page 29.
Income from continuing operations, which includes realized investment gains
and losses related to such operations, was $486 million in 1996 compared with
$655 million in 1995 and $508 million in 1994. Decisions to sell securities are
governed principally by considerations of investment opportunities and tax
consequences. Thus, realized investment gains and losses may vary significantly
from year to year.
Operating income from continuing operations, which excludes realized
investment gains and losses, was $434 million in 1996 compared with $584 million
in 1995 and $473 million in 1994.
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PROPERTY AND CASUALTY INSURANCE
Property and casualty income in 1996 was similar to that in 1995, which was
significantly higher than 1994 income. Property and casualty income after taxes
was $561 million in 1996 compared with $563 million in 1995 and $467 million in
1994. Earnings in 1996 reflect lower underwriting income compared with 1995 due
to substantially higher catastrophe losses, resulting primarily from the winter
storms in the eastern part of the United States in the first quarter. Investment
income increased in 1996 compared with the prior year. Earnings in 1995
benefited from highly profitable underwriting results and an increase in
investment income compared with 1994. Earnings in 1994 were adversely affected
by higher catastrophe losses, resulting from the earthquake in California and
the winter storms in the eastern and midwestern parts of the United States.
Catastrophe losses were $142 million in 1996, $64 million in 1995 and $169
million in 1994. Our initial retention level for each catastrophic event is
approximately $100 million. We did not have any recoveries from our catastrophe
reinsurance coverage during the past three years since there were no individual
catastrophes for which our losses exceeded the initial retention.
Net premiums written amounted to $4.8 billion in 1996, an increase of 11%
compared with 1995. Net premiums written increased 9% in 1995 compared with
1994. Personal coverages accounted for $1,039 million or 22% of 1996 premiums
written, commercial coverages for $3,532 million or 74% and reinsurance assumed
for $203 million or 4%. More than half of the 1996 premium growth was due to
changes in certain reinsurance agreements, which are discussed below.
The marketplace remained competitive, particularly in the commercial
classes, in all our markets worldwide. Competitors continued to place
significant pressure on pricing as they attempted to maintain or increase market
share. As a result, price increases have been difficult to achieve. In this
environment, we have focused on our specialty lines where we emphasize the added
value we provide to our customers. Premium growth in 1996 and 1995 was due to
exposure growth on existing business, the purchase of additional coverages by
current customers and the selective writing of new business. Substantial premium
growth in both years was achieved outside the United States from our expanding
international branch network.
For many years, a portion of the U.S. insurance business written by the
Corporation's property and casualty subsidiaries has been reinsured on a quota
share basis with a subsidiary of the Sun Alliance Group plc. Similarly, a
subsidiary of the Corporation has assumed a portion of Sun Alliance's property
and casualty business on a quota share basis. Effective January 1, 1996, the
agreements pertaining to the exchange of reinsurance were amended to reduce the
portion of each company's business reinsured with the other. Consequently,
during 1996, the Corporation's property and casualty subsidiaries retained a
greater portion of the business they wrote directly and assumed less reinsurance
from Sun Alliance. As a result of these changes in retention, net premiums
written in 1996 increased by $64 million for the personal classes and $138
million for the commercial classes and decreased by $88 million for reinsurance
assumed. There was an additional impact on net premiums written in the first
quarter of 1996 due to the effect of the portfolio transfers of unearned
premiums as of January 1, 1996 resulting from these changes. The effect of these
portfolio transfers was an increase in net premiums written of $31 million for
the personal classes and $61 million for the commercial classes and a decrease
of $65 million for reinsurance assumed.
Also, effective January 1, 1996, our casualty excess of loss reinsurance
program was modified, principally for excess liability and executive protection
coverages. The changes included an increase in the initial retention for each
loss from $5 million to $10 million and an increase in the initial aggregate
amount of losses retained for each year before reinsurance becomes available.
These changes in our casualty reinsurance program increased net premiums written
in 1996 by approximately $130 million.
Underwriting results were profitable in 1996 and 1995 compared with near
breakeven results in 1994. The combined loss and expense ratio, the common
measure of underwriting profitability, was 98.3% in 1996 compared with 96.8% in
1995 and 99.5% in 1994.
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The loss ratio was 66.2% in 1996 compared with 64.7% in 1995 and 67.0% in
1994. The loss ratios continue to reflect the favorable experience resulting
from the consistent application of our disciplined underwriting standards.
Losses from catastrophes represented 3.1, 1.5 and 4.5 percentage points of the
loss ratio in 1996, 1995, and 1994, respectively.
Our expense ratio was 32.1% in 1996 and 1995 and 32.5% in 1994. Expenses
were reduced in 1994 by a contingent profit sharing accrual of $11 million
related to a medical malpractice reinsurance agreement.
As a result of the 1996 merger of Sun Alliance with Royal Insurance
Holdings plc, the unwinding of our reinsurance agreements with Sun Alliance was
accelerated. Effective January 1, 1997, the agreements pertaining to the
exchange of reinsurance on a quota share basis were terminated. As a result of
the termination of these agreements, our net premiums written are expected to
increase in 1997 by approximately $125 million for the personal classes and
approximately $250 million for the commercial classes. Personal and commercial
net premiums written will also include approximately $65 million and $110
million, respectively, in the first quarter of 1997 due to the effect of the
portfolio transfer of unearned premiums as of January 1, 1997 resulting from the
termination of the agreements. Net premiums written for reinsurance assumed,
which were $203 million in 1996, are expected to be negligible in 1997 as the
reduction in premiums related to the portfolio transfer of unearned premiums to
Sun Alliance as of January 1, 1997 will be offset by the effect of the lag in
our reporting of the business we assumed from Sun Alliance for the second half
of 1996.
During 1996, we continued to evaluate the relative costs and benefits of
our casualty excess of loss reinsurance program. As a result, effective January
1, 1997, we again modified the program, increasing the initial retention for
each loss from $10 million to $25 million. The increase in net premiums written
in 1997 resulting from this change in our casualty reinsurance program is not
expected to be significant.
The impact on underwriting results in 1997 of the termination of the
reinsurance agreements with Sun Alliance and the changes to our casualty
reinsurance program is not expected to be significant. Management believes that
the retention of a greater portion of the business underwritten by the property
and casualty subsidiaries will have a positive impact on net income in the
future.
The following discussion of underwriting results reflects certain
reclassifications to present results in a manner more consistent with the way
the property and casualty business is now managed. Prior period amounts have
been restated to conform with the new presentation.
PERSONAL INSURANCE
Premiums from personal insurance increased 20% in 1996 compared with a 5%
increase in 1995. More than half of the growth in 1996 was due to the changes in
the reinsurance agreement with Sun Alliance which resulted in both the portfolio
transfer of unearned premiums as of January 1, 1996 and an increase in our
retention percentage for these classes.
Excluding the effects of the changes in the reinsurance agreement, personal
lines premiums increased 9% in 1996, our best growth rate in many years. We
continued to grow our homeowners and other non-automobile business in
non-catastrophe prone areas while maintaining our disciplined approach to
pricing and risk selection. Personal automobile premiums increased as a result
of an increase in the number of in-force policies for high-value automobiles.
Our personal insurance business produced substantial underwriting profits
in 1996 and 1995 compared with breakeven results in 1994. The combined loss and
expense ratio was 91.7% in 1996 compared with 87.1% in 1995 and 99.8% in 1994.
The profitability of our homeowners business each year is affected
substantially by the extent of catastrophe losses experienced. Homeowners
results were unprofitable in 1996 as catastrophe losses, particularly the winter
storms, adversely affected results. Homeowners results were profitable in 1995,
benefiting from lower catastrophe losses, fewer large losses and a reduction in
loss frequency. The
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unprofitable results in 1994 reflect the adverse effect of significant
catastrophe losses, particularly the winter storms and, to a lesser extent, the
California earthquake. Catastrophe losses represented 16.7 percentage points of
the loss ratio for this class in 1996 compared with 10.3 percentage points in
1995 and 19.4 percentage points in 1994.
Other personal coverages, which include insurance for personal valuables
and excess liability, were highly profitable in each of the past three years.
Personal excess liability results improved in 1995 and 1996 due to favorable
loss experience. Our automobile business produced profitable results in each of
the last three years. Results in 1996 and 1995 were particularly strong due to
lower loss frequency and severity. Automobile results were adversely affected
each year by losses from the mandated business that we are required by law to
accept for those individuals who cannot obtain coverage in the voluntary market.
COMMERCIAL INSURANCE
Premiums from commercial insurance increased 15% in 1996 compared with 9%
in 1995. Approximately 40% of the 1996 growth in premiums was due to the changes
in the reinsurance agreement with Sun Alliance which resulted in both the
portfolio transfer of unearned premiums as of January 1, 1996 and an increase in
our retention percentage for these classes. In addition, premium growth in 1996
for the excess liability component of our casualty coverages and for our
executive protection coverages benefited from the changes in our casualty excess
of loss reinsurance program. Excluding the effects of these changes in our
reinsurance agreements, premium growth in 1996 and 1995 was due primarily to the
selective writing of new accounts, exposure growth on existing business and the
purchase of additional coverages by current customers. Premium growth was
particularly strong outside the United States. The competitive market worldwide
has continued to place significant pressure on prices and has made price
increases difficult to achieve for most coverages. Our strategy of working
closely with our customers and our ability to differentiate our products have
enabled us to renew a large percentage of our business.
Our commercial insurance business produced near breakeven underwriting
results in each of the past three years. The combined loss and expense ratio was
99.7% in 1996 compared with 99.3% in 1995 and 99.4% in 1994.
Multiple peril results were unprofitable in each of the past three years
due, in large part, to inadequate prices. Results deteriorated in 1996 due
primarily to higher catastrophe losses and an increase in the frequency of large
losses. Results for this class benefited in 1995 from an absence of catastrophe
losses. Results in 1994 were adversely affected by significant catastrophe
losses, primarily from the earthquake in California. Catastrophe losses
represented 4.8 percentage points of the loss ratio for this class in 1996
compared with 1.0 percentage point in 1995 and 9.7 percentage points in 1994.
Results for our casualty business were similarly unprofitable in 1996 and
1995 compared with near breakeven results in 1994. In each of the past three
years, but more so in 1996 and 1995, casualty results have been adversely
affected by increases in loss reserves for asbestos-related and toxic waste
claims. The excess liability component of our casualty coverages has remained
profitable due to favorable loss experience in this class. Results in the
automobile component were breakeven in 1996 compared with profitable results in
1995 and 1994.
Workers' compensation results were slightly unprofitable in 1996 compared
with profitable results in 1995 and unprofitable results in 1994. Results
deteriorated in 1996 due in part to an increase in claim frequency and the
impact of price reductions. Results in 1995 benefited from rate increases,
reform of the benefit provisions of workers' compensation laws in many states,
and the impact of medical cost containment and disability management activities.
Results from our share of the involuntary pools and mandatory business in which
we must participate by law have also benefited from these positive factors.
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Property and marine results were profitable in 1996 and 1995 compared with
unprofitable results in 1994. Results in 1996 deteriorated somewhat due to an
increase in catastrophe losses which were insignificant in 1995. Both years
benefited from stable loss frequency. Results for this class in 1994 were
adversely affected by significant catastrophe losses, resulting primarily from
the earthquake in California. Catastrophe losses represented 4.5 percentage
points of the loss ratio for this class in 1996 compared with 0.8 of a
percentage point in 1995 and 6.8 percentage points in 1994.
Our executive protection results were highly profitable in each of the past
three years due to favorable loss experience. Our financial institutions
business produced increasingly profitable results in 1995 and 1996. The
financial fidelity portion of this business was highly profitable in each of the
past three years. Results in the non-fidelity portion of this business were
unprofitable in 1994 due in part to several large losses.
Results in our other commercial classes were slightly profitable in 1996
compared with unprofitable results in 1995 and 1994. The improvement was
attributable to our surety business which had highly profitable results in 1996.
Results for this class were unprofitable in 1995 due to several large losses.
REINSURANCE ASSUMED
Reinsurance assumed is treaty reinsurance assumed primarily from Sun
Alliance. The growth in premiums in 1995 was primarily due to an increase in our
participation in the business of Sun Alliance. The substantial decrease in
premiums in 1996 was due to the effects of the changes in the reinsurance
agreement with Sun Alliance whereby we assumed less reinsurance from them. The
decrease in premiums included the first quarter effect of the $65 million
portfolio transfer of unearned premiums to Sun Alliance as of January 1, 1996.
The reinsurance agreement with Sun Alliance was terminated effective January 1,
1997. Underwriting results for this segment were near breakeven in each of the
past three years.
LOSS RESERVES
Loss reserves are our property and casualty subsidiaries' largest
liability. At the end of 1996, gross loss reserves totaled $9.5 billion compared
with $9.6 billion and $8.9 billion at year-end 1995 and 1994, respectively.
Reinsurance recoverable on such loss reserves was $1.8 billion at year-end 1996
compared with $2.0 billion at the end of 1995 and 1994. As a result of the
changes in the reinsurance agreements with Sun Alliance, there were portfolio
transfers of gross loss reserves and reinsurance recoverable as of January 1,
1996. The effect of these portfolio transfers was a decrease in gross loss
reserves of $209 million and a decrease in reinsurance recoverable of $244
million.
Loss reserves, net of reinsurance recoverable, increased 2% in 1996
compared with 10% in 1995. The 1996 increase would have been greater except that
loss reserves were reduced as the result of significant payments during the year
related to the settlement of asbestos-related claims against Fibreboard
Corporation, which is discussed below. Loss reserves included $543 million, $999
million and $1,049 million at year-end 1996, 1995 and 1994, respectively,
related to the Fibreboard settlement. Loss and expense payments related to the
settlement aggregated $462 million, $60 million and $204 million in 1996, 1995
and 1994, respectively. Excluding the Fibreboard reserves, loss reserves, net of
reinsurance recoverable, increased 9% in 1996 and 12% in 1995. Substantial
reserve growth has occurred each year in those liability coverages, primarily
excess liability and executive protection, that are characterized by delayed
loss reporting and extended periods of settlement.
During 1996, we experienced overall favorable development of $43 million on
loss reserves established as of the previous year-end. This compares with
favorable development of $36 million in 1995 and $30 million in 1994. Such
redundancies were reflected in operating results in these respective years. Each
of the past three years benefited from favorable claim severity trends for
certain liability classes; this was offset each year in varying degrees by
increases in loss reserves relating to asbestos and toxic waste claims.
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The process of establishing loss reserves is an imprecise science and
reflects significant judgmental factors. In many liability cases, significant
periods of time, ranging up to several years or more, may elapse between the
occurrence of an insured loss, the reporting of the loss and the settlement of
the loss. In fact, approximately 60% of our loss reserves at December 31, 1996
were for claims that had not yet been reported to us, some of which were not yet
known to the insured, and for future development on reported claims.
Judicial decisions and legislative actions continue to broaden liability
and policy definitions and to increase the severity of claim payments. As a
result of this and other societal and economic developments, the uncertainties
inherent in estimating ultimate claim costs on the basis of past experience have
increased significantly, further complicating the already complex loss reserving
process.
The uncertainties relating to asbestos and toxic waste claims on insurance
policies written many years ago are exacerbated by judicial and legislative
interpretations of coverage that in some cases have tended to erode the clear
and express intent of such policies and in others have expanded theories of
liability. The industry is engaged in extensive litigation over these coverage
and liability issues and is thus confronted with a continuing uncertainty in its
efforts to quantify these exposures.
Our most costly asbestos exposure relates to an insurance policy issued to
Fibreboard Corporation by Pacific Indemnity Company in 1956. In 1993, Pacific
Indemnity Company, a subsidiary of the Corporation, entered into a global
settlement agreement with Continental Casualty Company (a subsidiary of CNA
Financial Corporation), Fibreboard Corporation, and attorneys representing
claimants against Fibreboard for all future asbestos-related bodily injury
claims against Fibreboard. This agreement is subject to final appellate court
approval. Pursuant to the global settlement agreement, a $1.525 billion trust
fund will be established to pay future claims, which are claims that were not
filed in court before August 27, 1993. Pacific Indemnity will contribute
approximately $538 million to the trust fund and Continental Casualty will
contribute the remaining amount. In December 1993, upon execution of the global
settlement agreement, Pacific Indemnity and Continental Casualty paid their
respective shares into an escrow account. Upon final court approval of the
settlement, the amount in the escrow account, including interest earned thereon,
will be transferred to the trust fund. All of the parties have agreed to use
their best efforts to seek final court approval of the global settlement
agreement.
Pacific Indemnity and Continental Casualty reached a separate agreement for
the handling of all asbestos-related bodily injury claims pending on August 26,
1993 against Fibreboard. Pacific Indemnity's obligation under this agreement
with respect to such pending claims is approximately $635 million, the final
$450 million of which was paid during 1996. The agreement further provides that
the total responsibility of both insurers with respect to pending and future
asbestos-related bodily injury claims against Fibreboard will be shared between
Pacific Indemnity and Continental Casualty on an approximate 35% and 65% basis,
respectively.
Pacific Indemnity, Continental Casualty and Fibreboard entered into a
trilateral agreement to settle all present and future asbestos-related bodily
injury claims resulting from insurance policies that were, or may have been,
issued to Fibreboard by the two insurers. The trilateral agreement will be
triggered if the global settlement agreement is disapproved by the United States
Supreme Court. Pacific Indemnity's obligation under the trilateral agreement is
therefore similar to, and not duplicative of, that under those agreements
described above.
The trilateral agreement reaffirms portions of an agreement reached in
March 1992 between Pacific Indemnity and Fibreboard. Among other matters, that
1992 agreement eliminates any Pacific Indemnity liability to Fibreboard for
asbestos-related property damage claims.
In 1995, the United States District Court of the Eastern District of Texas
approved the global settlement agreement and the trilateral agreement. The
judgments approving these agreements were appealed to the United States Court of
Appeals for the Fifth Circuit. In July 1996, the Fifth Circuit
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Court affirmed the 1995 judgments of the District Court. The affirmation of
these agreements had no effect on the amount of loss reserves provided for the
settlement. A petition for re-hearing the global settlement agreement before the
entire Fifth Circuit Court was denied. An appeal to the United States Supreme
Court by the objectors to the global settlement has been filed and the Supreme
Court will decide whether to hear this matter. The trilateral agreement,
however, was not appealed to the United States Supreme Court and is now final.
As a result, management believes that the uncertainty of Pacific Indemnity's
exposure with respect to asbestos-related bodily injury claims against
Fibreboard has been eliminated.
Since 1993, a California Court of Appeal has agreed, in response to a
request by Pacific Indemnity, Continental Casualty and Fibreboard, to delay its
decisions regarding asbestos-related insurance coverage issues which are
currently before it and involve the three parties exclusively, while the
approval of the global settlement is pending in court. Continental Casualty and
Pacific Indemnity have dismissed disputes against each other which involved
Fibreboard and were in litigation.
We have additional potential asbestos exposure, primarily on insureds for
which we wrote excess liability coverages. Such exposure has increased due to
the erosion of much of the underlying limits. The number of claims against such
insureds and the value of such claims have increased in recent years due in part
to the non-viability of other defendants.
Our other remaining asbestos exposures are mostly peripheral defendants,
including a mix of manufacturers and distributors of certain products that
contain asbestos as well as premises owners. Generally, these insureds are named
defendants on a regional rather than a nationwide basis. We continue to receive
notices of new asbestos claims and new exposures on existing claims as more
peripheral parties are drawn into litigation to replace the now defunct mines
and bankrupt manufacturers.
The courts have been engaged in developing guidelines regarding coverage
for asbestos claims and have begun to articulate more consistent standards
regarding the extent of the obligation of insurers to provide coverage and the
method of allocation of costs among insurers. However, we still do not know the
universe of potential claims. Therefore, uncertainty remains as to our ultimate
liability for asbestos-related claims.
Hazardous waste sites are another significant potential exposure. Under the
federal "Superfund" law and similar state statutes, when potentially responsible
parties (PRPs) fail to handle the clean-up, regulators have the work done and
then attempt to establish legal liability against the PRPs. The PRPs, with
proper government authorization in many instances, disposed of toxic materials
at a waste dump site or transported the materials to the site. Most sites have
multiple PRPs.
Insurance policies issued to PRPs were not intended to cover the clean-up
costs of pollution and, in many cases, did not intend to cover the pollution
itself. Pollution was not a recognized hazard at the time many of these policies
were written. In more recent years, however, policies specifically exclude such
exposures.
As the cost of environmental clean-up continues to grow, PRPs and others
have increasingly filed claims with their insurance carriers. Litigation against
insurers extends to issues of liability, coverage and other policy provisions.
There is great uncertainty involved in estimating our liabilities related
to these claims. First, the underlying liabilities of the claimants are
extremely difficult to estimate. At any given clean-up site, the allocation of
remediation costs among governmental authorities and the PRPs varies greatly.
Second, different courts have addressed liability and coverage issues regarding
pollution claims and have reached inconsistent conclusions in their
interpretation of several issues. These significant uncertainties are not likely
to be resolved in the near future.
Uncertainties also remain as to the Superfund law itself, which has
generated far more litigation than it has brought about the cleanup of hazardous
waste sites. Superfund's taxing authority expired on
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December 31, 1995. Notwithstanding continued pressure by the insurance industry
and other interested parties to achieve a legislative solution which would
reform the liability provisions of the law, Congress did not address Superfund
in 1996. It is currently not possible to predict the direction that any reforms
may take, when they may occur or the effect that any changes may have on the
insurance industry. In addition, the Superfund law does not address
non-Superfund toxic sites. For that reason, it does not cover all existing toxic
waste exposures, such as those involving sites that are subject to state law
only. Because of the large number of state sites, such sites could prove even
more costly in the aggregate than Superfund sites.
Litigation costs remain substantial, particularly for toxic waste claims. A
substantial portion of the funds expended to date by us has been for legal fees
incurred in the prolonged litigation of coverage issues. Primary policies
provide a limit on indemnity payments but many do not limit defense costs. This
language in the policy sometimes leads to the payment of defense costs in
multiples of the policy limits.
Reserves for asbestos and toxic waste claims cannot be estimated with
traditional loss reserving techniques. We have established case reserves and
expense reserves for costs of related litigation where sufficient information
has been developed to indicate the involvement of a specific insurance policy.
In addition, IBNR reserves have been established to cover additional exposures
on both known and unasserted claims. These reserves are continually reviewed and
updated. Increases in loss reserves relating to asbestos and toxic waste claims
were $151 million in 1996, $182 million in 1995 and $115 million in 1994.
Further increases in such reserves in 1997 and future years are possible as
legal and factual issues concerning these claims are clarified although the
amounts cannot be reasonably estimated.
Management believes that the aggregate loss reserves of the property and
casualty subsidiaries at December 31, 1996 were adequate to cover claims for
losses which had occurred, including both those known to us and those yet to be
reported. In establishing such reserves, management considers facts currently
known and the present state of the law and coverage litigation. However, given
the expansion of coverage and liability by the courts and the legislatures in
the past and the possibilities of similar interpretations in the future,
particularly as they relate to asbestos and toxic waste claims, as well as the
uncertainty in determining what scientific standards will be deemed acceptable
for measuring hazardous waste site clean-up, additional increases in loss
reserves may emerge which would adversely affect results in future periods. The
amount cannot reasonably be estimated at the present time.
INVESTMENTS AND LIQUIDITY
Investment income after taxes increased 7% in both 1996 and 1995. Growth
was primarily due to increases in invested assets, which reflected strong cash
flow from operations over the period, offset somewhat in 1996 by lower yields on
new investments.
The effective tax rate on our investment income was 15.8% in 1996, 15.9% in
1995 and 15.3% in 1994. The effective tax rate increased in 1995 as the
percentage of our investment income subject to tax increased.
Generally, premiums are received by our property and casualty subsidiaries
months or even years before losses are paid under the policies purchased by such
premiums. These funds are used first to make current claim and expense payments.
The balance is invested to augment the investment income generated by the
existing portfolio. Historically, cash receipts from operations, consisting of
insurance premiums and investment income, have provided more than sufficient
funds to pay losses, operating expenses and dividends to the Corporation.
The main objectives of the investment portfolio of the property and
casualty subsidiaries are to maximize after-tax investment income and total
investment returns while minimizing credit risks as well as to provide maximum
support to the insurance underwriting operations. Investment strategies
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are developed based on many factors including underwriting results and our
resulting tax position, fluctuations in interest rates and regulatory
requirements.
New cash available for investment was approximately $1,215 million in 1996
compared with $495 million and $725 million in 1995 and 1994, respectively. New
cash in 1996 included $191 million received in January as a result of the
commutation of a stop loss reinsurance agreement related to medical malpractice
unpaid claims arising from business written prior to 1985. The lower amount in
1995 was due to the designation of $480 million of new cash as funds held for
asbestos-related settlement. Income on these assets accrued for the benefit of
participants in the class settlement of asbestos-related bodily injury claims
against Fibreboard.
In 1997, the property and casualty subsidiaries will receive approximately
$300 million as the net result of the portfolio transfers of unearned premiums
and loss reserves as of January 1, 1997 related to the termination of the
reinsurance agreements with Sun Alliance.
In 1996, we invested new cash primarily in mortgage-backed securities and
tax-exempt bonds. In 1995, we invested new cash primarily in tax-exempt bonds.
In 1994, we invested new cash primarily in taxable bonds and, to a lesser
extent, tax-exempt bonds. In each year, we tried to achieve the appropriate mix
in our portfolio to balance both investment and tax strategies.
The property and casualty subsidiaries have consistently invested in high
quality marketable securities. Taxable bonds in our domestic portfolio comprise
U.S. Treasury, government agency and corporate issues. Approximately 90% of the
taxable bonds are either backed by the U.S. Government or rated AA or better by
Moody's or Standard & Poor's. Of the tax-exempt bonds, practically all are rated
A or better, with more than half rated AAA. Both taxable and tax-exempt bonds
have an average maturity of approximately 9 years. Actual maturities could
differ from contractual maturities because borrowers may have the right to call
or prepay obligations. Equity securities are high quality and readily
marketable.
At December 31, 1996, the property and casualty subsidiaries held foreign
investments of $1.3 billion supporting their international operations. Such
foreign investments have quality and maturity characteristics similar to our
domestic portfolio. We reduce the risks relating to currency fluctuations by
maintaining investments in those foreign currencies in which we transact
business, with characteristics similar to the liabilities in those currencies.
The property and casualty subsidiaries maintain sufficient investments in
highly liquid, short-term securities at all times to provide for immediate cash
needs and the Corporation maintains bank credit facilities that are available to
respond to unexpected cash demands.
REAL ESTATE
In October 1996, the Corporation announced that it was exploring the
possible sale of all or a significant portion of its real estate assets. During
February 1997, indications of interest in purchasing substantially all of our
commercial properties were received from several parties. In March 1997, the
Corporation announced that it had entered into an agreement with a prospective
purchaser to perform due diligence in anticipation of executing a contract for
the sale of these properties. In addition, we are continuing to explore the sale
of our residential and retail properties.
Because the plan to pursue the sale of these assets in the near term
represented a change in circumstances relating to the manner in which these
assets are expected to be used, we reassessed the recoverability of their
carrying value. As a result, we recorded an impairment loss of $255 million, or
$160 million after tax, in the fourth quarter of 1996 to reduce the carrying
value of these assets to their estimated fair value.
We plan to retain approximately $380 million of undeveloped land which we
expect will be developed in the future. In addition, we plan to retain certain
commercial properties and land parcels under lease.
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Real estate operations resulted in a loss after taxes of $147 million in
1996 compared with income of $6 million in 1995 and a loss of $2 million in
1994. The loss in 1996 reflects the $160 million after tax impairment charge.
Excluding this charge, real estate income after taxes was $13 million. Results
in 1996 benefited from the sale of several rental properties and a decrease in
interest expense caused by lower average interest rates. Results in 1995
benefited from a land sale. Results in both years benefited from increases in
earnings from residential sales as well as from lower provisions for possible
uncollectible mortgages receivable. In each of the last three years, results
were adversely affected by a high proportion of interest costs being charged
directly to expense rather than being capitalized.
Revenues were $320 million in 1996, $288 million in 1995 and $205 million
in 1994. Revenues in 1996 and 1995 included higher levels of revenues from
residential development. Revenues in 1996 also included the sale of rental
properties while 1995 revenues included the land sale. Over the past several
years, revenues from our commercial real estate activities have come primarily
from ongoing income from owned properties and from management and financing
activities related to previously sold properties or properties held in joint
ventures.
Our commercial real estate activities traditionally centered around
acquiring suburban, multi-site land parcels in locations considered prime for
office development and then developing the land in progressive stages. In the
late 1980s, we expanded our activities to include a few metropolitan office
building projects. We developed real estate properties ourselves rather than
through third party developers. We are distinguished from most other real estate
developers in that we coordinated all phases of the development process from
concept to completion. Upon completion of development, the properties were
either owned and operated for our own account or sold to third parties. We
directly manage virtually all of the properties which we either own or have sold
and retained interests in through secured loans.
Our investment interests in joint ventures generally consist of the
ownership and lease of the underlying land and the management and operation of
the buildings. We have agreements with joint ventures to manage all aspects of
the joint venture properties, including debt structures, tenant leasing, and
building improvements and maintenance.
Our occupancy rate has been strong in substantially all markets in which we
operate. We have been successful in both retaining existing tenants and securing
new ones and we do not have a significant credit problem with tenants. During
1996, a total of 2,280,000 square feet was leased compared with 2,320,000 square
feet in 1995 and 2,420,000 square feet in 1994. At December 31, 1996, we owned
or had interest in 10,091,000 square feet of office and industrial space. Our
vacancy rate was 6% at year-end 1996 and 1995 and 7% at year-end 1994.
In certain markets, renewing leases in established buildings has been
difficult as demand for commercial office space diminished due to an overbuilt
market and corporate downsizing. While we have experienced significant leasing
activity in recent years and have achieved improved rental rates on many of
these buildings, a significant portion of our existing leases are at low market
rental rates.
Our entry into the New Jersey residential development market met with
initial success. In 1996, we completed our first townhome project containing 178
units. Our second project, a joint venture, is an 84 unit townhome project which
we expect to complete in 1997. At year-end 1996, 41 units were sold. In Florida,
sales continued to be strong in two existing condominium projects which total
385 units. At year-end 1996, all but 41 units were sold.
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, in the first quarter of 1996. SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets.
SFAS No. 121 requires that we analyze our individual buildings, leased land
and development sites on a continuing basis to determine if an impairment loss
has occurred. Estimates are made of the revenues and operating costs, as well as
any additional costs to be incurred to complete development,
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of the property in the future through an assumed holding period, based on our
intended use of the property. The time value of money is not considered in
assessing whether impairment has occurred. If it is determined that impairment
has occurred, measurement of such impairment is based on the fair value of the
assets. The $255 million write-down of real estate assets in 1996 was made in
accordance with the provisions of SFAS No. 121. No similar write-down was
recorded in 1995 or 1994.
Loans receivable, which were issued in connection with our joint venture
activities and other property sales, are primarily purchase money mortgages.
Such loans are generally collateralized by buildings and, in some cases, land.
We continually evaluate the ultimate collectibility of such loans and establish
appropriate reserves. Our valuation approach is similar to that utilized under
SFAS No. 121, except that future cash flows are discounted at the receivable
interest rates. Our agreements to manage all aspects of the joint venture
properties have played a significant role in enabling us to control potential
collectibility issues related to these receivables. The reserve for possible
uncollectible receivables was increased by charges against income of $2 million
in 1996, $18 million in 1995 and $29 million in 1994, principally related to
loans on selected properties with operating income at levels which may not fully
meet debt service requirements. The 1995 charge included $10 million from the
initial application of SFAS No. 114, Accounting by Creditors for Impairment of a
Loan, which established new criteria for measuring impairment of a loan. The
reserve was reduced by write-downs aggregating $4 million in both 1996 and 1995
and $10 million in 1994 related to specific loans that are uncollectible.
Management believes the reserve of $86 million at December 31, 1996 adequately
reflects the current condition of the portfolio. However, if conditions in the
real estate market do not improve, additional reserves may be required.
In accordance with SFAS No. 107, Disclosures About Fair Value of Financial
Instruments, the fair value of loans receivable is estimated individually as the
value of the discounted cash flows of the loan, subject to the estimated fair
value of the underlying collateral. The fair value of the loans represents a
point-in-time estimate that is not relevant in predicting future earnings or
cash flows related to such loans. At December 31, 1996, the aggregate fair value
of the loans was $487 million and the carrying value was $502 million.
The write-downs related to the real estate assets we plan to dispose of in
the near term are based on the estimated fair value of these assets, which
reflects the amounts we expect to realize from the sales. The recoverability of
the carrying value of the remaining real estate assets is assessed based on our
ability to fully recover costs through a future revenue stream. The process by
which SFAS No. 121 is applied and necessary write-downs are calculated assumes
that these properties will be developed and disposed of over a period of time.
The assumptions reflect a continued improvement in demand for office space, an
increase in rental rates and the ability and intent to obtain financing in order
to hold and develop the remaining properties and protect our interests over the
long term. Management believes that the carrying values of both the assets to be
disposed of and the remaining assets are recoverable. However, if the
assumptions related to these assets are modified in the future, it is possible
that additional losses may be recognized.
Real estate activities have been funded with short-term credit instruments,
primarily commercial paper, and debt issued by Chubb Capital Corporation as well
as term loans and mortgages. The weighted average interest cost on short-term
credit instruments approximated 5 1/2% in 1996 compared with 6% in 1995 and
4 1/2% in 1994. In 1996, the range of interest rates for term loans was 7% to
9 1/2% and for mortgages the range was 5% to 12%.
It is expected that funds received from any real estate asset sales will be
used substantially to reduce debt currently supporting the real estate business.
Cash from operations combined with the ability to utilize the Corporation's
borrowing facilities would provide sufficient funds to repay any debt due in
1997 not otherwise repaid.
27
28
CORPORATE
Investment income earned on corporate invested assets and interest and
other expenses not allocable to the operating subsidiaries are reflected in the
corporate segment. Corporate income after taxes was $20 million in 1996, $15
million in 1995 and $8 million in 1994.
INVESTMENT GAINS AND LOSSES
Net investment gains (losses) realized by the Corporation and its property
and casualty insurance subsidiaries were as follows:
1996 1995 1994
---- ---- ----
(IN MILLIONS)
Equity securities....................................... $69 $ 89 $118
Fixed maturities........................................ 11 20 (64)
---- ---- ----
Realized investment gains before tax.................... $80 109 $ 54
==== ==== ====
Realized investment gains after tax..................... $52 $ 71 $ 35
==== ==== ====
Sales of equity securities in each of the last three years resulted in
realized investment gains due primarily to the significant appreciation in the
United States equity markets. In 1995 and 1994, sales of equity securities were
in part the result of the redistribution of invested assets from equity
securities to fixed maturities. A primary reason for the sale of fixed
maturities in each of the last three years has been to improve our after-tax
portfolio return without sacrificing quality where market opportunities have
existed to do so.
Fixed maturities which the Corporation and its insurance subsidiaries have
the ability and intent to hold to maturity are classified as held-to-maturity.
The remaining fixed maturities, which may be sold prior to maturity to support
our investment strategies, such as in response to changes in interest rates and
the yield curve or to maximize after-tax returns, are classified as
available-for-sale. Fixed maturities classified as held-to-maturity are carried
at amortized cost while fixed maturities classified as available-for-sale are
carried at market value. At December 31, 1996, 22% of the fixed maturity
portfolio of our continuing operations was classified as held-to-maturity
compared with 30% at December 31, 1995 and 36% at December 31, 1994.
The unrealized appreciation or depreciation of investments carried at
market value, which includes equity securities and fixed maturities classified
as available-for-sale, is reflected in a separate component of shareholders'
equity, net of applicable deferred income tax.
The unrealized market appreciation before tax of those fixed maturities of
the Corporation and its property and casualty insurance companies carried at
amortized cost was $130 million, $178 million and $28 million at December 31,
1996, 1995 and 1994, respectively. Such unrealized appreciation was not
reflected in the consolidated financial statements.
Changes in unrealized market appreciation or depreciation of fixed
maturities were due to fluctuations in interest rates.
DISCONTINUED OPERATIONS -- LIFE AND HEALTH INSURANCE
The Corporation entered into a definitive agreement, dated February 23,
1997, to sell Chubb Life Insurance Company of America to Jefferson-Pilot
Corporation for $875 million in cash, subject to various closing adjustments and
other customary conditions. The sale is subject to regulatory approvals and is
expected to be completed by the end of the second quarter of 1997.
The estimated loss on the sale of the life and health insurance operations
is $22 million, consisting of a loss before tax of $5 million and a tax of $17
million on the sale. The tax on the sale is due to the tax
28
29
carrying value of these operations being lower than their carrying value for
financial statement purposes. The purchase price will not be adjusted to reflect
results of operations subsequent to December 31, 1996. Therefore, it is expected
that the discontinued life and health insurance operations will not affect the
Corporation's net income in the future.
The results of the life and health insurance operations for the three years
ended December 31, 1996 were as follows:
1996 1995 1994
---- ---- -----
(IN MILLIONS)
Premiums and policy charges............................ $562 $623 $ 836
Investment income...................................... 242 233 209
---- ---- -----
Total revenues.................................... 804 856 1,045
---- ---- -----
Benefits............................................... 492 549 752
Operating costs and expenses........................... 251 266 274
---- ---- -----
Income before income tax.......................... 61 41 19
Federal income tax..................................... 20 13 5
---- ---- -----
Income before realized investment gains........... 41 28 14
Realized investment gains, net of tax.................. 8 14 6
---- ---- -----
Income from operations............................ 49 42 20
Loss on disposal....................................... (22) -- --
---- ---- -----
Income from discontinued operations............... $ 27 $ 42 $ 20
==== ==== =====
Earnings from personal insurance were $42 million in 1996 compared with $37
million in 1995 and $33 million in 1994. The earnings increase in 1996 was
primarily due to lower expense levels. Earnings in 1995 benefited from favorable
mortality. Premiums and policy charges amounted to $338 million in 1996 compared
with $311 million in 1995 and $272 million in 1994. New sales of personal
insurance as measured by annualized premiums were $104 million in 1996 compared
with $112 million in 1995 and $97 million in 1994.
Group insurance operations resulted in losses of $1 million in 1996, $9
million in 1995 and $19 million in 1994. Premiums were $224 million in 1996
compared with $312 million in 1995 and $564 million in 1994.
Gross investment income increased 4% in 1996 compared with 12% in 1995.
Growth was primarily due to an increase in invested assets, tempered in 1996 by
lower yields on new investments. New cash available for investment amounted to
$265 million in 1996 compared with $225 million in 1995 and $140 million in
1994. The new cash was primarily due to increases in deposits credited to
policyholder funds.
In 1996, we reduced the portfolio of mortgage-backed securities by
approximately $100 million. Proceeds from the sale of these securities and new
cash were invested primarily in corporate bonds. In 1995, new cash was invested
primarily in mortgage-backed securities and, to a lesser extent, corporate bonds
and U.S. Treasury securities. In 1994, new cash was invested primarily in
mortgage-backed securities.
The life and health subsidiaries held fixed maturity securities with a
carrying value of $2.9 billion and $2.7 billion at December 31, 1996 and 1995,
respectively. Corporate bonds comprised 48% and 39% of the portfolio at year-end
1996 and 1995, respectively, and mortgage-backed securities comprised 38% and
47% of the portfolio at year-end 1996 and 1995, respectively. Approximately 90%
of the
29
30
mortgage-backed securities holdings at December 31, 1996 and 1995 related to
residential mortgages consisting of government agency pass-through securities,
government agency collateralized mortgage obligations (CMOs) and AAA rated
non-agency CMOs backed by government agency collateral or single family home
mortgages. The majority of the CMOs are actively traded in liquid markets and
market value information is readily available from broker-dealers. The notion of
impairment associated with default in paying principal is less applicable to
residential CMOs. Other risks, most notably prepayment and extension risks, are
monitored regularly. Changes in prepayment patterns can either lengthen or
shorten the expected timing of the principal repayments and thus the average
life and the effective yield of the security. We invest primarily in those
classes of residential CMO instruments that are subject to less prepayment and
extension risk and are therefore less volatile than other CMO instruments.
Net investment gains realized by the life and health insurance operations
were as follows:
1996 1995 1994
---- ---- ----
(IN MILLIONS)
Equity securities....................................... $ 5 $11 $ 7
Fixed maturities........................................ 7 11 2
---- ---- ----
Realized investment gains before tax.................... $12 $22 $ 9
==== ==== ====
Realized investment gains after tax..................... $ 8 $14 $ 6
==== ==== ====
CAPITAL RESOURCES
On March 1, 1996, the Board of Directors approved an increase in the number
of authorized shares of common stock of the Corporation from 300 million shares
to 600 million shares. At the same time, the Board of Directors approved a
two-for-one stock split payable to shareholders of record as of April 19, 1996.
The Corporation filed a shelf registration statement which the Securities
and Exchange Commission declared effective in June 1995, under which up to $400
million of various types of securities may be issued by the Corporation or Chubb
Capital. No securities have been issued under this registration.
In February 1994, the Board of Directors authorized the repurchase of up to
10,000,000 shares of common stock. During 1994, the Corporation repurchased
approximately 2,000,000 shares in open-market transactions at a cost of $72
million. During 1996, the Corporation repurchased an additional 1,700,000 shares
at a cost of $83 million. In March 1997, the Board of Directors replaced the
1994 program with a new share repurchase program, which authorizes the
repurchase of up to 17,500,000 shares of common stock. It is expected that the
Corporation will use a substantial portion of the proceeds from the sale of the
life and health insurance operations to repurchase shares.
The Corporation has outstanding $90 million of unsecured 8 3/4% notes due
in 1999. In 1997 and 1998, the Corporation will pay as a mandatory sinking fund
an amount sufficient to redeem $30 million of principal.
Chubb Capital has outstanding in the Eurodollar market $229 million of 6%
exchangeable subordinated notes due in 1998. The notes are guaranteed by the
Corporation and exchangeable into its common stock. The proceeds have been used
to support our real estate operations. During 1996, the holders of $21 million
of exchangeable notes elected the available option to exchange such notes into
shares of common stock of the Corporation, resulting in the issuance of 480,464
shares of common stock.
Chubb Capital has outstanding $150 million of 6% notes due in 1998 and $100
million of 6 7/8% notes due in 2003. The notes are unsecured and are guaranteed
by the Corporation. A substantial portion of the proceeds have been used to
support our real estate operations.
30
31
The Corporation has a revolving credit agreement with a group of banks that
provides for unsecured borrowings of up to $300 million. There have been no
borrowings under this agreement. The agreement terminates on July 15, 1997 at
which time any loans then outstanding become payable. Management anticipates
that a similar credit agreement will replace this agreement. The Corporation had
additional unused lines of credit of approximately $140 million at December 31,
1996.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of the Corporation at December 31, 1996
and 1995 and for each of the three years in the period ended December 31, 1996
and the Report of Independent Auditors thereon and the Corporation's unaudited
quarterly financial data for the two-year period ended December 31, 1996 are
incorporated by reference from the Corporation's 1996 Annual Report to
Shareholders, pages 42 through 66.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
32
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Corporation's Directors is incorporated by
reference from the Corporation's definitive Proxy Statement for the Annual
Meeting of Shareholders on April 22, 1997, pages 2, 3 and 4. Information
regarding the executive officers is included in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Corporation's definitive Proxy Statement
for the Annual Meeting of Shareholders on April 22, 1997, pages 8 through 21
other than the Performance Graph and the Organization and Compensation Committee
Report appearing on pages 14 through 18.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Corporation's definitive Proxy Statement
for the Annual Meeting of Shareholders on April 22, 1997, pages 5 through 7.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Corporation's definitive Proxy Statement
for the Annual Meeting of Shareholders on April 22, 1997, pages 21 through 23.
32
33
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS AND 2. SCHEDULES
The financial statements and schedules listed in the accompanying
index to financial statements and financial statement schedules are filed
as part of this report.
3. EXHIBITS
The exhibits listed in the accompanying index to exhibits are filed as
part of this report.
(b) REPORTS ON FORM 8-K
The Registrant filed a current report on Form 8-K dated October 29,
1996 with respect to the announcement on October 29, 1996 that the
Registrant (1) retained Goldman, Sachs & Co. to assist it in the process of
evaluating its strategic alternatives with respect to the Registrant's life
insurance companies and (2) was considering its strategic alternatives with
respect to its real estate subsidiary, Bellemead Development Corporation.
The Registrant filed a current report on Form 8-K dated February 6,
1997 with respect to the announcement on February 6, 1997 of its
preliminary financial results for the quarter and year ended December 31,
1996.
The Registrant filed a current report on Form 8-K dated February 24,
1997 with respect to the announcement on February 24, 1997 that the
Registrant signed a definitive purchase agreement under which the
Registrant will sell Chubb Life Insurance Company of America to
Jefferson-Pilot Corporation for $875 million in cash.
The Registrant filed a current report on Form 8-K dated March 7, 1997
with respect to the announcement on March 7, 1997 that (1) the Board of
Directors of the Registrant declared a regular quarterly dividend in the
amount of $.29 per share, (2) the Board of Directors of the Registrant
approved a new share repurchase program and (3) the Registrant was
restating its preliminary 1996 financial results to reflect the
classification of its life insurance business as a discontinued operation
and to recognize a charge related to the write-down of certain real estate
assets.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
Nos. 2-90826 (filed May 1, 1984), 33-29185 (filed June 7, 1989), 33-30020 (filed
July 18, 1989), 33-49230 (filed July 2, 1992), 33-49232 (filed July 2, 1992),
333-09273 (filed July 31, 1996) and 333-09275 (filed July 31, 1996):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
33
34
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
THE CHUBB CORPORATION
(REGISTRANT)
March 7, 1997
By /s/ DEAN R. O'HARE
----------------------------------
(DEAN R. O'HARE, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
/s/ DEAN R. O'HARE Chairman, Chief March 7, 1997
- ------------------------------------------ Executive Officer and
(DEAN R. O'HARE) Director
/s/ JOHN C. BECK Director March 7, 1997
- ------------------------------------------
(JOHN C. BECK)
Director March 7, 1997
- ------------------------------------------
(SHEILA P. BURKE)
/s/ JAMES I. CASH, JR. Director March 7, 1997
- ------------------------------------------
(JAMES I. CASH, JR.)
/s/ PERCY CHUBB, III Director March 7, 1997
- ------------------------------------------
(PERCY CHUBB, III)
/s/ JOEL J. COHEN Director March 7, 1997
- ------------------------------------------
(JOEL J. COHEN)
/s/ DAVID H. HOAG Director March 7, 1997
- ------------------------------------------
(DAVID H. HOAG)
/s/ ROBERT V. LINDSAY Director March 7, 1997
- ------------------------------------------
(ROBERT V. LINDSAY)
34
35
SIGNATURE TITLE DATE
Director March 7, 1997
- ------------------------------------------
(THOMAS C. MACAVOY)
/s/ GERTRUDE G. MICHELSON Director March 7, 1997
- ------------------------------------------
(GERTRUDE G. MICHELSON)
/s/ WARREN B. RUDMAN Director March 7, 1997
- ------------------------------------------
(WARREN B. RUDMAN)
/s/ DAVID G. SCHOLEY Director March 7, 1997
- ------------------------------------------
(DAVID G. SCHOLEY)
/s/ RAYMOND G.H. SEITZ Director March 7, 1997
- ------------------------------------------
(RAYMOND G.H. SEITZ)
/s/ LAWRENCE M. SMALL Director March 7, 1997
- ------------------------------------------
(LAWRENCE M. SMALL)
/s/ RICHARD D. WOOD Director March 7, 1997
- ------------------------------------------
(RICHARD D. WOOD)
/s/ DAVID B. KELSO Executive Vice President and March 7, 1997
- ------------------------------------------ Chief Financial Officer
(DAVID B. KELSO)
/s/ HENRY B. SCHRAM Senior Vice President and March 7, 1997
- ------------------------------------------ Chief Accounting Officer
(HENRY B. SCHRAM)
35
36
THE CHUBB CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF INDEPENDENT AUDITORS
(ITEM 14(A))
ANNUAL REPORT TO
SHAREHOLDERS FORM 10-K
PAGE PAGE
------------ ------------
Report of Independent Auditors 65 --
Consolidated Balance Sheets at December 31, 1996 and 1995 43 --
Consolidated Statements of Income for the Years Ended Decem-
ber 31, 1996, 1995 and 1994 42 --
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994 44 --
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 45 --
Notes to Consolidated Financial Statements 46 --
Supplementary Information (unaudited)
Quarterly Financial Data 66 --
Schedules:
I -- Consolidated Summary of Investments -- Other
than Investments in Related Parties at
December 31, 1996 -- 38
II -- Condensed Financial Information of Registrant at
December 31, 1996 and 1995 and for the Years
Ended December 31, 1996, 1995 and 1994 -- 39
III -- Consolidated Supplementary Insurance Information
at and for the Years Ended December 31, 1996,
1995 and 1994 -- 42
IV -- Consolidated Reinsurance for the Years
Ended December 31, 1996, 1995 and 1994 -- 43
VI -- Consolidated Supplementary Property and Casualty
Insurance Information for the Years Ended
December 31, 1996, 1995 and 1994 -- 44
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
The consolidated financial statements and supplementary information listed
in the above index, which are included in the Annual Report to Shareholders of
The Chubb Corporation for the year ended December 31, 1996, are hereby
incorporated by reference.
36
37
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of The Chubb Corporation of our report dated March 5, 1997 included in the
1996 Annual Report to Shareholders of The Chubb Corporation.
Our audits also included the financial statement schedules of The Chubb
Corporation listed in Item 14(a). These schedules are the responsibility of the
Corporation's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-3: No. 33-59111 and Form S-8: No. 2-90826, No. 33-29185, No.
33-30020, No. 33-49230, No. 33-49232, No. 333-09273 and No. 333-09275) of our
report dated March 5, 1997, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedules included
in this Annual Report (Form 10-K) of The Chubb Corporation.
/s/ ERNST & YOUNG LLP
New York, New York
March 26, 1997
37
38
THE CHUBB CORPORATION
SCHEDULE I
CONSOLIDATED SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
(IN THOUSANDS)
DECEMBER 31, 1996
AMOUNT
AT WHICH
COST OR SHOWN IN
AMORTIZED MARKET THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
------------------ --------- --------- -------------
Short term investments......................... $ 275,909 $ 275,909 $ 275,909
---------- ---------- -------------
Fixed maturities
Bonds
United States Government and government
agencies and authorities................ 2,176,366 2,176,122 2,174,095
States, municipalities and political
subdivisions............................ 6,806,811 7,142,001 7,014,267
Foreign................................... 1,169,238 1,216,450 1,216,450
Public utilities.......................... 50,119 51,671 51,671
All other corporate bonds................. 679,910 687,215 687,215
---------- ---------- -------------
Total bonds..................... 10,882,444 11,273,459 11,143,698
Redeemable preferred stocks.................. 15,000 15,150 15,150
---------- ---------- -------------
Total fixed maturities.......... 10,897,444 11,288,609 11,158,848
---------- ---------- -------------
Equity securities
Common stocks
Banks, trusts and insurance companies..... 11,697 19,912 19,912
Industrial, miscellaneous and other....... 432,979 528,774 528,774
---------- ---------- -------------
Total common stocks............. 444,676 548,686 548,686
Non-redeemable preferred stocks.............. 95,846 97,617 97,617
---------- ---------- -------------
Total equity securities......... 540,522 646,303 646,303
---------- ---------- -------------
Total invested assets........... $11,713,875 $12,210,821 $12,081,060
========== ========== =============
38
39
THE CHUBB CORPORATION
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS -- PARENT COMPANY ONLY
(IN THOUSANDS)
DECEMBER 31
1996 1995
---------- ----------
Assets
Invested Assets
Short Term Investments..................................... $ 9,703 $ 62,727
Taxable Fixed Maturities -- Available-for-Sale
(cost $792,919 and $207,053)............................. 786,837 216,048
Equity Securities (cost $52,036 and $48,640)............... 86,857 75,837
---------- ----------
TOTAL INVESTED ASSETS................................. 883,397 354,612
Cash.......................................................... 6 59
Investment in Consolidated Subsidiaries
Continuing Operations...................................... 3,714,685 4,125,343
Discontinued Operations.................................... 843,408 844,645
Other Assets.................................................. 212,565 145,264
---------- ----------
TOTAL ASSETS.......................................... $5,654,061 $5,469,923
========= =========
Liabilities
Dividend Payable to Shareholders.............................. $ 47,210 $ 42,741
Long Term Debt................................................ 90,000 120,000
Accrued Expenses and Other Liabilities........................ 53,977 44,453
---------- ----------
TOTAL LIABILITIES..................................... 191,187 207,194
---------- ----------
Shareholders' Equity
Preferred Stock -- Authorized 4,000,000 Shares;
$1 Par Value; Issued -- None............................... -- --
Common Stock -- Authorized 600,000,000 Shares;
$1 Par Value; Issued 176,084,173 and 87,819,355 Shares..... 176,084 87,819
Paid-In Surplus............................................... 695,762 778,239
Retained Earnings............................................. 4,530,512 4,206,517
Foreign Currency Translation Losses, Net of Income Tax........ (15,678) (3,433)
Unrealized Appreciation of Investments, Net................... 238,669 345,894
Receivable from Employee Stock Ownership Plan................. (106,261) (114,998)
Treasury Stock, at Cost -- 1,223,182 and 518,468 Shares....... (56,214) (37,309)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY............................ 5,462,874 5,262,729
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $5,654,061 $5,469,923
========= =========
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Corporation's 1996
Annual Report to Shareholders.
39
40
THE CHUBB CORPORATION
SCHEDULE II
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME -- PARENT COMPANY ONLY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
1996 1995 1994
-------- -------- --------
Investment Income...................................... $ 41,464 $ 19,982 $ 25,031
Realized Investment Gains (Losses)..................... 12,799 (505) (13,145)
Investment Expenses.................................... (2,110) (1,132) (1,307)
Corporate Expenses..................................... (33,384) (33,355) (34,850)
-------- -------- --------
18,769 (15,010) (24,271)
Federal and Foreign Income Tax (Credit)................ (28) 2,639 (4,578)
-------- -------- --------
18,797 (17,649) (19,693)
Equity in Income from Continuing Operations of Consoli-
dated Subsidiaries................................... 467,396 672,061 527,611
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS................. 486,193 654,412 507,918
Equity in Income from Discontinued Operations.......... 26,491 42,216 20,551
-------- -------- --------
NET INCOME........................................ $512,684 $696,628 $528,469
======== ======== ========
The Corporation and its domestic subsidiaries file a consolidated federal
income tax return. The Corporation's federal income tax represents its share of
the consolidated federal income tax under the Corporation's tax allocation
agreements with its subsidiaries.
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Corporation's 1996
Annual Report to Shareholders.
40
41
THE CHUBB CORPORATION
SCHEDULE II
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS -- PARENT COMPANY ONLY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
1996 1995 1994
--------- --------- ---------
Cash Flows from Operating Activities
Net Income........................................... $ 512,684 $ 696,628 $ 528,469
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Equity in Income of Continuing Operations of
Consolidated Subsidiaries....................... (467,396) (672,061) (527,611)
Equity in Income from Discontinued Operations..... (26,491) (42,216) (20,551)
Realized Investment (Gains) Losses................ (12,799) 505 13,145
Other, Net........................................ (12,734) 5,024 16,886
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES......................... (6,736) (12,120) 10,338
--------- --------- ---------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities.............. 237,675 110,234 234,132
Proceeds from Maturities of Fixed Maturities......... 104,928 13,369 21,632
Proceeds from Sales of Equity Securities............. 17,269 2,479 5,333
Purchases of Fixed Maturities........................ (397,959) (39,585) (218,380)
Purchases of Equity Securities....................... (16,078) (8,683) (26,004)
Decrease (Increase) in Short Term Investments, Net... 53,024 (1,297) 1,375
Dividends Received from Consolidated Subsidiaries.... 275,202 244,008 244,008
Capital Contributions to Consolidated Subsidiaries... -- (24,000) (40,000)
Other, Net........................................... (23,379) (40,123) (9,353)
--------- --------- ---------
NET CASH PROVIDED BY
INVESTING ACTIVITIES......................... 250,682 256,402 212,743
--------- --------- ---------
Cash Flows from Financing Activities
Decrease in Payable to Chubb Capital Corporation..... -- (74,340) (2,950)
Repayment of Long Term Debt.......................... (30,000) (30,000) --
Dividends Paid to Shareholders....................... (184,220) (167,959) (158,735)
Repurchase of Shares................................. (82,528) -- (72,052)
Other, Net........................................... 52,749 27,944 10,608
--------- --------- ---------
NET CASH USED IN
FINANCING ACTIVITIES......................... (243,999) (244,355) (223,129)
--------- --------- ---------
Net Decrease in Cash................................... (53) (73) (48)
Cash at Beginning of Year.............................. 59 132 180
--------- --------- ---------
CASH AT END OF YEAR............................. $ 6 $ 59 $ 132
========= ========= =========
In 1996, $520,270,000 of fixed maturity securities were received as a
dividend from a consolidated investment company subsidiary of the Corporation.
This noncash transaction has been excluded from the statements of cash flows.
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Corporation's 1996
Annual Report to Shareholders.
41
42
THE CHUBB CORPORATION
SCHEDULE III
CONSOLIDATED SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
DECEMBER 31 YEAR ENDED DECEMBER 31
------------------------------------ ------------------------
DEFERRED
POLICY NET
ACQUISITION UNPAID UNEARNED PREMIUMS INVESTMENT
SEGMENT COSTS CLAIMS PREMIUMS EARNED INCOME
- -------------------------------------------------------- -------- ---------- ---------- ---------- ----------
1996
Property and Casualty Insurance
Personal............................................ $146,096 $ 688,483 $ 591,875 $ 969,710
Commercial.......................................... 425,230 8,652,843 1,926,845 3,315,526
Reinsurance Assumed................................. 29,872 182,383 98,783 284,020
Investments......................................... $ 646,056*
-------- ---------- ---------- ---------- ----------
$601,198 $9,523,709 $2,617,503 $4,569,256 $ 646,056
======== ========= ========= ========= ========
1995
Property and Casualty Insurance
Personal............................................ $131,542 $ 691,991 $ 548,094 $ 847,474
Commercial.......................................... 367,146 8,498,498 1,842,332 2,952,751
Reinsurance Assumed................................. 59,988 397,652 180,256 346,937
Investments......................................... $ 602,987*
-------- ---------- ---------- ---------- ----------
$558,676 $9,588,141 $2,570,682 $4,147,162 $ 602,987
======== ========= ========= ========= ========
1994
Property and Casualty Insurance
Personal............................................ $133,021 $ 704,233 $ 519,298 $ 826,068
Commercial.......................................... 346,118 7,876,836 1,704,512 2,677,914
Reinsurance Assumed................................. 50,314 332,151 158,735 272,301
Investments......................................... $ 560,481*
-------- ---------- ---------- ---------- ----------
$529,453 $8,913,220 $2,382,545 $3,776,283 $ 560,481
======== ========= ========= ========= ========
YEAR ENDED DECEMBER 31
------------------------------------------------
AMORTIZATION
OF OTHER
DEFERRED INSURANCE
POLICY OPERATING
INSURANCE ACQUISITION COSTS AND PREMIUMS
SEGMENT CLAIMS COSTS EXPENSES WRITTEN
- -------------------------------------------------------- ---------- ---------- ---------- ----------
1996
Property and Casualty Insurance
Personal............................................ $ 570,465 $ 273,470 $ 58,531 $1,039,134
Commercial.......................................... 2,252,564 849,464 231,660 3,532,072
Reinsurance Assumed................................. 187,726 115,034 202,547
Investments.........................................
---------- ---------- ---------- ----------
$3,010,755 $1,237,968 $ 290,191 $4,773,753
========= ========= ======== =========
1995
Property and Casualty Insurance
Personal............................................ $ 442,462 $ 254,020 $ 53,691 $ 866,782
Commercial.......................................... 2,000,774 750,541 208,393 3,070,752
Reinsurance Assumed................................. 226,745 116,382 368,458
Investments.........................................
---------- ---------- ---------- ----------
$2,669,981 $1,120,943 $ 262,084 $4,305,992
========= ========= ======== =========
1994
Property and Casualty Insurance
Personal............................................ $ 527,856 $ 256,604 $ 44,855 $ 828,803
Commercial.......................................... 1,806,464 695,861 179,135 2,807,185
Reinsurance Assumed................................. 185,039 88,780 315,221
Investments.........................................
---------- ---------- ---------- ----------
$2,519,359 $1,041,245 $ 223,990 $3,951,209
========= ========= ======== =========
- ---------------
* Property and casualty assets are available for payment of claims and expenses
for all classes of business; therefore, such assets and the related
investment income have not been identified with specific groupings of classes
of business.
The Consolidated Supplementary Insurance Information amounts for 1995 and
1994 include certain reclassifications to conform with the 1996 presentation,
which more closely reflects the way the property and casualty business is now
managed. The total amounts are not affected.
42
43
THE CHUBB CORPORATION
SCHEDULE IV
CONSOLIDATED REINSURANCE
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
PROPERTY AND CASUALTY INSURANCE PREMIUMS
EARNED
---------------------------------------------- PERCENTAGE OF
CEDED ASSUMED AMOUNT
DIRECT TO OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
--------- ---------- ---------- --------- -------------
1996.................................... $5,023,489 $ 987,235 $533,002 $4,569,256 11.7%
========== ========== ======== ==========
1995.................................... $4,754,423 $1,319,341 $712,080 $4,147,162 17.2
========== ========== ======== ==========
1994.................................... $4,415,080 $1,280,412 $641,615 $3,776,283 17.0
========== ========== ======== ==========
43
44
THE CHUBB CORPORATION
SCHEDULE VI
CONSOLIDATED SUPPLEMENTARY PROPERTY AND CASUALTY INSURANCE INFORMATION
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
CLAIMS AND CLAIM
ADJUSTMENT PAID
EXPENSES INCURRED CLAIMS
RELATED TO AND
------------------------ CLAIM
CURRENT PRIOR ADJUSTMENT
YEAR YEARS EXPENSES
--------- -------- ---------
1996............................................. $3,053,600 $(42,845) $2,869,406
========== ========= ==========
1995............................................. $2,705,800 $(35,819) $1,988,386
========== ========= ==========
1994............................................. $2,549,100 $(29,741) $2,036,525
========== ========= ==========
44
45
THE CHUBB CORPORATION
EXHIBITS
(ITEM 14(A))
DESCRIPTION
(2) -- Stock Purchase Agreement dated as of February 23, 1997 between
Jefferson-Pilot Corporation and the registrant, filed herewith.
(Confidential treatment requested with respect to certain portions
thereof. Exhibits and schedules included in the Stock Purchase
Agreement have been omitted and will be provided to the Securities and
Exchange Commission upon request.)
(3) -- Articles of Incorporation and By-Laws
Restated Certificate of Incorporation. Incorporated by reference to
Exhibit (3) of the registrant's Report to the Securities and Exchange
Commission on Form 10-Q for the six months ended June 30, 1996.
By-Laws. Incorporated by reference to Exhibit (3) of the registrant's
Report to the Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1994.
(4) -- The registrant is not filing any instruments evidencing any indebtedness
since the total amount of securities authorized under any single
instrument does not exceed 10% of the total assets of the registrant
and its subsidiaries on a consolidated basis. Copies of such
instruments will be furnished to the Securities and Exchange
Commission upon request.
(10) -- Material contracts
Global Settlement Agreement among Fibreboard Corporation, Continental
Casualty Company, CNA Casualty Company of California, Columbia
Casualty Company, Pacific Indemnity Company, and the Settlement Class
and together with Exhibits A through D incorporated by reference to
Exhibit (10) of the registrant's Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1993.
Settlement Agreement with Fibreboard Corporation, Continental Casualty
Company, CNA Casualty Company of California and Columbia Casualty
Company incorporated by reference to Exhibit (10) of the registrant's
Report to the Securities and Exchange Commission on Form 10-Q for the
nine months ended September 30, 1993.
Continental-Pacific Agreement with Continental Casualty Company incorpo-
rated by reference to Exhibit (10) of the registrant's Report to the
Securities and Exchange Commission on Form 10-Q for the nine months
ended September 30, 1993.
Amendment to the Continental-Pacific Agreement with Continental Casualty
Company incorporated by reference to Exhibit (10) of the registrant's
Report to the Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1994.
Executive Compensation Plans and Arrangements.
The Chubb Corporation Annual Incentive Compensation Plan (1996) incor-
porated by reference to Exhibit A of the registrant's definitive
proxy statement for the Annual Meeting of Shareholders held on
April 23, 1996.
The Chubb Corporation Long-Term Stock Incentive Plan (1996), as
amended, incorporated by reference to Exhibit (10) of the
registrant's Report to the Securities and Exchange Commission on
Form 10-Q for the six months ended June 30, 1996.
The Chubb Corporation Stock Option Plan for Non-Employee Directors
(1996) incorporated by reference to Exhibit C of the registrant's
definitive proxy statement for the Annual Meeting of Shareholders
held on April 23, 1996.
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46
DESCRIPTION
The Chubb Corporation Long-Term Stock Incentive Plan (1992)
incorporated by reference to Exhibit (10) of the registrant's
Report to the Securities and Exchange Commission on Form 10-K for
the year ended December 31, 1992.
The Chubb Corporation Stock Option Plan (1984) incorporated by
reference to Exhibit (10) of the registrant's Report to the
Securities and Exchange Commission on Form 10-K for the year ended
December 31, 1994.
The Chubb Corporation Stock Option Plan for Non-Employee Directors
(1992) incorporated by reference to Exhibit (10) of the
registrant's Report to the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 1992.
The Chubb Corporation Deferred Compensation Plan for Directors
incorporated by reference to Exhibit (10) of the registrant's
Report to the Securities and Exchange Commission on Form 10-K for
the year ended December 31, 1995.
Executive Severance Agreements and their amendments incorporated by
reference to Exhibit (10) of the registrant's Report to the
Securities and Exchange Commission on Form 10-K for the year ended
December 31, 1994.
Executive Severance Agreements incorporated by reference to Exhibit
(10) of the registrant's Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1995.
Contract for consulting and advisory services with Percy Chubb III, a
director of the registrant, filed herewith.
(11) -- Computation of earnings per share filed herewith.
(13) -- Pages 21, 22, and 40 through 67 of the 1996 Annual Report to
Shareholders.
(21) -- Subsidiaries of the registrant filed herewith.
(23) -- Consent of Independent Auditors (see page 37 of this report).
(27) -- Financial Data Schedule
46