e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the quarterly period ended June 30, 2009
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the transition period from to
Commission file number 1-8661
THE CHUBB CORPORATION
(Exact name of registrant as specified in its charter)
|
|
|
NEW JERSEY
|
|
13-2595722 |
|
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I. R. S. Employer
Identification No.) |
|
|
|
15 MOUNTAIN VIEW ROAD, WARREN, NEW JERSEY
|
|
07059 |
|
|
|
(Address of principal executive offices)
|
|
(Zip Code) |
Registrants telephone number, including area code (908) 903-2000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or
15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.
YES þ NO o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such
files). YES þ NO o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act).
YES o NO þ
The
number of shares of common stock outstanding as of June 30, 2009 was 349,901,560.
THE CHUBB CORPORATION
INDEX
Page
1
Part I.
FINANCIAL INFORMATION
|
|
Item 1
|
Financial
Statements
|
THE CHUBB
CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
PERIODS ENDED JUNE 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
Six Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums Earned
|
|
$
|
2,828
|
|
|
$
|
2,986
|
|
|
$
|
5,654
|
|
|
$
|
5,962
|
|
Investment Income
|
|
|
408
|
|
|
|
438
|
|
|
|
810
|
|
|
|
877
|
|
Other Revenues
|
|
|
3
|
|
|
|
6
|
|
|
|
6
|
|
|
|
12
|
|
Realized Gains (Losses), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other-Than-Temporary
Impairment Losses on Investments
|
|
|
(34
|
)
|
|
|
(96
|
)
|
|
|
(93
|
)
|
|
|
(121
|
)
|
Other-Than-Temporary
Impairment Losses on Investments Recognized in Other
Comprehensive Income
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
Other Realized Gains (Losses), Net
|
|
|
46
|
|
|
|
20
|
|
|
|
(161
|
)
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized Gains (Losses), Net
|
|
|
27
|
|
|
|
(76
|
)
|
|
|
(239
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
3,266
|
|
|
|
3,354
|
|
|
|
6,231
|
|
|
|
6,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and Loss Expenses
|
|
|
1,572
|
|
|
|
1,749
|
|
|
|
3,187
|
|
|
|
3,333
|
|
Amortization of Deferred Policy Acquisition Costs
|
|
|
757
|
|
|
|
781
|
|
|
|
1,485
|
|
|
|
1,555
|
|
Other Insurance Operating Costs and Expenses
|
|
|
102
|
|
|
|
110
|
|
|
|
205
|
|
|
|
226
|
|
Investment Expenses
|
|
|
7
|
|
|
|
8
|
|
|
|
16
|
|
|
|
17
|
|
Other Expenses
|
|
|
4
|
|
|
|
5
|
|
|
|
7
|
|
|
|
17
|
|
Corporate Expenses
|
|
|
71
|
|
|
|
72
|
|
|
|
148
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Losses and Expenses
|
|
|
2,513
|
|
|
|
2,725
|
|
|
|
5,048
|
|
|
|
5,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Federal and Foreign Income Tax
|
|
|
753
|
|
|
|
629
|
|
|
|
1,183
|
|
|
|
1,558
|
|
Federal and Foreign Income Tax
|
|
|
202
|
|
|
|
160
|
|
|
|
291
|
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
551
|
|
|
$
|
469
|
|
|
$
|
892
|
|
|
$
|
1,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.55
|
|
|
$
|
1.29
|
|
|
$
|
2.51
|
|
|
$
|
3.09
|
|
Diluted
|
|
|
1.54
|
|
|
|
1.27
|
|
|
|
2.49
|
|
|
|
3.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared Per Share
|
|
|
.35
|
|
|
|
.33
|
|
|
|
.70
|
|
|
|
.66
|
|
See Notes to Consolidated Financial Statements.
Page
2
THE CHUBB
CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Dec. 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Assets
|
|
Invested Assets
|
|
|
|
|
|
|
|
|
Short Term Investments
|
|
$
|
2,651
|
|
|
$
|
2,478
|
|
Fixed Maturities
|
|
|
|
|
|
|
|
|
Tax Exempt (cost $18,697 and $18,299)
|
|
|
19,110
|
|
|
|
18,345
|
|
Taxable (cost $15,418 and $14,592)
|
|
|
15,563
|
|
|
|
14,410
|
|
Equity Securities (cost $1,235 and $1,563)
|
|
|
1,189
|
|
|
|
1,479
|
|
Other Invested Assets
|
|
|
1,784
|
|
|
|
2,026
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INVESTED ASSETS
|
|
|
40,297
|
|
|
|
38,738
|
|
|
Cash
|
|
|
65
|
|
|
|
56
|
|
Accrued Investment Income
|
|
|
442
|
|
|
|
435
|
|
Premiums Receivable
|
|
|
2,207
|
|
|
|
2,201
|
|
Reinsurance Recoverable on Unpaid Losses and Loss Expenses
|
|
|
2,138
|
|
|
|
2,212
|
|
Prepaid Reinsurance Premiums
|
|
|
355
|
|
|
|
373
|
|
Deferred Policy Acquisition Costs
|
|
|
1,562
|
|
|
|
1,532
|
|
Deferred Income Tax
|
|
|
887
|
|
|
|
1,144
|
|
Goodwill
|
|
|
467
|
|
|
|
467
|
|
Other Assets
|
|
|
1,283
|
|
|
|
1,271
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
49,703
|
|
|
$
|
48,429
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
Unpaid Losses and Loss Expenses
|
|
$
|
22,576
|
|
|
$
|
22,367
|
|
Unearned Premiums
|
|
|
6,306
|
|
|
|
6,367
|
|
Long Term Debt
|
|
|
3,975
|
|
|
|
3,975
|
|
Dividend Payable to Shareholders
|
|
|
124
|
|
|
|
118
|
|
Accrued Expenses and Other Liabilities
|
|
|
2,218
|
|
|
|
2,170
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
35,199
|
|
|
|
34,997
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Liabilities (Note 6)
|
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
|
Common Stock $1 Par Value;
371,980,710 Shares
|
|
|
372
|
|
|
|
372
|
|
Paid-In Surplus
|
|
|
196
|
|
|
|
253
|
|
Retained Earnings
|
|
|
15,183
|
|
|
|
14,509
|
|
Accumulated Other Comprehensive Loss
|
|
|
(202
|
)
|
|
|
(735
|
)
|
Treasury Stock, at Cost 22,079,150 and
19,726,097 Shares
|
|
|
(1,045
|
)
|
|
|
(967
|
)
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
14,504
|
|
|
|
13,432
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
49,703
|
|
|
$
|
48,429
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
Page 3
THE CHUBB
CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PERIODS ENDED JUNE 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
Six Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Net Income
|
|
$
|
551
|
|
|
$
|
469
|
|
|
$
|
892
|
|
|
$
|
1,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss), Net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Unrealized Appreciation or Depreciation of Investments
|
|
|
188
|
|
|
|
(316
|
)
|
|
|
515
|
|
|
|
(464
|
)
|
Change in Unrealized
Other-Than-Temporary
Impairment Losses on Investments
|
|
|
(9
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
Foreign Currency Translation Gains (Losses)
|
|
|
158
|
|
|
|
(5
|
)
|
|
|
45
|
|
|
|
56
|
|
Amortization of Net Loss and Prior Service Cost Included in Net
Postretirement Benefit Costs
|
|
|
3
|
|
|
|
5
|
|
|
|
12
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340
|
|
|
|
(316
|
)
|
|
|
563
|
|
|
|
(398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
891
|
|
|
$
|
153
|
|
|
$
|
1,455
|
|
|
$
|
735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
Page
4
THE CHUBB
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
892
|
|
|
$
|
1,133
|
|
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities
|
|
|
|
|
|
|
|
|
Increase in Unpaid Losses and Loss Expenses, Net
|
|
|
171
|
|
|
|
420
|
|
Increase (Decrease) in Unearned Premiums, Net
|
|
|
(65
|
)
|
|
|
21
|
|
Increase in Premiums Receivable
|
|
|
(6
|
)
|
|
|
(122
|
)
|
Amortization of Premiums and Discounts on Fixed Maturities
|
|
|
94
|
|
|
|
106
|
|
Depreciation
|
|
|
30
|
|
|
|
33
|
|
Realized Investment Losses, Net
|
|
|
239
|
|
|
|
8
|
|
Other, Net
|
|
|
(244
|
)
|
|
|
(354
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
1,111
|
|
|
|
1,245
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Proceeds from Fixed Maturities
|
|
|
|
|
|
|
|
|
Sales
|
|
|
1,771
|
|
|
|
1,254
|
|
Maturities, Calls and Redemptions
|
|
|
1,206
|
|
|
|
1,184
|
|
Proceeds from Sales of Equity Securities
|
|
|
344
|
|
|
|
137
|
|
Purchases of Fixed Maturities
|
|
|
(4,000
|
)
|
|
|
(2,952
|
)
|
Purchases of Equity Securities
|
|
|
(4
|
)
|
|
|
(113
|
)
|
Investments in Other Invested Assets, Net
|
|
|
(24
|
)
|
|
|
(26
|
)
|
Increase in Short Term Investments, Net
|
|
|
(182
|
)
|
|
|
(824
|
)
|
Increase in Net Payable from Security Transactions Not Settled
|
|
|
196
|
|
|
|
141
|
|
Purchases of Property and Equipment, Net
|
|
|
(24
|
)
|
|
|
(25
|
)
|
Other, Net
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
(713
|
)
|
|
|
(1,224
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from Issuance of Long Term Debt
|
|
|
|
|
|
|
1,200
|
|
Repayment of Long Term Debt
|
|
|
|
|
|
|
(225
|
)
|
Proceeds from Issuance of Common Stock Under Stock-Based
Employee Compensation Plans
|
|
|
16
|
|
|
|
59
|
|
Repurchase of Shares
|
|
|
(161
|
)
|
|
|
(811
|
)
|
Dividends Paid to Shareholders
|
|
|
(242
|
)
|
|
|
(232
|
)
|
Other, Net
|
|
|
(2
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Financing Activities
|
|
|
(389
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash
|
|
|
9
|
|
|
|
|
|
|
Cash at Beginning of Year
|
|
|
56
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
Cash at End of Period
|
|
$
|
65
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
Page 5
THE CHUBB
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
prepared in accordance with U.S. generally accepted
accounting principles (GAAP) and include the accounts of The
Chubb Corporation (Chubb) and its subsidiaries (collectively,
the Corporation). Significant intercompany transactions have
been eliminated in consolidation.
Effective April 1, 2009, the Corporation adopted Financial
Accounting Standards Board Staff Position (FSP)
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments. FSP
FAS 115-2
and
FAS 124-2
may not be retroactively applied to prior periods
financial statements; accordingly, consolidated financial
statements for periods prior to April 1, 2009 have not been
restated for this change in accounting policy. This accounting
change is further described in Note (2).
The amounts included in this report are unaudited but include
those adjustments, consisting of normal recurring items, that
management considers necessary for a fair presentation. These
consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes in
the Notes to Consolidated Financial Statements included in the
Corporations Annual Report on
Form 10-K
for the year ended December 31, 2008. The Corporation has
performed an evaluation of subsequent events through
August 10, 2009, which is the date the financial statements
were issued. No significant subsequent events were identified.
|
|
2)
|
Adoption
of New Accounting Pronouncements
|
Effective April 1, 2009, the Corporation adopted FSP
FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly. This FSP provides
additional guidance for estimating fair value in accordance with
SFAS No. 157, Fair Value Measurements, when the volume
and level of activity for the asset or liability have
significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not
orderly. The adoption of FSP
FAS 157-4
did not have a significant effect on the Corporations
financial position or results of operations.
Page
6
THE CHUBB
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective April 1, 2009, the Corporation adopted FSP
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments. This FSP modifies the guidance on the recognition
of
other-than-temporary
impairments of debt securities. Under the guidance, an entity is
required to recognize an
other-than-temporary
impairment when the entity concludes it has the intent to sell
or it is more likely than not the entity will be required to
sell an impaired debt security before the security recovers to
its amortized cost value or it is likely the entity will not
recover the entire amortized cost value of an impaired debt
security. The FSP also changes the presentation in the financial
statements of
other-than-temporary
impairments and provides for enhanced disclosures of both debt
and equity securities. Under the guidance, if an entity has the
intent to sell or it is more likely than not the entity will be
required to sell an impaired debt security before the security
recovers to its amortized cost value, the security is written
down to fair value and the entire amount of the writedown is
charged to income as a realized investment loss. For all other
impaired debt securities, the impairment loss is separated into
the amount representing the credit loss and the amount
representing the loss related to all other factors. The portion
of the impairment loss that represents the credit loss is
charged to income as a realized investment loss and the amount
representing the loss that relates to all other factors is
included in other comprehensive income. The FSP requires a
cumulative effect adjustment to the opening balance of retained
earnings in the period of adoption with a corresponding
adjustment to accumulated other comprehensive income. The
cumulative effect adjustment from adopting the FSP resulted in a
$30 million increase to retained earnings and a
corresponding decrease to accumulated other comprehensive
income. The adoption of the FSP did not have a significant
effect on the Corporations financial position or results
of operations.
Effective January 1, 2009, the Corporation adopted
Statement of Financial Accounting Standards (SFAS) No. 163,
Accounting for Financial Guarantee Insurance Contracts, an
Interpretation of FASB Statement No. 60.
SFAS No. 163, issued by the Financial Accounting
Standards Board, clarifies how SFAS No. 60 applies to
financial
guarantee insurance contracts. The adoption of
SFAS No. 163 did not have a significant effect on the
Corporations financial position or results of operations.
Effective January 1, 2009, the Corporation adopted FSP
EITF 03-06-1,
Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities. This FSP addresses
whether instruments granted in share-based payment transactions
are participating securities prior to vesting in computing
earnings per share. The adoption of
FSP 03-06-1
did not have a significant effect on the Corporations
earnings per share.
Page
7
THE CHUBB
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(a) The amortized cost and fair value of invested assets
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Appreciation
|
|
|
Depreciation
|
|
|
Value
|
|
|
|
(in millions)
|
|
|
Fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt
|
|
$
|
18,697
|
|
|
$
|
609
|
|
|
$
|
196
|
|
|
$
|
19,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and government agency and authority obligations
|
|
|
596
|
|
|
|
13
|
|
|
|
4
|
|
|
|
605
|
|
Corporate bonds
|
|
|
3,647
|
|
|
|
155
|
|
|
|
44
|
|
|
|
3,758
|
|
Foreign bonds
|
|
|
7,323
|
|
|
|
290
|
|
|
|
27
|
|
|
|
7,586
|
|
Residential mortgage-backed securities
|
|
|
2,147
|
|
|
|
68
|
|
|
|
36
|
|
|
|
2,179
|
|
Commercial mortgage-backed securities
|
|
|
1,705
|
|
|
|
2
|
|
|
|
272
|
|
|
|
1,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,418
|
|
|
|
528
|
|
|
|
383
|
|
|
|
15,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
$
|
34,115
|
|
|
$
|
1,137
|
|
|
$
|
579
|
|
|
$
|
34,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
1,235
|
|
|
$
|
106
|
|
|
$
|
152
|
|
|
$
|
1,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009, the gross unrealized depreciation of
fixed maturities included $20 million of unrealized
other-than-temporary
impairment losses recognized in accumulated other comprehensive
income.
The amortized cost and fair value of fixed maturities at
June 30, 2009 by contractual maturity were as follows:
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
(in millions)
|
|
|
Due in one year or less
|
|
$
|
1,205
|
|
|
$
|
1,222
|
|
Due after one year through five years
|
|
|
9,551
|
|
|
|
9,891
|
|
Due after five years through ten years
|
|
|
12,507
|
|
|
|
12,975
|
|
Due after ten years
|
|
|
7,000
|
|
|
|
6,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,263
|
|
|
|
31,059
|
|
Residential mortgage-backed securities
|
|
|
2,147
|
|
|
|
2,179
|
|
Commercial mortgage-backed securities
|
|
|
1,705
|
|
|
|
1,435
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,115
|
|
|
$
|
34,673
|
|
|
|
|
|
|
|
|
|
|
Actual maturities could differ from contractual maturities
because borrowers may have the right to call or prepay
obligations.
Page
8
THE CHUBB
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(b) The components of unrealized appreciation or
depreciation, including unrealized
other-than-temporary
impairment losses, of investments carried at fair value were as follows:
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
(in millions)
|
|
|
Fixed maturities
|
|
|
|
|
Gross unrealized appreciation
|
|
$
|
1,137
|
|
Gross unrealized depreciation
|
|
|
579
|
|
|
|
|
|
|
|
|
|
558
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
Gross unrealized appreciation
|
|
|
106
|
|
Gross unrealized depreciation
|
|
|
152
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
512
|
|
Deferred income tax liability
|
|
|
179
|
|
|
|
|
|
|
|
|
$
|
333
|
|
|
|
|
|
|
When the fair value of any investment is lower than its cost, an
assessment is made to determine whether the decline is temporary
or other than temporary. The assessment of
other-than-temporary
impairment of fixed maturities and equity securities is based on
both quantitative criteria and qualitative information and also
considers a number of other factors including, but not limited
to, the length of time and the extent to which the fair value
has been less than the cost, the financial condition and near
term prospects of the issuer, whether the issuer is current on
contractually obligated interest and principal payments, general
market conditions and industry or sector specific factors.
For fixed maturities, prior to April 1, 2009, the
Corporation considered many factors including its intent and
ability to hold a security for a period of time sufficient to
allow for the recovery of the securitys cost. When an
impairment was deemed
other-than-temporary,
the security was written down to fair value and the entire
writedown was charged to income as a realized investment loss.
Effective April 1, 2009, the Corporation adopted FSP
FAS 115-2
and
FAS 124-2
which modifies the guidance on the recognition of
other-than-temporary
impairments of debt securities. Under the guidance, the
Corporation is required to recognize an
other-than-temporary
impairment loss when it concludes it has the intent to sell or it is
more likely than not it will be required to sell an impaired
fixed maturity before the security recovers to its amortized
cost value or it is likely it will not recover the entire
amortized cost value of an impaired debt security. Also under
the guidance, if the Corporation has the intent to sell or it is
more likely than not that the Corporation will be required to
sell an impaired fixed maturity before the security recovers to
its amortized cost value, the security is written down to fair
value and the entire amount of the writedown is charged to
income as a realized investment loss. For all other impaired
fixed maturities, the impairment loss is separated into the
amount representing the credit loss and the amount representing
the loss related to all other factors. The amount of the
impairment loss that represents the credit loss is charged to
income as a realized investment loss and the amount of the
impairment loss that relates to all other factors is included in
other comprehensive income.
Page
9
THE CHUBB
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For equity securities, the Corporation considers its intent and
ability to hold a security for a period of time sufficient to
allow for the recovery of cost. If the decline in the fair value
of an equity security is deemed to be other than temporary, the
security is written down to fair value and the amount of the
writedown is charged to income as a realized investment loss.
For fixed maturities, the split between the amount of
other-than-temporary
impairment losses that represents credit losses and the amount
that relates to all other factors is principally based on
assumptions regarding the amount and timing of projected cash
flows. For fixed maturities other than mortgage-backed
securities, cash flow estimates are based on assumptions
regarding the probability of default and estimates regarding the
timing and amount of recoveries associated with a default. For
mortgage-backed securities, cash flow estimates are based on
assumptions regarding future prepayment rates, default rates,
loss severity and timing of recoveries. The Corporation has
developed the estimates of projected cash flows using
information based on historical market data, industry analyst
reports and forecasts and other data relevant to the
collectability of a security.
The following table summarizes, for all investment securities in
an unrealized loss position at June 30, 2009, the aggregate
fair value and gross unrealized depreciation, including
unrealized
other-than-temporary
impairment losses, by investment category and length of time
that individual securities have continuously been in an
unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Depreciation
|
|
|
Value
|
|
|
Depreciation
|
|
|
Value
|
|
|
Depreciation
|
|
|
|
(in millions)
|
|
|
Fixed maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt
|
|
$
|
1,420
|
|
|
$
|
24
|
|
|
$
|
2,724
|
|
|
$
|
172
|
|
|
$
|
4,144
|
|
|
$
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and government agency and authority obligations
|
|
|
35
|
|
|
|
1
|
|
|
|
46
|
|
|
|
3
|
|
|
|
81
|
|
|
|
4
|
|
Corporate bonds
|
|
|
193
|
|
|
|
13
|
|
|
|
412
|
|
|
|
31
|
|
|
|
605
|
|
|
|
44
|
|
Foreign bonds
|
|
|
828
|
|
|
|
20
|
|
|
|
153
|
|
|
|
7
|
|
|
|
981
|
|
|
|
27
|
|
Residential mortgage- backed securities
|
|
|
25
|
|
|
|
8
|
|
|
|
86
|
|
|
|
28
|
|
|
|
111
|
|
|
|
36
|
|
Commercial mortgage- backed securities
|
|
|
97
|
|
|
|
6
|
|
|
|
1,311
|
|
|
|
266
|
|
|
|
1,408
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,178
|
|
|
|
48
|
|
|
|
2,008
|
|
|
|
335
|
|
|
|
3,186
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
2,598
|
|
|
|
72
|
|
|
|
4,732
|
|
|
|
507
|
|
|
|
7,330
|
|
|
|
579
|
|
Equity securities
|
|
|
537
|
|
|
|
97
|
|
|
|
176
|
|
|
|
55
|
|
|
|
713
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,135
|
|
|
$
|
169
|
|
|
$
|
4,908
|
|
|
$
|
562
|
|
|
$
|
8,043
|
|
|
$
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
10
THE CHUBB
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At June 30, 2009, approximately 1,170 individual fixed
maturity and equity securities
were in an unrealized loss position, of which approximately
1,100 were fixed maturities. The Corporation does not have the
intent to sell and it is not more likely than not that the
Corporation will be required to sell these fixed maturities
before the securities recover to their amortized cost value. In
addition, the Corporation believes that none of the declines in
the fair values of these fixed maturities relate to credit
losses. The Corporation has the intent and ability to hold these
equity securities for a period of time sufficient to allow for
the recovery of cost. The Corporation believes that none of the
declines in fair value of these fixed maturities and equity
securities were other than temporary at June 30, 2009.
The change in unrealized appreciation or depreciation of
investments carried at fair value, including the change in
unrealized
other-than-temporary
impairment losses and the cumulative effect adjustment as a
result of adopting FSP
FAS 115-2
and
FAS 124-2
effective April 1, 2009 (see Note (2)), was as follows:
|
|
|
|
|
|
|
|
|
|
|
Periods Ended
|
|
|
|
June 30, 2009
|
|
|
|
Second Quarter
|
|
|
Six Months
|
|
|
|
(in millions)
|
|
|
Change in unrealized appreciation or depreciation of fixed
maturities
|
|
$
|
138
|
|
|
$
|
694
|
|
Change in unrealized appreciation or depreciation of equity
securities
|
|
|
91
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
|
|
732
|
|
Deferred income tax
|
|
|
80
|
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
149
|
|
|
$
|
476
|
|
|
|
|
|
|
|
|
|
|
(c) Realized investment gains and losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
Periods Ended
|
|
|
|
June 30, 2009
|
|
|
|
Second Quarter
|
|
|
Six Months
|
|
|
|
(in millions)
|
|
|
Fixed maturities
|
|
|
|
|
|
|
|
|
Gross realized gains
|
|
$
|
29
|
|
|
$
|
65
|
|
Gross realized losses
|
|
|
(11
|
)
|
|
|
(17
|
)
|
Other-than-temporary
impairment losses
|
|
|
(11
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
Gross realized gains
|
|
|
60
|
|
|
|
71
|
|
Other-than-temporary
impairment losses
|
|
|
(8
|
)
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Other invested assets
|
|
|
(32
|
)
|
|
|
(280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27
|
|
|
$
|
(239
|
)
|
|
|
|
|
|
|
|
|
|
(d) As of June 30, 2009, fixed maturities still held
by the Corporation for which a portion of their
other-than-temporary
impairment losses were recognized in other comprehensive income
had cumulative credit-related losses of $27 million
recognized in net income.
Page
11
THE CHUBB
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4)
|
Fair
Values of Financial Instruments
|
Fair values of financial instruments are determined using
valuation techniques that maximize the use of observable inputs
and minimize the use of unobservable inputs. Fair values are
generally measured using quoted prices in active markets for
identical assets or liabilities or other inputs, such as quoted
prices for similar assets or liabilities, that are observable,
either directly or indirectly. In those instances where
observable inputs are not available, fair values are measured
using unobservable inputs for the asset or liability.
Unobservable inputs reflect the Corporations own
assumptions about the assumptions that market participants would
use in pricing the asset or liability and are developed based on
the best information available in the circumstances. Fair value
estimates derived from unobservable inputs are affected by the
assumptions used, including the discount rates and the estimated
amounts and timing of future cash flows. The derived fair value
estimates cannot be substantiated by comparison to independent
markets and are not necessarily indicative of the amounts that
would be realized in a
current market exchange. Certain financial instruments,
particularly insurance contracts, are excluded from fair value
disclosure requirements.
The methods and assumptions used to estimate the fair values of
financial instruments are as follows:
(i) The carrying value of short term investments
approximates fair value due to the short maturities of these
investments.
(ii) Fair values for fixed maturities are determined by
management, utilizing prices obtained from an independent,
nationally recognized pricing service or, in the case of
securities for which prices are not provided by a pricing
service, from independent brokers. For fixed maturities that
have quoted prices in active markets, market quotations are
provided. For fixed maturities that do not trade on a daily
basis, the pricing services and brokers provide fair value
estimates using a variety of inputs including, but not limited
to, benchmark yields, reported trades, broker/dealer quotes,
issuer spreads, bids, offers, reference data, prepayment spreads
and measures of volatility. Management reviews on an ongoing
basis the reasonableness of the methodologies used by the
relevant pricing services and brokers. In addition, management,
using the prices received for the securities from the pricing
services and brokers, determines the aggregate portfolio price
performance and reviews it against applicable indices. If
management believes that significant discrepancies exist, it
will discuss these with the relevant pricing service or broker
to resolve the discrepancies.
(iii) Fair values of equity securities are based on quoted
market prices.
(iv) Fair values of long term debt issued by Chubb are
determined by management, utilizing prices obtained from
an independent, nationally recognized pricing service.
Page
12
THE CHUBB
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The carrying values and fair values of financial instruments
were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
|
(in millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Invested assets
|
|
|
|
|
|
|
|
|
Short term investments
|
|
$
|
2,651
|
|
|
$
|
2,651
|
|
Fixed maturities
|
|
|
34,673
|
|
|
|
34,673
|
|
Equity securities
|
|
|
1,189
|
|
|
|
1,189
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Long term debt
|
|
|
3,975
|
|
|
|
3,911
|
|
The fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels as
follows:
Level 1 Unadjusted quoted prices in
active markets for identical assets.
Level 2 Other inputs that are observable
for the asset, either directly or indirectly.
Level 3 Inputs that are unobservable.
The fair values of fixed maturities and equity securities at
June 30, 2009 categorized based upon the lowest level of
input that was significant to the fair value measurement were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
$
|
|
|
|
$
|
34,502
|
|
|
$
|
171
|
|
|
$
|
34,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
980
|
|
|
|
|
|
|
|
209
|
|
|
|
1,189
|
|
Page
13
THE CHUBB
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The principal business of the Corporation is the sale of
property and casualty insurance. The profitability of the
property and casualty insurance business depends on the results
of both underwriting operations and investments, which are
viewed as two distinct operations. The underwriting operations
are managed and evaluated separately from the investment
function.
The property and casualty insurance subsidiaries (P&C
Group) underwrite most lines of property and casualty insurance.
Underwriting operations consist of four separate business units:
personal insurance, commercial insurance, specialty insurance
and reinsurance assumed. The personal segment targets the
personal insurance market. The personal classes include
automobile, homeowners and other personal coverages. The
commercial segment includes those classes of business that are
generally available in broad markets and are of a more commodity
nature. Commercial classes include multiple peril, casualty,
workers compensation and property and marine. The
specialty segment includes those classes of business that are
available in more limited markets since they require specialized
underwriting and claim settlement. Specialty classes include
professional liability coverages and surety. The reinsurance
assumed business is effectively in run-off following the sale,
in 2005, of the ongoing business to a Bermuda-based reinsurance
company, Harbor Point Limited.
Corporate and other includes investment income earned on
corporate invested assets, corporate expenses and the results of
the Corporations non-insurance subsidiaries.
Page
14
THE CHUBB
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenues and income before income tax of the operating segments
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods Ended June 30
|
|
|
|
Second Quarter
|
|
|
Six Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and casualty insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal insurance
|
|
$
|
917
|
|
|
$
|
947
|
|
|
$
|
1,824
|
|
|
$
|
1,887
|
|
Commercial insurance
|
|
|
1,195
|
|
|
|
1,282
|
|
|
|
2,393
|
|
|
|
2,548
|
|
Specialty insurance
|
|
|
705
|
|
|
|
738
|
|
|
|
1,406
|
|
|
|
1,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance
|
|
|
2,817
|
|
|
|
2,967
|
|
|
|
5,623
|
|
|
|
5,923
|
|
|
Reinsurance assumed
|
|
|
11
|
|
|
|
19
|
|
|
|
31
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,828
|
|
|
|
2,986
|
|
|
|
5,654
|
|
|
|
5,962
|
|
Investment income
|
|
|
394
|
|
|
|
418
|
|
|
|
780
|
|
|
|
836
|
|
|
Other revenues
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and casualty insurance
|
|
|
3,222
|
|
|
|
3,405
|
|
|
|
6,434
|
|
|
|
6,802
|
|
|
Corporate and other
|
|
|
17
|
|
|
|
25
|
|
|
|
36
|
|
|
|
49
|
|
Realized investment gains (losses), net
|
|
|
27
|
|
|
|
(76
|
)
|
|
|
(239
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
3,266
|
|
|
$
|
3,354
|
|
|
$
|
6,231
|
|
|
$
|
6,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and casualty insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal insurance
|
|
$
|
131
|
|
|
$
|
150
|
|
|
$
|
243
|
|
|
$
|
314
|
|
Commercial insurance
|
|
|
123
|
|
|
|
74
|
|
|
|
221
|
|
|
|
212
|
|
Specialty insurance
|
|
|
123
|
|
|
|
86
|
|
|
|
248
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance
|
|
|
377
|
|
|
|
310
|
|
|
|
712
|
|
|
|
789
|
|
|
|
Reinsurance assumed
|
|
|
15
|
|
|
|
14
|
|
|
|
40
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
392
|
|
|
|
324
|
|
|
|
752
|
|
|
|
813
|
|
|
Increase in deferred policy acquisition costs
|
|
|
4
|
|
|
|
23
|
|
|
|
20
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income
|
|
|
396
|
|
|
|
347
|
|
|
|
772
|
|
|
|
849
|
|
|
Investment income
|
|
|
387
|
|
|
|
410
|
|
|
|
766
|
|
|
|
820
|
|
|
Other income
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and casualty insurance
|
|
|
784
|
|
|
|
757
|
|
|
|
1,543
|
|
|
|
1,672
|
|
|
Corporate and other loss
|
|
|
(58
|
)
|
|
|
(52
|
)
|
|
|
(121
|
)
|
|
|
(106
|
)
|
Realized investment gains (losses), net
|
|
|
27
|
|
|
|
(76
|
)
|
|
|
(239
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income before income tax
|
|
$
|
753
|
|
|
$
|
629
|
|
|
$
|
1,183
|
|
|
$
|
1,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
15
THE CHUBB
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6)
|
Contingent
Liabilities
|
Chubb and certain of its subsidiaries have been involved in the
investigations by various Attorneys General and other regulatory
authorities of several states, the U.S. Securities and
Exchange Commission, the U.S. Attorney for
the Southern District of New York and certain
non-U.S. regulatory
authorities with respect to certain business practices in the
property and casualty insurance industry including
(1) potential conflicts of interest and
anti-competitive
behavior arising from the payment of contingent commissions to
brokers and agents and (2) loss mitigation and finite
reinsurance arrangements. In connection with these
investigations, Chubb and certain of its subsidiaries received
subpoenas and other requests for information from various
regulators. The Corporation has cooperated fully with these
investigations. The Corporation has settled with several state
Attorneys General and insurance departments all issues arising
out of their investigations. As described in more detail below,
the Attorney General of Ohio in August 2007 filed an action
against Chubb and certain of its subsidiaries, as well as
several other insurers and one broker, as a result of the Ohio
Attorney Generals business practices investigation.
Although no other Attorney General or regulator has initiated an
action against the Corporation, it is possible that such an
action may be brought against the Corporation with respect to
some or all of the issues that are the focus of these ongoing
investigations.
Individual actions and purported class actions arising out of
the investigations into the payment of contingent commissions to
brokers and agents have been filed in a number of federal and
state courts. On August 1, 2005, Chubb and certain of its
subsidiaries were named in a putative class action entitled
In re Insurance Brokerage Antitrust Litigation in the
U.S. District Court for the District of New Jersey (the
N.J. District Court). This action, brought against several
brokers and insurers on behalf of a class of persons who
purchased insurance through the broker defendants, asserts
claims under the Sherman Act and state law and the Racketeer
Influenced and Corrupt Organizations Act (RICO) arising from the
alleged unlawful use of contingent commission agreements. On
September 28, 2007, the N.J. District Court dismissed the
second amended complaint filed by the plaintiffs in the In re
Insurance Brokerage Antitrust Litigation in its entirety. In
so doing, the court dismissed the plaintiffs Sherman Act
and RICO claims with prejudice for failure to state a claim, and
it dismissed the plaintiffs state law claims without
prejudice because it declined to exercise supplemental
jurisdiction over them. The plaintiffs have appealed the
dismissal of their second amended complaint to the
U.S. Court of Appeals for the Third Circuit, and that
appeal is currently pending.
Chubb and certain of its subsidiaries also have been named as
defendants in other putative class actions relating or similar
to the In re Insurance Brokerage Antitrust Litigation
that have been filed in various state courts or in
U.S. district courts between 2005 and 2007. These actions have been
subsequently removed and ultimately transferred to the N.J.
district court for consolidation with the In re Insurance
Brokerage Antitrust Litigation. These actions have either
been dismissed or are currently stayed.
Page
16
THE CHUBB
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On August 24, 2007, Chubb and certain of its subsidiaries
were named as defendants in an action filed by the Ohio Attorney
General against several insurers and one broker. This action
alleges violations of Ohios antitrust laws. In July 2008,
the court denied the Corporations and the other
defendants motions to dismiss the Attorney Generals
complaint. In August 2008, Chubb and its subsidiaries and the
other defendants filed answers to the complaint and discovery is
proceeding.
In these actions, the plaintiffs generally allege that the
defendants unlawfully used contingent commission agreements and
conspired to reduce competition in the insurance markets. The
actions seek treble damages, injunctive and declaratory relief,
and attorneys fees. The Corporation believes it has
substantial defenses to all of the aforementioned legal
proceedings and intends to defend the actions vigorously.
The Corporation cannot predict at this time the ultimate outcome
of the aforementioned ongoing investigations and legal
proceedings, including any potential amounts that the
Corporation may be required to pay in connection with them.
Nevertheless, management believes that it is likely that the
outcome will not have a material adverse effect on the
Corporations results of operations or financial condition.
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods Ended
June 30
|
|
|
|
Second Quarter
|
|
|
Six Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions, except
for per share amounts)
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
551
|
|
|
$
|
469
|
|
|
$
|
892
|
|
|
$
|
1,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
354.8
|
|
|
|
364.2
|
|
|
|
355.0
|
|
|
|
367.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.55
|
|
|
$
|
1.29
|
|
|
$
|
2.51
|
|
|
$
|
3.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
551
|
|
|
$
|
469
|
|
|
$
|
892
|
|
|
$
|
1,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
354.8
|
|
|
|
364.2
|
|
|
|
355.0
|
|
|
|
367.1
|
|
|
Additional shares from assumed exercise of stock-based
compensation awards
|
|
|
2.6
|
|
|
|
5.2
|
|
|
|
2.8
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and potential shares assumed outstanding
for computing diluted earnings per share
|
|
|
357.4
|
|
|
|
369.4
|
|
|
|
357.8
|
|
|
|
372.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.54
|
|
|
$
|
1.27
|
|
|
$
|
2.49
|
|
|
$
|
3.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Page
17
|
|
Item 2
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations addresses the financial condition of
the Corporation as of June 30, 2009 compared with
December 31, 2008 and the results of operations for the six
months and three months ended June 30, 2009 and 2008. This
discussion should be read in conjunction with the condensed
consolidated financial statements and related notes contained in
this report and the consolidated financial statements and
related notes and managements discussion and analysis of
financial condition and results of operations included in the
Corporations Annual Report on
Form 10-K
for the year ended December 31, 2008.
Cautionary
Statement Regarding Forward-Looking Information
Certain statements in this document are forward-looking
statements as that term is defined in the Private
Securities Litigation Reform Act of 1995 (PSLRA). These
forward-looking statements are made pursuant to the safe harbor
provisions of the PSLRA and include statements regarding our
loss reserve and reinsurance recoverable estimates; the impact
of changes to our ceded reinsurance program, including its cost
and terms; property and casualty insurance market conditions,
including premium volume, rates and policy terms and conditions; the impact of
the continuation of the weak economy; securities in our
investment portfolio that may become
other-than-temporarily
impaired; the repurchase of common stock under our share
repurchase program; the impact of a downgrade of our credit
ratings; and our capital adequacy and funding of liquidity
needs. Forward-looking statements are made based upon
managements current expectations and beliefs concerning
trends and future developments and their potential effects on
us. These statements are not guarantees of future performance.
Actual results may differ materially from those suggested by
forward-looking statements as a result of risks and
uncertainties, which include, among others, those discussed or
identified from time to time in our public filings with the
Securities and Exchange Commission and those associated with:
|
|
|
|
|
global political conditions and the occurrence of terrorist
attacks, including any nuclear, biological, chemical or
radiological events;
|
|
|
|
|
the effects of the outbreak or escalation of war or hostilities;
|
|
|
|
|
premium pricing and profitability or growth estimates overall or
by lines of business or geographic area, and related
expectations with respect to the timing and terms of any
required regulatory approvals;
|
|
|
|
|
adverse changes in loss cost trends;
|
|
|
|
|
our ability to retain existing business and attract new business;
|
|
|
|
|
our expectations with respect to cash flow and investment income
and with respect to other income;
|
Page 18
|
|
|
|
|
the adequacy of loss reserves, including:
|
|
|
|
|
|
our expectations relating to reinsurance recoverables;
|
|
|
|
the willingness of parties, including us, to settle disputes;
|
|
|
|
developments in judicial decisions or regulatory or legislative
actions relating to coverage and liability, in particular, for
asbestos, toxic waste and other mass tort claims;
|
|
|
|
development of new theories of liability;
|
|
|
|
our estimates relating to ultimate asbestos liabilities;
|
|
|
|
the impact from the bankruptcy protection sought by various
asbestos producers and other related businesses; and
|
|
|
|
the effects of proposed asbestos liability legislation,
including the impact of claims patterns arising from the
possibility of legislation and those that may arise if
legislation is not passed;
|
|
|
|
the availability and cost of reinsurance coverage;
|
|
|
|
|
|
the occurrence of significant weather-related or other natural
or human-made disasters, particularly in locations where we have
concentrations of risk;
|
|
|
|
|
the impact of economic factors on companies on whose behalf we
have issued surety bonds, and in particular, on those companies
that file for bankruptcy or otherwise experience deterioration
in creditworthiness;
|
|
|
|
|
the effects of disclosures by, and investigations of, companies
relating to possible accounting irregularities, practices in the
financial services industry, investment losses or other
corporate governance issues, including:
|
|
|
|
|
|
claims and litigation arising out of stock option
backdating, spring loading and other
equity grant practices by public companies;
|
|
|
|
the effects on the capital markets and the markets for directors
and officers and errors and omissions insurance;
|
|
|
|
claims and litigation arising out of actual or alleged
accounting or other corporate malfeasance by other companies;
|
|
|
|
claims and litigation arising out of practices in the financial
services industry;
|
|
|
|
claims and litigation relating to uncertainty in the credit and
broader financial markets; and
|
|
|
|
legislative or regulatory proposals or changes;
|
|
|
|
|
|
the effects of changes in market practices in the
U.S. property and casualty insurance industry, in
particular contingent commissions and loss mitigation and finite
reinsurance arrangements, arising from any legal or regulatory
proceedings, related settlements and industry reform, including
changes that have been announced and changes that may occur in
the future;
|
|
|
|
|
the impact of legislative and regulatory developments on our
business, including those relating to terrorism, catastrophes
and the financial markets;
|
|
|
|
|
any downgrade in our claims-paying, financial strength or other
credit ratings;
|
|
|
|
|
the ability of our subsidiaries to pay us dividends;
|
Page 19
|
|
|
|
general economic and market conditions including:
|
|
|
|
|
|
changes in interest rates, market credit spreads and the
performance of the financial markets;
|
|
|
|
currency fluctuations;
|
|
|
|
the effects of inflation;
|
|
|
|
changes in domestic and foreign laws, regulations and taxes;
|
|
|
|
changes in competition and pricing environments;
|
|
|
|
regional or general changes in asset valuations;
|
|
|
|
the inability to reinsure certain risks economically; and
|
|
|
|
changes in the litigation environment;
|
|
|
|
our ability to implement managements strategic plans and
initiatives.
|
Chubb assumes no obligation to update any forward-looking
information set forth in this document, which speak as of the
date hereof.
Critical
Accounting Estimates and Judgments
The consolidated financial statements include amounts based on
informed estimates and judgments of management for transactions
that are not yet complete. Such estimates and judgments affect
the reported amounts
in the financial statements. Those estimates and judgments that
were most critical to the preparation of the financial
statements involved the determination of loss reserves and the
recoverability of related reinsurance recoverables and the
evaluation of whether a decline in value of any investment is
temporary or
other than temporary.
These estimates and judgments, which are discussed in
Item 7 of our Annual Report on
Form 10-K
for the year ended December 31, 2008 as supplemented within
the following analysis of our results of operations, require the
use of assumptions about matters that are highly uncertain and
therefore are subject to change as facts and circumstances
develop. If different estimates and judgments had been applied,
materially different amounts might have been reported in the
financial statements.
Page 20
Overview
The following highlights do not address all of the matters
covered in the other sections of Managements Discussion
and Analysis of Financial Condition and Results of Operations or
contain all of the information that may be important to
Chubbs shareholders or the investing public. This overview
should be read in conjunction with the other sections of
Managements Discussion and Analysis of Financial Condition
and Results of Operations.
|
|
|
|
|
Net income was $892 million in the first six months of 2009
and $551 million in the second quarter compared with
$1.1 billion and $469 million, respectively, in the
comparable periods of 2008. The lower net income in the first
six months of 2009 was due primarily to two factors. First,
underwriting income in our property and casualty insurance
business, while still substantial, was lower in 2009 compared
with 2008. Second, we had significantly higher realized
investment losses in 2009 compared with the same period in 2008.
The higher net income in the second quarter of 2009 compared
with the same period in 2008 was also attributable to two
factors. First, underwriting income was higher in 2009 due to
lower catastrophe losses. Second, we had realized investment
gains in 2009 compared to realized investment losses in 2008.
|
|
|
|
Underwriting results were highly profitable in the first six
months and second quarter of 2009 and 2008. Our combined loss
and expense ratio was 87.0% in the first six months of 2009 and
85.9% in the second quarter compared with 86.2% and 88.5% in the
respective periods of 2008. The less profitable results in the
first six months of 2009 compared to the same period in 2008
were due in large part to the cumulative impact of rate
reductions experienced in our commercial and professional
liability classes over the past several years as well as a lower
amount of favorable prior year loss development. Underwriting
results in the second quarter of 2009 were more profitable than
the comparable period in 2008 due to a lesser impact from
catastrophe losses.
|
|
|
|
During the first six months and second quarter of 2009, we
estimate that we experienced overall favorable development of
about $340 million and $210 million, respectively, on
loss reserves established as of the previous year end, primarily
in the professional liability, commercial liability and
commercial property classes. During the first six months and
second quarter of 2008, we estimate that we experienced overall
favorable development of about $450 million and
$235 million, respectively, due primarily to favorable
loss trends in certain professional liability and commercial
liability classes and lower than expected emergence of losses in
the homeowners and commercial property classes.
|
|
|
|
Total net premiums written decreased by 7% in the first six
months and second quarter of 2009 compared with the same periods
in 2008. For each period, about half of the decrease was
attributable to the impact of currency fluctuation on business
written outside the United States due to the strength of the
U.S. dollar in the first half of 2009 compared to the same
period in 2008. The general downturn in the economy also
contributed to the decline in premiums in 2009. We have
continued our emphasis on underwriting discipline in a market
environment that remains competitive.
|
|
|
|
Property and casualty investment income after tax decreased 6%
in the first six months of 2009 and 5% in the second quarter
compared with the same periods in 2008. The decline was due
primarily to the effects of currency fluctuation on income from
our
non-U.S. investments
as well as lower yields, especially on short term investments.
For more information on this non-GAAP financial measure, see
Property and Casualty Insurance Investment
Results.
|
Page 21
|
|
|
|
|
Net realized investment losses before taxes were
$239 million in the first six months of 2009 compared with
losses of $8 million in the same period of 2008. Net
realized investment gains in the second quarter of 2009 were
$27 million, compared with net realized investment losses
of $76 million in the same period in 2008. The net realized
losses in the first six months of 2009 were primarily
attributable to losses in the first quarter from investments in
limited partnerships.
|
A summary of our consolidated net income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods Ended June 30
|
|
|
|
Second Quarter
|
|
|
Six Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Property and Casualty Insurance
|
|
$
|
784
|
|
|
$
|
757
|
|
|
$
|
1,543
|
|
|
$
|
1,672
|
|
Corporate and Other
|
|
|
(58
|
)
|
|
|
(52
|
)
|
|
|
(121
|
)
|
|
|
(106
|
)
|
Realized Investment Gains (Losses), Net
|
|
|
27
|
|
|
|
(76
|
)
|
|
|
(239
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Income Before Income Tax
|
|
|
753
|
|
|
|
629
|
|
|
|
1,183
|
|
|
|
1,558
|
|
Federal and Foreign Income Tax
|
|
|
202
|
|
|
|
160
|
|
|
|
291
|
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Income
|
|
$
|
551
|
|
|
$
|
469
|
|
|
$
|
892
|
|
|
$
|
1,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Casualty Insurance
A summary of the results of operations of our property and
casualty insurance business is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods Ended June 30
|
|
|
|
Second Quarter
|
|
|
Six Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
|
Underwriting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Premiums Written
|
|
$
|
2,846
|
|
|
$
|
3,047
|
|
|
$
|
5,589
|
|
|
$
|
5,983
|
|
Decrease (Increase) in Unearned Premiums
|
|
|
(18
|
)
|
|
|
(61
|
)
|
|
|
65
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums Earned
|
|
|
2,828
|
|
|
|
2,986
|
|
|
|
5,654
|
|
|
|
5,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and Loss Expenses
|
|
|
1,572
|
|
|
|
1,749
|
|
|
|
3,187
|
|
|
|
3,333
|
|
Operating Costs and Expenses
|
|
|
857
|
|
|
|
904
|
|
|
|
1,700
|
|
|
|
1,798
|
|
Increase in Deferred Policy Acquisition Costs
|
|
|
(4
|
)
|
|
|
(23
|
)
|
|
|
(20
|
)
|
|
|
(36
|
)
|
Dividends to Policyholders
|
|
|
7
|
|
|
|
9
|
|
|
|
15
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting Income
|
|
|
396
|
|
|
|
347
|
|
|
|
772
|
|
|
|
849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income Before Expenses
|
|
|
394
|
|
|
|
418
|
|
|
|
780
|
|
|
|
836
|
|
Investment Expenses
|
|
|
7
|
|
|
|
8
|
|
|
|
14
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Income
|
|
|
387
|
|
|
|
410
|
|
|
|
766
|
|
|
|
820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Casualty Income Before Tax
|
|
$
|
784
|
|
|
$
|
757
|
|
|
$
|
1,543
|
|
|
$
|
1,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Casualty Investment Income After Tax
|
|
$
|
312
|
|
|
$
|
327
|
|
|
$
|
618
|
|
|
$
|
654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 22
Property and casualty income before tax was lower in the first
six months of 2009 compared to the same period in 2008. The
lower income in 2009 was attributable to a decrease in
underwriting income and to lower investment income. The decrease
in underwriting income in 2009 was due in large part to the
cumulative impact of rate reductions experienced in our
commercial and professional liability classes over the past
several years as well as a lower amount of favorable prior year
loss development. The decrease in investment income in 2009 was
due to the
effects of currency fluctuation on income from our
non-U.S. investments
as well as lower yields, especially on short term investments.
Property and casualty income before tax was higher in the second
quarter of 2009 compared to the same period in 2008 due to
higher underwriting income, offset in part by lower investment
income. The higher underwriting income in the second quarter of
2009 was due to lower catastrophe losses.
The profitability of the property and casualty insurance
business depends on the results of both our underwriting and
investment operations. We view these as two distinct operations
since the underwriting functions are managed separately from the
investment function. Accordingly, in assessing our performance,
we evaluate underwriting results separately from investment
results.
Underwriting
Results
We evaluate the underwriting results of our property and
casualty insurance business in the aggregate and also for each
of our separate business units.
Net
Premiums Written
Net premiums written were $5.6 billion in the first six
months of 2009 and $2.8 billion in the second quarter,
compared with $6.0 billion and $3.0 billion,
respectively, in the comparable periods of 2008.
Net premiums written by business unit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
|
|
|
|
|
|
Quarter Ended June 30
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
% Decr.
|
|
|
2009
|
|
|
2008
|
|
|
% Decr.
|
|
|
|
(in millions)
|
|
|
(in millions)
|
|
|
Personal insurance
|
|
$
|
1,804
|
|
|
$
|
1,892
|
|
|
|
(5
|
)%
|
|
$
|
961
|
|
|
$
|
1,015
|
|
|
|
(5
|
)%
|
Commercial insurance
|
|
|
2,473
|
|
|
|
2,641
|
|
|
|
(6
|
)
|
|
|
1,213
|
|
|
|
1,301
|
|
|
|
(7
|
)
|
Specialty insurance
|
|
|
1,299
|
|
|
|
1,414
|
|
|
|
(8
|
)
|
|
|
669
|
|
|
|
711
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance
|
|
|
5,576
|
|
|
|
5,947
|
|
|
|
(6
|
)
|
|
|
2,843
|
|
|
|
3,027
|
|
|
|
(6
|
)
|
Reinsurance assumed
|
|
|
13
|
|
|
|
36
|
|
|
|
(64
|
)
|
|
|
3
|
|
|
|
20
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,589
|
|
|
$
|
5,983
|
|
|
|
(7
|
)
|
|
$
|
2,846
|
|
|
$
|
3,047
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
23
Net premiums written decreased by 7% in the first six months and
second quarter of 2009 compared with the comparable periods in
2008. For each period, about half of the decrease was due to the
impact of currency fluctuation on business written outside the
United States as a result of the strengthening of the
U.S. dollar that began in the latter part of 2008. The
general downturn in the economy, which began in the second half
of 2008 and has continued into 2009, also contributed to the
decline in premiums in 2009. We expect that the weaker economy
is likely to continue to adversely impact premium growth for the
remainder of 2009.
During the first six months of 2009, we continued our emphasis
on underwriting discipline in a competitive market. Overall,
renewal rates in the U.S. commercial and professional
liability businesses increased slightly in the first six months
of 2009, following several years of decline. We continued to
retain a high percentage of our existing customers and to renew
those accounts at what we believe are acceptable rates relative
to the risks. We have written some new business due to the
dislocation in the insurance markets caused by the impact on
some of our competitors of the financial market crisis that
began in the second half of 2008. However, the modestly positive
effect was offset by the decrease in demand for insurance caused
by the general downturn in the economy that has continued in
2009.
Reinsurance
Ceded
Our premiums written are net of amounts ceded to reinsurers who
assume a portion of the risk under the insurance policies we
write that are subject to reinsurance.
Reinsurance rates for property risks have increased somewhat in
2009. Capacity restrictions continued in some segments of the
marketplace.
The most significant component of our ceded reinsurance program
is property reinsurance of which we purchase two coverages:
catastrophe and property per risk. We renewed our major
traditional property catastrophe treaties and our commercial
property per risk treaty in April 2009.
For the United States and Canada, we refer to our traditional
catastrophe reinsurance treaty as the North American
catastrophe treaty. In recent years, we have reduced the amount
of reinsurance purchased under this treaty and replaced it with
multiyear, collateralized reinsurance coverage funded
through the issuance of securitized risk linked securities,
known as catastrophe bonds.
In 2009, we modified the structure of our North American
catastrophe treaty. For the 2009 treaty, our initial retention
is $500 million per occurrence. We did not renew the
coverage for 45% of covered losses between $350 million and
$500 million we had under the 2008 treaty. We also
converted a northeastern United States-only layer into a layer
that covers all of the United States and Canada. The overall
impact of these changes was to slightly reduce the maximum
amount that we can recover per occurrence under the North
American catastrophe treaty.
For United States and Canadian exposures, the North American
catastrophe treaty and catastrophe bond coverage purchased in
2008 collectively provide coverage of approximately 72% of
losses (net of recoveries from other available reinsurance)
between $500 million and $1.15 billion and 60% of
losses between $1.15 billion and $1.65 billion.
Page
24
The first of the catastrophe bond coverages, which we purchased
in 2007, is a $250 million, four-year reinsurance
arrangement that provides coverage for homeowners-related
hurricane losses in the northeastern part of the United States,
where we have our greatest concentration of catastrophe
exposure. The second of the catastrophe bond coverages, which we
purchased in 2008, is a $200 million, three-year
reinsurance arrangement that provides coverage for homeowners
and commercial exposures. A portion of this coverage is limited
to loss events in the northeastern part of the United States and
the remainder provides coverage for losses occurring anywhere in
the continental United States or Canada. Our third catastrophe
bond coverage, which we purchased in 2009, is a
$150 million, three-year reinsurance arrangement that
provides coverage for homeowners-related hurricane losses in
Florida.
For events in the northeastern part of the United States, we
have additional reinsurance that covers approximately 35% of
losses (net of recoveries from other available reinsurance)
between $1.15 billion and $2.05 billion. This coverage
is provided through a combination of our North American
catastrophe reinsurance treaty and the catastrophe bond coverage
that we purchased in 2008. Additionally, the catastrophe bond
coverage purchased in 2007 provides coverage for approximately
30% of homeowners-related hurricane losses between
$1.45 billion and $2.25 billion.
In addition to the United States and Canadian coverages
described above, for hurricane events in Florida, we have a
combination of reinsurance coverages. We have reinsurance from
the Florida Hurricane Catastrophe Fund (FHCF), which is a
state-mandated fund designed to reimburse insurers for a portion
of their residential catastrophic hurricane losses. This program was renewed June 1, 2009. Our retention and coverage limits will be determined by the FHCF in the third quarter of 2009.
We expect that our initial retention in Florida for homeowners-related losses will be approximately
$185 million and the program will provide coverage of 90% of covered losses between
$185 million and $685 million. Additionally, the 2009
catastrophe bond coverage provides coverage of 50% of homeowners-related
hurricane losses between $850 million and
$1,150 million.
For any catastrophe losses, we are subject to certain
coinsurance requirements that affect the interaction of some
elements of our catastrophe reinsurance program.
Our property catastrophe treaty for events outside the United
States was renewed with only modest changes in coverage. We
increased both our initial retention and the reinsurance
coverage in the top layer of the treaty by $25 million and
increased our participation in the program. The treaty now
provides coverage of approximately 75% of losses (net of
recoveries from other available reinsurance) between
$100 million and $350 million.
Our commercial property per risk treaty was renewed with only
slight changes in coverage. This treaty provides approximately
$560 million of coverage per risk in excess of our initial retention, which is generally $25 million.
Our property reinsurance treaties generally contain terrorism
exclusions for acts perpetrated by foreign terrorists, and for
nuclear, biological, chemical and radiological loss causes
whether such acts are perpetrated by foreign or domestic
terrorists.
Page
25
We expect that the overall cost of our property reinsurance
program in 2009 will be modestly higher than in 2008. We do not
expect the changes we made to our reinsurance program during
2009 to have a material effect on the Corporations results
of operations, financial condition or liquidity.
Profitability
The combined loss and expense ratio, expressed as a percentage,
is the key measure of underwriting profitability traditionally
used in the property and casualty insurance business. Management
evaluates the performance of our underwriting operations and of
each of our business units using, among other measures, the
combined loss and expense ratio calculated in accordance with
statutory accounting principles. It is the sum of the ratio of
losses and loss expenses to premiums earned (loss ratio) plus
the ratio of statutory 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.
Statutory accounting principles applicable to property and
casualty insurance companies differ in certain respects from
generally accepted accounting principles (GAAP). Under statutory
accounting principles, policy acquisition and other underwriting
expenses are recognized immediately, not at the time premiums
are earned. Management uses underwriting results determined in
accordance with GAAP, among other measures, to assess the
overall performance of our underwriting operations. To convert
statutory underwriting results to a GAAP basis, policy
acquisition expenses are deferred and amortized over the period
in which the related premiums are earned. Underwriting income
determined in accordance with GAAP is defined as premiums earned
less losses and loss expenses incurred and GAAP underwriting
expenses incurred.
Underwriting results were highly profitable in the first six
months and second quarter of 2009 and 2008. Results in the first
six months of 2009 were slightly less profitable than results in
the same period in 2008, whereas results in the second quarter
of 2009 were modestly more profitable than those in the same
period in 2008. The combined loss and expense ratio for our
overall property and casualty business was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods Ended June 30
|
|
|
|
Six Months
|
|
|
Second Quarter
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Loss ratio
|
|
|
56.5
|
%
|
|
|
56.1
|
%
|
|
|
55.7
|
%
|
|
|
58.7
|
%
|
Expense ratio
|
|
|
30.5
|
|
|
|
30.1
|
|
|
|
30.2
|
|
|
|
29.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
87.0
|
%
|
|
|
86.2
|
%
|
|
|
85.9
|
%
|
|
|
88.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The relatively low loss ratio in all periods reflects the
favorable loss experience which we believe resulted from our
disciplined underwriting in recent years as well as relatively
mild loss trends in certain classes of business. The slightly
higher loss ratio in the first six months of 2009 compared with
the same period in 2008 was due in part to the cumulative impact
of rate reductions experienced in our commercial and
professional liability classes over the past several years as
well as a lower amount of favorable prior year loss development,
offset in large part by a more modest impact from catastrophe
losses. The lower loss ratio in the second quarter of 2009
compared with the same period in 2008 was due to significantly
lower catastrophe losses.
Page
26
Catastrophe losses were $69 million in the first six months
of 2009, which represented 1.2 percentage points of the
combined loss and expense ratio, compared with
$214 million, or 3.6 percentage points, in the same
period in 2008. Catastrophe losses were $43 million in the
second quarter of 2009, which represented 1.5 percentage
points of the combined ratio, compared with $160 million or
5.4 percentage points in the same period in 2008. The
catastrophe losses in the second quarter of 2008 were primarily
related to storms in the midwest United States.
The expense ratio was slightly higher in the first six months
and second quarter of 2009 compared with the same periods in
2008, due primarily to an increase in the commission ratio. The
increase was due for the most part to modestly higher commission
rates in the United States in certain classes of business.
Review of
Underwriting Results by Business Unit
Personal
Insurance
Net premiums written from personal insurance, which represented
32% of our premiums written in the first six months of 2009,
decreased by 5% in the first six months and second quarter of
2009 compared with the comparable periods in 2008, largely due
to the impact of currency fluctuation on business written
outside the U.S. Net premiums written for the classes of
business within the personal insurance segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
|
|
|
% Incr.
|
|
|
Quarter Ended June 30
|
|
|
% Incr.
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decr.)
|
|
|
2009
|
|
|
2008
|
|
|
(Decr.)
|
|
|
|
(in millions)
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Automobile
|
|
$
|
278
|
|
|
$
|
303
|
|
|
|
(8
|
)%
|
|
$
|
147
|
|
|
$
|
161
|
|
|
|
(9
|
)%
|
Homeowners
|
|
|
1,151
|
|
|
|
1,213
|
|
|
|
(5
|
)
|
|
|
637
|
|
|
|
674
|
|
|
|
(5
|
)
|
Other
|
|
|
375
|
|
|
|
376
|
|
|
|
|
|
|
|
177
|
|
|
|
180
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total personal
|
|
$
|
1,804
|
|
|
$
|
1,892
|
|
|
|
(5
|
)
|
|
$
|
961
|
|
|
$
|
1,015
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal automobile premiums decreased in the 2009 periods due
to a highly competitive U.S. marketplace as well as the
impact of currency fluctuation on business written outside the
United States. Premium growth in our homeowners business was
constrained by the downturn in the economy, which resulted in a
slowdown in construction of new homes as well as lower demand
for jewelry and fine arts endorsements. The in-force policy
count for this class decreased modestly during the first six
months of 2009. Premiums from our other personal business, which
includes insurance for excess liability, yacht and accident and
health coverages, were flat for the first six months of 2009 and
decreased modestly in the second quarter compared with the same
periods in 2008. Growth in our accident and health business in
the U.S. in the 2009 periods, due primarily to a select
initiative, was offset by the effect of currency fluctuation on
our
non-U.S. accident
and health business.
Page
27
Our personal insurance business produced highly profitable
underwriting results in the first six months and second quarter
of both 2009 and 2008. The combined loss and expense ratios for
the classes of business within the personal insurance segment
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods Ended June 30
|
|
|
|
Six Months
|
|
|
Second Quarter
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Automobile
|
|
|
90.1
|
%
|
|
|
89.8
|
%
|
|
|
90.5
|
%
|
|
|
86.7
|
%
|
Homeowners
|
|
|
84.3
|
|
|
|
77.4
|
|
|
|
80.7
|
|
|
|
75.1
|
|
Other
|
|
|
93.9
|
|
|
|
97.7
|
|
|
|
90.7
|
|
|
|
101.5
|
|
Total personal
|
|
|
87.0
|
|
|
|
83.3
|
|
|
|
84.2
|
|
|
|
81.9
|
|
Our personal automobile business produced similarly profitable
results in the first six months of 2009 and 2008. Results in the
second quarter of 2009 were modestly less profitable than those
in the same period of 2008.
Homeowners results were highly profitable in the first six
months and second quarter of 2009 and 2008, but more so in 2008.
The less profitable results in 2009 were largely attributable to
a higher impact from significant non-catastrophe related losses.
Catastrophe losses represented 3.5 and 4.7 percentage
points of the combined ratio for this class in the first six
months and second quarter of 2009, respectively, compared with
4.7 and 6.7 percentage points, respectively, in the
comparable periods of 2008.
Other personal results were more profitable in the first six
months and second quarter of 2009 compared with the same periods
in 2008, due primarily to significant improvement in our excess
liability business. Our excess liability business produced
highly profitable results in the first six months and second
quarter of 2009 compared with unprofitable results in the same
periods in 2008. Our accident and health business produced
breakeven results
in the first six months and second quarter of 2009 compared with
profitable results in the first six months and modestly
unprofitable results in the second quarter of 2008. Our yacht
business produced highly profitable results in the first six
months and second quarter of both years.
Commercial
Insurance
Net premiums written from commercial insurance, which
represented 45% of our premiums written in the first six months
of 2009, decreased by 6% in the first six months of 2009 and 7%
in the second quarter compared with the same periods a year ago.
Net premiums written for the classes of business within the
commercial insurance segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
|
|
|
% Incr.
|
|
|
Quarter Ended June 30
|
|
|
% Incr.
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decr.)
|
|
|
2009
|
|
|
2008
|
|
|
(Decr.)
|
|
|
|
(in millions)
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
Multiple peril
|
|
$
|
561
|
|
|
$
|
607
|
|
|
|
(8
|
)%
|
|
$
|
292
|
|
|
$
|
312
|
|
|
|
(6
|
)%
|
Casualty
|
|
|
815
|
|
|
|
896
|
|
|
|
(9
|
)
|
|
|
406
|
|
|
|
436
|
|
|
|
(7
|
)
|
Workers compensation
|
|
|
424
|
|
|
|
461
|
|
|
|
(8
|
)
|
|
|
188
|
|
|
|
213
|
|
|
|
(12
|
)
|
Property and marine
|
|
|
673
|
|
|
|
677
|
|
|
|
(1
|
)
|
|
|
327
|
|
|
|
340
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
$
|
2,473
|
|
|
$
|
2,641
|
|
|
|
(6
|
)
|
|
$
|
1,213
|
|
|
$
|
1,301
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
28
Approximately half of the decrease in premiums in our commercial
insurance business in the first six months and second quarter of
2009 was attributable to the impact of currency fluctuation on
business written outside the United States, with the remaining
decrease due to the adverse effects of the economic downturn.
Overall, renewal rates were up slightly in the first six months
of 2009. Retention levels of our existing customers remained
strong, similar to those in the first six months of 2008.
However, new business volume in the first six months of 2009 was
down from 2008 levels. While we have obtained some new business
due to the dislocation in the insurance markets caused by the
impact of the financial market crisis on some of our
competitors, the impact has been offset by a general reduction
in insurance demand due to the effects of the economic downturn.
We have continued to maintain our underwriting discipline in
this competitive market, renewing business and writing new
business only where we believe we are securing acceptable rates
and appropriate terms and conditions for the exposures. We
expect these market conditions to continue for the remainder of
this year.
Our commercial insurance business produced highly profitable
underwriting results in the first six months and second quarter
of both 2009 and 2008, but somewhat more so in the 2009 periods.
The combined loss and expense ratios for the classes of business
within the commercial insurance segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods Ended June 30
|
|
|
|
Six Months
|
|
|
Second Quarter
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Multiple peril
|
|
|
82.8
|
%
|
|
|
78.9
|
%
|
|
|
79.9
|
%
|
|
|
79.5
|
%
|
Casualty
|
|
|
97.7
|
|
|
|
92.1
|
|
|
|
92.7
|
|
|
|
91.9
|
|
Workers compensation
|
|
|
89.6
|
|
|
|
80.2
|
|
|
|
91.8
|
|
|
|
77.8
|
|
Property and marine
|
|
|
86.2
|
|
|
|
107.3
|
|
|
|
91.4
|
|
|
|
120.4
|
|
Total commercial
|
|
|
89.7
|
|
|
|
90.5
|
|
|
|
89.2
|
|
|
|
93.7
|
|
Results in both years benefited from disciplined risk selection
and appropriate policy terms and conditions in recent years. The
more profitable results in the 2009 periods were due to a lesser
impact from catastrophe losses, particularly in the property and
marine classes, largely offset by the cumulative impact of rate
reductions experienced over the past several years.
Multiple peril results were highly profitable in the first six
months and second quarter of both 2009 and 2008. Results in both
years, but more so in 2008, benefited from very favorable loss
experience in both the property and liability components of this
business. Loss experience was particularly favorable in 2008 in
the property component of this business outside of the United
States. Catastrophe losses represented 1.4 percentage
points of the combined
ratio for this class in the first six months of 2009 and
0.7 percentage points in the second quarter compared with
4.1 and 5.5 percentage points, respectively, in the same
periods of 2008.
Page 29
Our casualty business produced profitable results in the first
six months of 2009 and 2008, but more so in the first six months
of 2008. Results in the second quarter of both years were
similarly profitable. The less profitable results in the first
six months of 2009 were primarily attributable to the excess
liability component of this business which produced breakeven
results in the first six months of 2009 compared with profitable
results in the comparable period in 2008. The automobile and
primary liability components of this business were highly
profitable in both periods. Casualty results in the first six
months and second quarter of both years were adversely affected
by incurred losses related to toxic waste claims. Such losses
represented 4.4 and 3.9 percentage points of the combined ratio
in the first six months of 2009 and 2008, respectively, and 3.8
and 4.7 percentage points in the second quarter of 2009 and
2008, respectively.
Workers compensation results were highly profitable in the
first six months and second quarter of 2009 and 2008, but more
so in 2008. Results in both periods benefited from our
disciplined risk selection during the past several years. The
less profitable results in the 2009 periods were due in large
part to lower earned premiums, the result of rate reductions
associated with state reforms and increased competition. Results
in the 2008 periods also benefited from favorable prior year
loss development.
Property and marine results were highly profitable in the first
six months and second quarter of 2009 compared with unprofitable
results in the same periods in 2008. The more profitable results
in 2009 were due primarily to lower catastrophe losses.
Catastrophe losses represented 1.3 percentage points of the
combined ratio for this class in the first six months of 2009
and 2.3 percentage points in the second quarter compared
with 19.8 and 30.5 percentage points, respectively, in the
same periods of 2008.
Specialty
Insurance
Net premiums written from specialty insurance, which represented
23% of our premiums written in the first six months of 2009,
decreased by 8% in the first six months of 2009 and 6% in the
second quarter compared with the same periods a year ago. Net
premiums written for the classes of business within the
specialty insurance segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
|
|
|
% Incr.
|
|
|
Quarter Ended June 30
|
|
|
% Incr.
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decr.)
|
|
|
2009
|
|
|
2008
|
|
|
(Decr.)
|
|
|
|
(in millions)
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
Professional liability
|
|
$
|
1,137
|
|
|
$
|
1,230
|
|
|
|
(8
|
)%
|
|
$
|
584
|
|
|
$
|
626
|
|
|
|
(7
|
)%
|
Surety
|
|
|
162
|
|
|
|
184
|
|
|
|
(12
|
)
|
|
|
85
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
$
|
1,299
|
|
|
$
|
1,414
|
|
|
|
(8
|
)
|
|
$
|
669
|
|
|
$
|
711
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 30
The decrease in net premiums written in our professional
liability business in the first six months and second quarter of
2009 was due to several factors. About half of the decrease was
due to the impact of currency fluctuation on business written
outside the U.S. The remainder of the decrease was due
mostly to lower retention levels, reduced purchases of certain
coverages and reduced new business volume in the
U.S. compared to the comparable periods in 2008. Renewal
rates in the U.S. increased slightly overall, after several
years of decline. While we have obtained some new business
as a result of the market dislocation in the
insurance industry, this was offset by the decrease in the
demand for insurance resulting from the general economic
downturn. We have continued our focus on underwriting
discipline, obtaining what we believe are acceptable rates and
appropriate terms and conditions on both new business and
renewals.
The decrease in net premiums written for our surety business in
the first six months of 2009 was due primarily to the effects of
the weaker economy, a trend that we expect will continue as the
year progresses.
Our specialty insurance business produced highly profitable
underwriting results in the first six months and second quarter
of 2009 and 2008. The combined loss and expense ratios for the
classes of business within the specialty insurance segment were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods Ended June 30
|
|
|
|
Six Months
|
|
|
Second Quarter
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Professional liability
|
|
|
90.6
|
%
|
|
|
83.8
|
%
|
|
|
90.1
|
%
|
|
|
84.0
|
%
|
Surety
|
|
|
38.4
|
|
|
|
81.4
|
|
|
|
38.5
|
|
|
|
128.4
|
|
Total specialty
|
|
|
84.4
|
|
|
|
83.6
|
|
|
|
83.9
|
|
|
|
89.3
|
|
Our professional liability business produced highly profitable
results in the first six months and second quarter of 2009 and
2008. Results in both periods were
particularly profitable in the fidelity, employment practices
liability and fiduciary liability classes. The directors and
officers liability class was also profitable in both years.
Results in the errors and omissions liability class were
unprofitable in 2009 and 2008. The results of our professional
liability business were less profitable in the 2009 periods
compared with the same periods in 2008 due mainly to a lower
amount of favorable prior year loss development. The favorable
development in both years was driven by continued positive loss
trends related to accident years 2006 and prior. These trends
were largely the result of a favorable business climate, lower
policy limits and better terms and conditions. The expected
combined ratio for the current accident year in our professional
liability business is slightly above breakeven, due in part to
the uncertainty surrounding the crisis in the financial markets
that began in 2008 and has continued in 2009.
Surety results were highly profitable in the first six months
and second quarter of 2009. Surety results were highly
unprofitable in the second quarter of 2008 due to one large
loss, but despite this were highly profitable in the first six
months of 2008. Our surety business tends to be characterized by
infrequent but potentially severe losses.
Page
31
Reinsurance
Assumed
Net premiums written from our reinsurance assumed business,
which is in runoff, were not significant in the first six months
and second quarter of 2009 or 2008.
Reinsurance assumed results were profitable in the first six
months and second quarter of 2009 and 2008. Results in the first
six months and second quarter of both years benefited from
favorable prior year loss development.
Loss
Reserves
Unpaid losses and loss expenses, also referred to as loss
reserves, are the largest liability of our business.
Our loss reserves include case estimates for claims that have
been reported and estimates for claims that have been incurred
but not reported at the balance sheet date as well as estimates
of the expenses associated with processing and settling all
reported and unreported claims, less estimates of anticipated
salvage and subrogation recoveries. Estimates are based upon
past loss experience modified for current trends as well as
prevailing economic, legal and social conditions. Our loss
reserves are not discounted to present value.
We regularly review our loss reserves using a variety of
actuarial techniques. We update the reserve estimates as
historical loss experience develops, additional claims are
reported
and/or
settled and new information becomes available. Any changes in
estimates are reflected in operating results in the period in
which the estimates are changed.
Page
32
Our gross case and incurred but not reported (IBNR) loss
reserves and related reinsurance recoverable by class of
business were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loss Reserves
|
|
|
Reinsurance
|
|
|
Net Loss
|
|
June 30, 2009
|
|
Case
|
|
|
IBNR
|
|
|
Total
|
|
|
Recoverable
|
|
|
Reserves
|
|
|
|
(in millions)
|
|
|
Personal insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
$
|
220
|
|
|
$
|
188
|
|
|
$
|
408
|
|
|
$
|
14
|
|
|
$
|
394
|
|
Homeowners
|
|
|
405
|
|
|
|
309
|
|
|
|
714
|
|
|
|
35
|
|
|
|
679
|
|
Other
|
|
|
370
|
|
|
|
654
|
|
|
|
1,024
|
|
|
|
179
|
|
|
|
845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total personal
|
|
|
995
|
|
|
|
1,151
|
|
|
|
2,146
|
|
|
|
228
|
|
|
|
1,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiple peril
|
|
|
561
|
|
|
|
1,065
|
|
|
|
1,626
|
|
|
|
35
|
|
|
|
1,591
|
|
Casualty
|
|
|
1,522
|
|
|
|
4,699
|
|
|
|
6,221
|
|
|
|
389
|
|
|
|
5,832
|
|
Workers compensation
|
|
|
854
|
|
|
|
1,422
|
|
|
|
2,276
|
|
|
|
214
|
|
|
|
2,062
|
|
Property and marine
|
|
|
802
|
|
|
|
448
|
|
|
|
1,250
|
|
|
|
456
|
|
|
|
794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
3,739
|
|
|
|
7,634
|
|
|
|
11,373
|
|
|
|
1,094
|
|
|
|
10,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional liability
|
|
|
1,600
|
|
|
|
6,187
|
|
|
|
7,787
|
|
|
|
431
|
|
|
|
7,356
|
|
Surety
|
|
|
18
|
|
|
|
49
|
|
|
|
67
|
|
|
|
8
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
|
1,618
|
|
|
|
6,236
|
|
|
|
7,854
|
|
|
|
439
|
|
|
|
7,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance
|
|
|
6,352
|
|
|
|
15,021
|
|
|
|
21,373
|
|
|
|
1,761
|
|
|
|
19,612
|
|
|
Reinsurance assumed
|
|
|
328
|
|
|
|
875
|
|
|
|
1,203
|
|
|
|
377
|
|
|
|
826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,680
|
|
|
$
|
15,896
|
|
|
$
|
22,576
|
|
|
$
|
2,138
|
|
|
$
|
20,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loss Reserves
|
|
|
Reinsurance
|
|
|
Net Loss
|
|
December 31, 2008
|
|
Case
|
|
|
IBNR
|
|
|
Total
|
|
|
Recoverable
|
|
|
Reserves
|
|
|
|
(in millions)
|
|
|
Personal insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
$
|
210
|
|
|
$
|
195
|
|
|
$
|
405
|
|
|
$
|
14
|
|
|
$
|
391
|
|
Homeowners
|
|
|
434
|
|
|
|
310
|
|
|
|
744
|
|
|
|
29
|
|
|
|
715
|
|
Other
|
|
|
382
|
|
|
|
608
|
|
|
|
990
|
|
|
|
175
|
|
|
|
815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total personal
|
|
|
1,026
|
|
|
|
1,113
|
|
|
|
2,139
|
|
|
|
218
|
|
|
|
1,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiple peril
|
|
|
589
|
|
|
|
1,034
|
|
|
|
1,623
|
|
|
|
37
|
|
|
|
1,586
|
|
Casualty
|
|
|
1,431
|
|
|
|
4,621
|
|
|
|
6,052
|
|
|
|
392
|
|
|
|
5,660
|
|
Workers compensation
|
|
|
832
|
|
|
|
1,377
|
|
|
|
2,209
|
|
|
|
227
|
|
|
|
1,982
|
|
Property and marine
|
|
|
889
|
|
|
|
449
|
|
|
|
1,338
|
|
|
|
499
|
|
|
|
839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
3,741
|
|
|
|
7,481
|
|
|
|
11,222
|
|
|
|
1,155
|
|
|
|
10,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional liability
|
|
|
1,690
|
|
|
|
5,959
|
|
|
|
7,649
|
|
|
|
474
|
|
|
|
7,175
|
|
Surety
|
|
|
28
|
|
|
|
51
|
|
|
|
79
|
|
|
|
11
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
|
1,718
|
|
|
|
6,010
|
|
|
|
7,728
|
|
|
|
485
|
|
|
|
7,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total insurance
|
|
|
6,485
|
|
|
|
14,604
|
|
|
|
21,089
|
|
|
|
1,858
|
|
|
|
19,231
|
|
|
Reinsurance assumed
|
|
|
370
|
|
|
|
908
|
|
|
|
1,278
|
|
|
|
354
|
|
|
|
924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,855
|
|
|
$
|
15,512
|
|
|
$
|
22,367
|
|
|
$
|
2,212
|
|
|
$
|
20,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
33
Loss reserves, net of reinsurance recoverable, increased by
$283 million during the first six months of 2009. Loss
reserves related to our insurance business increased by
$381 million, which included an increase of approximately
$110 million related to currency fluctuation due to the
weakening of the U.S. dollar. Loss reserves related to our
reinsurance assumed business, which is in runoff, decreased by
$98 million.
Gross case reserves related to our insurance business decreased
by $133 million during the first six months of 2009,
largely due to settlements related to previously existing case
reserves, particularly in the professional liability classes as
well as in the personal and commercial property classes related
to catastrophes.
In establishing the loss reserves of our property and casualty
subsidiaries, we consider facts currently known and the present
state of the law and coverage litigation. Based on all
information currently available, we believe that the aggregate
loss reserves at June 30, 2009 were adequate to cover
claims for losses that had occurred as of that date, including
both those known to us and those yet to be reported. However, as
discussed in Item 7 of our Annual Report on
Form 10-K
for the year ended December 31, 2008, there are significant
uncertainties inherent in the loss reserving process. It is
therefore possible that managements estimate of the
ultimate liability for losses that had occurred as of
June 30, 2009 may change, which could have a material
effect on the Corporations results of operations and
financial condition.
Because loss reserve estimates are subject to the outcome of
future events, changes in estimates are unavoidable given that
actual results can differ from expectations and time is required
for changes in trends to be recognized and confirmed. Reserve
changes that increase previous estimates of ultimate cost are
referred to as unfavorable or adverse development or reserve
strengthening. Reserve changes that decrease previous estimates
of ultimate cost are referred to as favorable development or
reserve releases.
We estimate that we experienced overall favorable prior year
development of about $340 million during the first six
months of 2009 and $210 million in the second quarter
compared with favorable prior year development of about
$450 million and $235 million, respectively, in the
comparable periods of 2008.
The favorable development in the first six months of 2009 was
primarily in the professional liability classes, due to the
continued favorable loss trends related to accident years 2004
through 2006, in the commercial property classes, largely
related to the 2008 accident year, as well as in the commercial
casualty classes related to accident years 2006 and prior. The
favorable development in the first six months of 2008 was
primarily in certain professional liability and commercial
liability classes, due to the favorable loss trends related to
accident years 2005 and prior, and in the homeowners and
commercial property classes, largely related to the 2007
accident year.
Page
34
Investment
Results
Property and casualty investment income before taxes decreased
by 7% in the first six months of 2009 and by 6% in the second
quarter of 2009 compared with the same periods in 2008. About
half of the decline was related to currency fluctuation on
income from our
non-U.S. investments.
The decrease in investment income was also due to lower yields,
especially on short term investments. Average invested assets of
the property and casualty subsidiaries for the first six months
and second quarter of 2009 and 2008 were similar as a result of
substantial dividend distributions made by the property and
casualty subsidiaries to Chubb during 2008, particularly in the
latter part of the year.
The effective tax rate on investment income was 19.3% in the
first six months of 2009 compared with 20.2% in the same period
of 2008. The effective tax rate fluctuates as a result of
holding a different proportion of our investment portfolio in
tax exempt securities during different periods.
On an after-tax basis, property and casualty investment income
decreased by 6% in the first six months of 2009 and 5% in the
second quarter compared with the same periods in 2008. The
after-tax annualized yield on the investment portfolio that
supports the property and casualty insurance business was 3.41%
and 3.49% in the first six months of 2009 and 2008,
respectively. Management uses property and casualty investment
income after tax, a non-GAAP financial measure, to evaluate its
investment performance because it reflects the impact of any
change in the proportion of the investment portfolio invested in
tax exempt securities and is therefore more meaningful for
analysis purposes than investment income before income tax.
Corporate
and Other
Corporate and other comprises investment income earned on
corporate invested assets, interest expense and other expenses
not allocated to our operating subsidiaries and the results of
our non-insurance subsidiaries.
Corporate and other produced a loss before taxes of
$121 million in the first six months of 2009 compared with
a loss of $106 million in the first six months of 2008. The
higher loss in 2009 was due primarily to higher interest expense
and lower investment income. The higher interest expense was the
result of the issuance of additional debt during the first half
of 2008, the proceeds of which were used to repurchase shares of
Chubbs common stock.
Page
35
Realized
Investment Gains and Losses
Net realized investment gains and losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods Ended June 30
|
|
|
|
Second Quarter
|
|
|
Six Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Net realized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
$
|
18
|
|
|
$
|
(7
|
)
|
|
$
|
48
|
|
|
$
|
(3
|
)
|
Equity securities
|
|
|
60
|
|
|
|
33
|
|
|
|
71
|
|
|
|
52
|
|
Other invested assets
|
|
|
(32
|
)
|
|
|
(6
|
)
|
|
|
(280
|
)
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
20
|
|
|
|
(161
|
)
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
(11
|
)
|
|
|
(31
|
)
|
|
|
(19
|
)
|
|
|
(31
|
)
|
Equity securities
|
|
|
(8
|
)
|
|
|
(65
|
)
|
|
|
(59
|
)
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
(96
|
)
|
|
|
(78
|
)
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized investment gains (losses) before tax
|
|
$
|
27
|
|
|
$
|
(76
|
)
|
|
$
|
(239
|
)
|
|
$
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized investment gains (losses) after tax
|
|
$
|
18
|
|
|
$
|
(49
|
)
|
|
$
|
(155
|
)
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net realized gains and losses on other invested assets
represent the aggregate of distributions to us from the limited
partnerships in which we have an interest and changes in our
equity in the net assets of the partnerships based on valuations
provided to us by the manager of each partnership. Due to the
timing of our receipt of valuation data from the investment
managers, these investments are generally reported on a one
quarter lag. In the first six months of 2009, limited
partnerships losses were $280 million which were largely
due to losses on the underlying assets held by the limited
partnerships and reflected both the decline in the value of
equities and the increase in credit spreads that occurred during
late 2008.
We regularly review those invested assets whose fair value is
less than cost to determine if an
other-than-temporary
decline in value has occurred. We have a monitoring process
overseen by a committee of investment and accounting
professionals that is responsible for identifying those
securities to be specifically evaluated for potential
other-than-temporary
impairment.
The determination of whether a decline in value of any
investment is temporary or
other-than-temporary
requires the judgment of management. The assessment of
other-than-temporary
impairment of fixed maturities and equity securities is based on
both quantitative criteria and qualitative information and also
considers a number of factors including, but not limited to, the
length of time and the extent to which the fair value has been
less than the cost, the financial condition and near term
prospects of the issuer, whether the issuer is current on
contractually obligated interest and principal payments, general
market conditions and industry or sector specific factors. The
decision to recognize a decline in the value of a security
carried at fair value as
other-than-temporary
rather than temporary has no impact on shareholders equity.
Page
36
For fixed maturities, prior to April 1, 2009, we considered
many factors including the intent and ability to hold a security
for a period of time sufficient to allow for the recovery of the
securitys cost. When an impairment was
deemed other than temporary, the security was written down to fair value and the entire
writedown was charged to income as a realized investment loss.
Effective April 1, 2009, the Corporation adopted Financial
Accounting Standards Board Staff Postition (FSP)
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments. This FSP modified the guidance on the recognition
of
other-than-temporary
impairments of debt securities. Under this guidance, we are
required to recognize an
other-than-temporary
impairment loss for a fixed maturity when we conclude that we have
the intent to sell or it is more likely than not that we will be
required to sell an impaired fixed maturity before the security
recovers to its amortized cost value or it is likely we will not
recover the entire amortized cost value of an impaired security.
If we have the intent to sell or it is more likely than not we
will be required to sell an impaired fixed maturity before the
security recovers to its amortized cost value, the security is
written down to fair value and the entire amount of the
writedown is charged to income as a realized investment loss.
For all other impaired fixed maturities, the impairment loss is
separated into the amount representing the credit loss and the
amount representing the loss related to all other factors. The
amount of the impairment loss that represents the credit loss is
charged to income as a realized investment loss and the amount
of the impairment loss that relates to all other factors is
included in other comprehensive income.
For equity securities, we consider our intent and ability to
hold a security for a period of time sufficient to allow us to
recover our cost. If a decline in the fair value of an equity
security is deemed to be other than temporary, the security is
written down to fair value and the amount of the writedown is
charged to income as a realized investment loss.
As a result of the significant crisis in the financial markets
that occurred during 2008 and has continued into 2009, the fair
value of many of our investments have declined to a level below
our cost. Conditions in the equity and fixed maturity markets
have improved somewhat in 2009; however, if conditions
deteriorate during the remainder of 2009, additional securities
may be deemed to be
other-than-temporarily
impaired in the future.
Capital
Resources and Liquidity
Capital resources and liquidity represent a companys
overall financial strength and its ability to generate cash
flows, borrow funds at competitive rates and raise new capital
to meet operating and growth needs.
Capital
Resources
Capital resources provide protection for policyholders, furnish
the financial strength to support the business of underwriting
insurance risks and facilitate continued business growth. At
June 30, 2009, the Corporation had shareholders
equity of $14.5 billion and total debt of $4.0 billion.
Page
37
Management regularly monitors the Corporations capital
resources. In connection with our long term capital strategy,
Chubb from time to time contributes capital to its property and
casualty subsidiaries. In addition, in order to satisfy capital
needs as a result of any rating agency capital adequacy or other
future rating issues, or in the event we were to need additional
capital to make strategic investments in light of market
opportunities, we may take a variety of actions, which could
include the issuance of additional debt
and/or
equity securities. We believe that our strong financial position
and existing debt levels provide us with the flexibility and
capacity to obtain funds externally through debt or equity
financings on both a short term and long term basis.
In December 2008, the Board of Directors authorized the
repurchase of up to 20,000,000 shares of Chubbs
common stock. The authorization has no expiration date. During
the first six months of 2009, we repurchased
4,114,529 shares of Chubbs common stock in open
market transactions at a cost of $164 million. As of
June 30, 2009, 15,669,371 shares remained under the
share repurchase authorization. We expect to repurchase all of
the shares remaining under the authorization by the end of 2009,
subject to market conditions.
Ratings
Chubb and its insurance subsidiaries are rated by major rating
agencies. These ratings reflect the rating agencys opinion
of our financial strength, operating performance, strategic
position and ability to meet our obligations to policyholders.
Ratings are an important factor in establishing our competitive
position in the insurance markets. There can be no assurance
that our ratings will continue for any given period of time or
that they will not be changed.
It is possible that one or more of the rating agencies may raise
or lower our existing ratings in the future. If our credit
ratings were downgraded, we might incur higher borrowing costs
and might have more limited means to access capital. A downgrade
in our financial strength ratings could adversely affect the
competitive position of our insurance operations, including a
possible reduction in demand for our products in certain markets.
Liquidity
Liquidity is a measure of a companys ability to generate
sufficient cash flows to meet the short and long term cash
requirements of its business operations.
The Corporations liquidity requirements in the past have
generally been met by funds from operations and we expect that
funds from operations will continue to be sufficient to meet
such requirements. Liquidity requirements could also be met by
funds from the maturity or sale of marketable securities in our
investment portfolio. The Corporation also has the ability to
borrow under its existing $500 million credit facility and
we believe we could issue debt or equity securities.
Page
38
Our property and casualty operations provide liquidity in that premiums are generally received
months or even years before losses are paid under the policies purchased by such premiums.
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 Chubb. After satisfying our cash requirements, excess cash flows are used to build the
investment portfolio and thereby increase future investment income.
Our strong underwriting results continued to generate
substantial new cash. New cash from operations available for
investment by our property and casualty subsidiaries was
approximately $1.0 billion in the first six months of
2009 compared with $525 million in the same period in
2008. New cash available was higher as a result of the property
and casualty subsidiaries not paying a dividend to Chubb during
the first six months of 2009 compared with dividends of
$800 million paid to Chubb in the first six months of 2008.
This was caused by a difference in the timing of subsidiary
dividends in 2008 and those anticipated in 2009. Partially
offsetting the lower dividend payments to Chubb was the impact
of modestly lower premium receipts in the first six months of
2009 compared with the same period in 2008. In our
U.S. property and casualty operations, during the first six
months of 2009 we invested new cash in tax exempt bonds and
corporate bonds.
Our property and casualty subsidiaries maintain investments in
highly liquid, short term marketable securities. Accordingly, we
do not anticipate selling long term fixed maturity investments
to meet any liquidity needs.
Chubbs liquidity requirements primarily include the
payment of dividends to shareholders and interest and principal
on debt obligations. The declaration and payment of future
dividends to Chubbs shareholders will be at the discretion
of Chubbs Board of Directors and will depend upon many
factors, including our operating results, financial condition,
capital requirements and any regulatory constraints.
As a holding company, Chubbs ability to continue to pay
dividends to shareholders and to satisfy its debt obligations
relies on the availability of liquid assets, which is dependent
in large part on the dividend paying ability of its property and
casualty subsidiaries. Our property and casualty subsidiaries
are subject to laws and regulations in the jurisdictions in
which they operate that restrict the amount of dividends they
may pay without the prior approval of regulatory authorities.
The restrictions are generally based on net income and on
certain levels of policyholders surplus as determined in
accordance with statutory accounting practices. Dividends in
excess of such thresholds are considered
extraordinary and require prior regulatory approval.
The maximum dividend distribution that may be made by the
property and casualty subsidiaries to Chubb during 2009 without
prior approval is approximately $1.2 billion. As noted
above, during the first six months of 2009, these subsidiaries
paid no dividends to Chubb compared with $800 million of
dividends paid during the same period of 2008.
Page 39
Invested
Assets
The main objectives in managing our investment portfolios are to
maximize after-tax investment income and total investment
returns while minimizing credit risks in order to ensure that
funds will be available to meet our insurance obligations.
Investment strategies are developed based on many factors
including underwriting results and our resulting tax position,
regulatory requirements, fluctuations in interest rates and
consideration of other market risks. Investment decisions are
centrally managed by investment professionals based on
guidelines established by management and approved by the boards
of directors of Chubb and its respective operating companies.
Our investment portfolio is primarily comprised of high quality
bonds, principally tax exempt securities, mortgage-backed
securities, corporate issues and U.S. Treasury securities
as well as foreign government and corporate bonds that support
our operations outside the United States. The portfolio also
includes equity securities, primarily publicly traded common
stocks, and other invested assets, primarily private equity
limited partnerships, all of which are held with the primary
objective of capital appreciation.
Our objective is to achieve the appropriate mix of taxable and
tax exempt securities in our portfolio to balance both
investment and tax strategies. At June 30, 2009, 68% of our
U.S. fixed maturity portfolio was invested in tax exempt
bonds, compared with 69% at December 31, 2008. About 80% of
our tax exempt bonds are rated AA or better by Moodys or
Standard and Poors, with about 25% rated AAA. The average
rating of our tax exempt bonds is AA. While about 40% of our tax
exempt bonds are insured, the effect of insurance on the average
credit rating of these bonds is insignificant. The insured tax
exempt bonds in our portfolio have been selected based on the
quality of the underlying credit and not the value of the credit
insurance enhancement.
At June 30, 2009, we held $3.6 billion of
mortgage-backed securities which comprised 23% of our taxable
bond portfolio. About 97% of the mortgage-backed securities are
rated AAA, and of the remaining 3%, half are investment grade.
Of the AAA rated securities, about 60% are residential
mortgage-backed securities, consisting of government agency
pass-through securities guaranteed by a government agency or a
government sponsored enterprise (GSE), GSE collateralized
mortgage obligations (CMOs) and other CMOs, all backed by single
family home mortgages. The majority of the CMOs are actively
traded in liquid markets. The other 40% of the AAA rated
securities are call protected, commercial mortgage-backed
securities (CMBS). About 90% of our CMBS are senior securities
with the highest level of subordination. The remainder of our
CMBS are seasoned securities that were issued in 2004 or earlier.
The net unrealized appreciation before tax of our fixed
maturities and equity securities carried at fair value was
$512 million at June 30, 2009 compared with net
unrealized depreciation before tax of $220 million at
December 31, 2008. Such unrealized appreciation and
depreciation is reflected in comprehensive income or loss, net
of applicable deferred income tax.
Credit spreads, which refer to the differences between the
yields on U.S. Treasury securities and the yields on other
fixed maturity investments, decreased significantly for almost
all fixed maturity investments during the first six months 2009.
This decrease resulted in an increase in the fair value of many
of our fixed maturity investments.
Page
40
Fair
Values of Financial Instruments
Fair values of financial instruments are determined using
valuation techniques that maximize the use of observable inputs
and minimize the use of unobservable inputs. Fair values are
generally measured using quoted prices in active markets for
identical assets or liabilities or other inputs, such as quoted
prices for similar assets or liabilities that are observable,
either directly or indirectly. In those instances where
observable inputs are not available, fair values are measured
using unobservable inputs for the asset or liability.
Unobservable inputs reflect our own
assumptions about the assumptions that market participants would
use in pricing the asset or liability and are developed based on
the best information available in the circumstances. Fair value
estimates derived from unobservable inputs are affected by the
assumptions used, including the discount rates and the estimated
amounts and timing of future cash flows. The derived fair value
estimates cannot be substantiated by comparison to independent
markets and are not necessarily indicative of the amounts that
would be realized in a current market exchange.
The fair value hierarchy prioritizes the inputs to valuation
techniques used to measure the fair values of our fixed
maturities and equity securities into three broad levels as
follows:
Level 1 Unadjusted quoted prices in
active markets for identical assets.
Level 2 Other inputs that are observable
for the asset, either directly or indirectly.
Level 3 Inputs that are unobservable.
The methods and assumptions used to estimate the fair values of
financial instruments are as follows:
Fair values for fixed maturities are determined by management,
utilizing prices obtained from an independent, nationally
recognized pricing service or, in the case of securities for
which prices are not provided by a pricing service, from
independent brokers. For fixed maturities that have quoted
prices in active markets, market quotations are provided. For
fixed maturities that do not trade on a daily basis, the pricing
services and brokers provide fair value estimates using a
variety of inputs including, but not limited to, benchmark
yields, reported trades, broker/dealer quotes, issuer spreads,
bids, offers, reference data, prepayment spreads and measures of
volatility. Management reviews on an ongoing basis the
reasonableness of the methodologies used by the relevant pricing
services and brokers. In addition, management, using the prices
received for the securities from the pricing services and
brokers, determines the aggregate portfolio price performance
and reviews it against applicable indices. If management
believes that significant discrepancies exist, it will discuss
these with the relevant pricing service or broker to resolve the
discrepancies.
Fair values of equity securities are based on quoted market
prices.
The carrying value of short term investments approximates fair
value due to the short maturities of these investments.
Page
41
Fair values of long term debt issued by Chubb are determined by
management, utilizing prices obtained from an independent,
nationally recognized pricing service. Such prices are subject
to management review similar to the review of prices received
related to our fixed maturities.
We use a pricing service to estimate fair value measurements for approximately 99% of our fixed maturities. The prices we obtain from a pricing service and brokers generally
are non-binding, but are reflective of current market
transactions in the applicable financial instruments. At
June 30, 2009, we did not hold financial instruments in our
investment portfolio for which a lack of market liquidity
impacted our determination of fair value.
Change in
Accounting Principle
Effective April 1, 2009, we adopted FSP
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments. This FSP modified the guidance on the recognition
of
other-than-temporary
impairments of debt securities. The adoption of this FSP did not
have a significant effect on the Corporations financial
position or results of operations. The adoption of this FSP is
discussed further in Note(2) of the Notes to Consolidated
Financial Statements.
|
|
|
Item 4
|
Controls
and Procedures
|
As of June 30, 2009, an evaluation of the effectiveness of
the design and operation of the Corporations disclosure
controls and procedures (as such term is defined in
Rule 13a-15(e)
of the Securities Exchange Act of 1934) was performed under
the supervision and with the participation of the
Corporations management, including the chief executive
officer and chief financial officer. Based on that evaluation,
Chubbs chief executive officer and chief financial officer
concluded that the Corporations disclosure controls and
procedures were effective as of June 30, 2009.
During the quarter ended June 30, 2009, there were no
changes in internal control over financial reporting that have
materially affected, or are reasonably likely to materially
affect, the Corporations internal control over financial
reporting.
Page 42
PART II.
OTHER INFORMATION
The Corporations business is subject to a number of risks,
including those identified in Item 1A of Chubbs
Annual Report on
Form 10-K
for the year ended December 31, 2008, that could have a
material effect on our business, results of operations,
financial condition
and/or
liquidity and that could cause our operating results to vary
significantly from fiscal period to fiscal period. The risks
described in the Annual Report on
Form 10-K
and Quarterly Reports are not the only risks we face. Additional
risks and uncertainties not currently known to us or that we
currently deem to be immaterial also could have a material
effect on our business, results of operations, financial
condition
and/or
liquidity.
|
|
Item 2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
The following table summarizes Chubbs stock repurchased
each month in the quarter ended June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Number of
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Shares that May
|
|
|
|
Total Number
|
|
|
Average
|
|
|
as Part of
|
|
|
Yet be Purchased
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Publicly Announced
|
|
|
Under the
|
|
Period
|
|
Purchased(a)
|
|
|
per Share
|
|
|
Plans or Programs
|
|
|
Plans or Programs(b)
|
|
|
|
April 2009
|
|
|
120,000
|
|
|
$
|
39.41
|
|
|
|
120,000
|
|
|
|
17,859,400
|
|
|
May 2009
|
|
|
1,673,500
|
|
|
|
39.04
|
|
|
|
1,673,500
|
|
|
|
16,185,900
|
|
|
June 2009
|
|
|
516,529
|
|
|
|
39.72
|
|
|
|
516,529
|
|
|
|
15,669,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,310,029
|
|
|
|
39.21
|
|
|
|
2,310,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The stated amounts exclude 2,111 shares delivered to Chubb
during the month of May 2009 by employees of the Corporation to
cover option exercise prices and withholding taxes in connection
with the Corporations stock-based compensation plans. |
|
(b) |
|
On December 4, 2008, the Board of Directors authorized the
repurchase of up to 20,000,000 shares of common stock. The
authorization has no expiration date. |
|
|
Item 4
|
Submission
of Matters to a Vote of Security Holders
|
Information regarding the matters submitted to a vote of
Chubbs security holders at Chubbs annual meeting
conducted on April 28, 2009, including the voting results
relating thereto, is set forth in Item 8.01 of Chubbs
current report on
Form 8-K
filed with the Securities and Exchange Commission on
April 28, 2009. Item 8.01 of this
Form 8-K
is incorporated herein by reference.
Page
43
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
|
|
|
-
|
|
Material Contracts
|
|
10
|
.1
|
|
|
|
The Chubb Corporation Long-Term Incentive Plan
(2009) incorporated by reference to Exhibit 99.1 of
the registrants registration statement on
Form S-8
filed on April 28, 2009 (File No. 333-158841).
|
|
10
|
.2
|
|
|
|
Form of Deferred Stock Unit Agreement under The Chubb
Corporation Long-Term Incentive Plan (2009) filed herewith.
|
|
|
|
|
|
-
|
|
Rule 13a-14(a)/15d-14(a)
Certifications
|
|
31
|
.1
|
|
|
|
Certification by John D. Finnegan filed herewith.
|
|
31
|
.2
|
|
|
|
Certification by Richard G. Spiro filed herewith.
|
|
|
|
|
|
-
|
|
Section 1350 Certifications
|
|
32
|
.1
|
|
|
|
Certification by John D. Finnegan filed herewith.
|
|
32
|
.2
|
|
|
|
Certification by Richard G. Spiro filed herewith.
|
|
|
|
|
|
|
-
|
|
Interactive Data File
|
|
101
|
.INS*
|
|
|
|
XBRL Instance Document
|
|
101
|
.SCH*
|
|
|
|
XBRL Taxonomy Extension Schema Document
|
|
101
|
.CAL*
|
|
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101
|
.LAB*
|
|
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101
|
.PRE*
|
|
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
101
|
.DEF*
|
|
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
* |
|
Pursuant to applicable securities laws and regulations, the
Corporation is deemed to have complied with the reporting
obligation relating to the submission of interactive data files
in such exhibits and is not subject to liability under any
anti-fraud provisions of the federal securities laws as long as
the Corporation has made a good faith attempt to comply with the
submission requirements and promptly amends the interactive data
files after becoming aware that the interactive data files fail
to comply with the submission requirements. Users of this data
are advised that, pursuant to Rule 406T, these interactive
data files are deemed not filed and otherwise are not subject to
liability. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, The Chubb Corporation has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
THE CHUBB CORPORATION
(Registrant)
John J. Kennedy
Senior Vice-President and Chief Accounting
Officer
Date: August 10, 2009