DBA Chubb (NYSE:CB)
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Chubb Reports 3rd Quarter Net Income of $259.8 Million or $1.37 per Share;
Premiums Grow 23%, Combined Ratio is 96.6%
WARREN, N.J., Oct. 27 /PRNewswire-FirstCall/ -- The Chubb Corporation today
reported that net income in the third quarter of 2003 was $259.8 million or
$1.37 per share, compared to a net loss of $242.1 million ($1.42 per share) in
the third quarter of 2002.
Operating income, which the company defines as net income excluding after- tax
realized investment gains and losses, was $220.5 million or $1.16 per share in
the third quarter of 2003, compared to an operating loss of $270.7 million or
$1.59 per share in the third quarter of 2002. The third quarter operating loss
for 2002 included a pre-tax charge of $625 million ($2.38 per share after-tax)
for the strengthening of asbestos and environmental (A&E) reserves. Third
quarter operating income for 2003 includes an after-tax loss of $25.2 million or
$0.14 per share from the non-insurance business of Chubb Financial Solutions
(CFS), compared to a loss of $26.3 million or $0.15 per share in the third
quarter of 2002.
Chubb adopted the fair value method of accounting for stock-based employee
compensation as of January 1, 2003. The per-share amounts for the third quarter
of 2003 reflect an after-tax charge of $0.05 for the expensing of stock options,
compared to no charge in 2002.
Property and casualty net premiums written in the third quarter of 2003 grew 23%
to $2.8 billion. Premiums for Chubb Re nearly tripled, accounting for 8
percentage points of this growth. U.S. premiums grew 23%. Non-U.S. premiums
grew 22%, or 15% in local currencies.
The combined loss and expense ratio for the third quarter was 96.6% in 2003 and
130.0% in 2002. Excluding the A&E charge, the combined ratio for the third
quarter of 2002 was 99.9%. Catastrophe losses in the 2003 third quarter were
$96.0 million, accounting for 3.7 percentage points of the combined ratio,
compared to $51.6 million (2.5 points) in the third quarter of 2002. The expense
ratio for the third quarter was 30.9% in 2003 and 31.2% in 2002.
Nine Month Results
For the first nine months of 2003, net income was $736.5 million or $4.13 per
share, compared with $166.3 million or $0.96 per share for the first nine months
of 2002. Operating income totaled a record $680.8 million or $3.82 per share
for the first nine months of 2003, compared with $117.2 million or $0.68 per
share in the first nine months of 2002, which reflects the third quarter A&E
charge of $625 million ($2.34 per share after-tax). Results for the first nine
months of 2003 include an after-tax loss of $19.9 million or $0.11 per share
from CFS, compared with a loss of $36.4 million or $0.21 per share in the first
nine months of 2002. The per-share amounts for the first nine months of 2003
reflect an after-tax charge of $0.20 for the expensing of stock options,
compared to no charge in 2002.
Property and casualty net premiums written in the first nine months of 2003
increased 23% to $8.1 billion. Chubb Re accounted for 5 percentage points of
this growth. The combined ratio for the first nine months was 95.8% in 2003 and
108.7% in 2002; excluding the A&E charge, the combined ratio for the first nine
months of 2002 was 98.0%. Catastrophe losses for the first nine months were
$261.5 million (3.5 percentage points of the combined ratio) in 2003, compared
to $75.2 million (1.3 points) in 2002.
Outlook for 2003
"Chubb had an outstanding third quarter," said John D. Finnegan, President and
Chief Executive Officer, "with substantial premium growth, improved underwriting
profitability and higher investment income.
"Based on results for the first nine months and our expectations for the fourth
quarter," said Mr. Finnegan, "we are sufficiently confident to modify full-year
earnings guidance to a range of $5.10 to $5.30 per share. Consistent with our
previous guidance, this estimate excludes realized investment gains and losses.
It also excludes CFS results and assumes 3 percentage points of catastrophe
losses in the fourth quarter." The company's previous guidance for 2003
earnings per share was a range of $4.90 to $5.30.
Operations Review
Chubb Commercial Insurance (CCI) premiums, which accounted for 36% of Chubb's
third-quarter net written premiums, grew 18% to $1.02 billion. The combined
ratio improved to 90.6% from 175.6%. Excluding the A&E charge, the combined
ratio for the third quarter of 2002 was 94.4%. Third quarter catastrophe losses
accounted for 2.9 percentage points of the combined ratio in 2003, compared to
5.0 points in 2002.
Average renewal rates in the U.S. increased 10% for CCI, which retained 80% of
the U.S. accounts that came up for renewal. CCI wrote $235 million of new
business in the third quarter of 2003, compared to $276 million in the third
quarter of 2002. Premiums from new accounts exceeded nonrenewed business by a
1.5-to-1 margin.
Chubb Specialty Insurance (CSI) premiums, which accounted for 40% of Chubb's
total third quarter premiums, grew 37% to $1.14 billion. The combined ratio was
100.6%, compared to 106.1% in the third quarter of 2002.
Executive Protection (EP) net written premiums grew 19%, and the business had a
combined ratio of 104.2%. EP's results continued to be adversely affected by
directors & officers and errors & omissions insurance experience. Average
renewal rates in the U.S. for EP were up 34%. Premium growth from rate
increases was partially offset by reduced exposures, which reflected the
company's implementation of tighter terms and conditions, including lower
limits, higher deductibles and coinsurance.
Financial Institutions (FI) net premiums grew 9% in the third quarter. Average
renewal rates in the U.S. for FI were up 32%. The combined ratio for FI was
111.4% for the third quarter, reflecting adverse experience in D&O and E&O,
partially offset by favorable results in fidelity.
For the other specialty lines, premiums were up 97%, primarily driven by 190%
growth at Chubb Re. The combined ratio for the other specialty lines was 87.8%.
Chubb Personal Insurance (CPI) premiums, which accounted for 24% of Chubb's
total premiums, grew 11% to $689 million. CPI's combined ratio was 99.9%,
compared to 99.0% in the third quarter of 2002. Catastrophe losses in the third
quarter increased to 10.7 percentage points of the combined ratio in 2003 from
2.2 percentage points in 2002. Excluding catastrophe losses, CPI's combined
ratio improved 7.6 points to 89.2% from 96.8%, driven by improvement in
homeowners insurance.
The homeowners line grew 14% due to rate increases and better insurance to
value. The combined ratio was 108.7%, which included 18.6 percentage points of
catastrophe losses. Excluding catastrophe losses, the combined ratio was 90.1%.
Personal automobile insurance grew 7% and had a combined ratio of 96.4%, while
other personal lines, which include valuable articles, excess liability and
yacht insurance, grew 7% and had a combined ratio of 78.7%.
Property and casualty investment income after taxes for the third quarter
increased 12.5% to $213.9 million from $190.1 million in 2002. For the first
nine months of 2003, property and casualty investment income after taxes
increased 9.3% to $619.1 million from $566.5 million.
All financial results herein are unaudited.
Webcast Conference Call to be Held on October 28
Chubb's senior management will discuss the company's third quarter performance
with investors and analysts tomorrow, October 28, at 9 A.M. Eastern time. The
conference call will be webcast live on the Internet at http://www.chubb.com/
and archived later in the day for replay.
About Chubb
Founded in 1882, the Chubb Group of Insurance Companies provide property and
casualty insurance for personal and commercial customers worldwide through 8,000
independent agents and brokers. Chubb's global network includes branches and
affiliates throughout North America, Europe, Latin America, Asia and Australia.
Definitions of Key Terms
Operating Income
Operating income, a non-GAAP financial measure, is net income excluding
after-tax realized investment gains and losses. Management uses operating
income, among other measures, to evaluate its performance because the
realization of investment gains and losses in any given period is largely
discretionary as to timing and can fluctuate significantly, which could distort
the analysis of trends.
Property and Casualty Investment Income After Income Tax
Management uses property and casualty investment income after income 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 taxes.
Book Value per Common Share with Available-for-Sale Fixed Maturities at
Amortized Cost
Book value per share represents the portion of consolidated shareholders' equity
attributable to one share of common stock outstanding as of the balance sheet
date. Consolidated shareholders' equity includes, as part of accumulated other
comprehensive income, the after-tax appreciation or depreciation on the
Corporation's available-for-sale fixed maturities carried at market value. The
appreciation or depreciation on available-for-sale fixed maturities is subject
to fluctuation due to changes in interest rates and therefore could distort the
analysis of trends. Management believes that book value per common share with
available-for-sale fixed maturities at amortized cost, a non-GAAP financial
measure, is an important measure of the underlying equity attributable to one
share of common stock.
Combined Ratio or Combined Loss and Expense Ratio
The combined loss and expense ratio, expressed as a percentage, is the key
measure of underwriting profitability. The Corporation evaluates the
performance of its insurance businesses by using the combined loss and expense
ratio calculated in accordance with statutory accounting principles applicable
to property and casualty insurance companies. It is the sum of the ratio of
losses 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.
Statutory accounting principles 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. To convert underwriting expenses to a GAAP
basis, policy acquisition expenses are deferred and recognized over the period
in which the related premiums are earned.
FORWARD LOOKING INFORMATION
Certain statements in this document, and certain oral statements made by
management from time to time, 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 estimates and assumptions related to economic,
competitive, regulatory, judicial, legislative and other developments. These
include statements relating to trends in, or representing management's beliefs
about, our future strategies, operations and financial results, as well as other
statements that include words such as "anticipate," "believe," "estimate,"
"expect," "intend," "may," "plan," "should," "will," or other similar
expressions. Forward-looking statements are made based upon management's
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:
* the availability of primary and reinsurance coverage, including the
implications relating to terrorism legislation and regulation;
* global political conditions and the occurrence of terrorist attacks,
including any nuclear, biological or chemical events;
* the effects of the outbreak or escalation of war or hostilities;
* premium price increases 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;
* material differences between actual and expected assessments for
guaranty funds and mandatory pooling arrangements;
* our expectations with respect to cash flow projections and investment
income and with respect to other income;
* the adequacy of loss reserves, including:
-- our expectations relating to reinsurance recoverables;
-- 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;
-- our estimates relating to ultimate asbestos liabilities and related
reinsurance recoverables;
-- the impact from the bankruptcy protection sought by various asbestos
producers and other related businesses;
-- the willingness of parties, including us, to settle disputes;
-- developments in judicial decisions or regulatory or legislative
actions relating to coverage and liability for asbestos, toxic waste
and mold claims;
* the impact of the current economic climate on companies on whose behalf
we have issued surety bonds, and in particular, on those companies that
have filed for bankruptcy or otherwise experienced deterioration in
creditworthiness;
* the effects of disclosures by, and investigations of, public companies
relating to possible accounting irregularities, practices in the energy
and securities industries and other corporate governance issues,
including:
-- the effects on the energy markets and the companies that participate
in them, and in particular as they may relate to concentrations of
risk in our surety business;
-- 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 investment banking practices;
-- legislative or regulatory proposals or changes, including the changes
in law and regulation implemented under the Sarbanes-Oxley Act of
2002;
* the occurrence of significant weather-related or other natural or
human-made disasters;
* any downgrade in our claims-paying, financial strength or other credit
ratings;
* the ability of our subsidiaries to pay us dividends;
* general economic conditions including:
-- changes in interest rates, market credit spreads and the performance
of the financial markets, generally and as they relate to credit
risks assumed by our Chubb Financial Solutions unit in particular;
-- 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;
-- changes in the litigation environment;
-- general market conditions; and
* our ability to implement management's strategic plans and initiatives.
Our forward-looking statements speak only as of the date made, and we undertake
no obligation to update these forward-looking statements.
THE CHUBB CORPORATION
SUPPLEMENTARY FINANCIAL DATA
(Unaudited)
Periods Ended September 30
Third Quarter Nine Months
2003 2002 2003 2002
(in millions)
PROPERTY AND CASUALTY INSURANCE
Underwriting
Net Premiums Written $2,845.5 $2,315.2 $8,137.5 $6,620.2
Increase in Unearned
Premiums (237.3) (229.7) (670.9) (751.4)
Premiums Earned 2,608.2 2,085.5 7,466.6 5,868.8
Claims and Claim
Expenses (a) 1,711.3 2,052.0 4,850.0 4,513.0
Operating Costs and Expenses 876.7 719.6 2,490.3 2,075.3
Increase in Deferred Policy
Acquisition Costs (56.4) (48.9) (133.7) (181.3)
Dividends to Policyholders 6.0 9.0 18.0 26.6
Underwriting Income (Loss) 70.6 (646.2) 242.0 (564.8)
Investments
Investment Income Before
Expenses 274.1 241.3 794.2 709.1
Investment Expenses 4.5 8.0 17.5 17.8
Investment Income 269.6 233.3 776.7 691.3
Other Charges (.9) (3.5) (22.6) (16.8)
Property and Casualty Income
(Loss) 339.3 (416.4) 996.1 109.7
CHUBB FINANCIAL SOLUTIONS
NON-INSURANCE BUSINESS (38.8) (40.4) (30.6) (55.9)
CORPORATE AND OTHER (23.3) (19.7) (102.4) (55.4)
CONSOLIDATED OPERATING INCOME
(LOSS) BEFORE INCOME TAX 277.2 (476.5) 863.1 (1.6)
Federal and Foreign Income
Tax (Credit) 56.7 (205.8) 182.3 (118.8)
CONSOLIDATED OPERATING INCOME
(LOSS) 220.5 (270.7) 680.8 117.2
REALIZED INVESTMENT GAINS
AFTER INCOME TAX 39.3 28.6 55.7 49.1
CONSOLIDATED NET
INCOME (LOSS) $ 259.8 $ (242.1) $ 736.5 $ 166.3
PROPERTY AND CASUALTY
INVESTMENT
INCOME AFTER INCOME TAX $ 213.9 $ 190.1 $ 619.1 $ 566.5
(a) Claims and claim expenses include asbestos and toxic waste claims of
$625.0 million and $666.1 million in the third quarter and nine
months ended September 30, 2002, respectively.
Effective January 1, 2003, the Corporation adopted the fair value method of
accounting for stock-based employee compensation plans using the modified
prospective method of transition. The change in accounting resulted in a
decrease in operating income before income tax of $15.4 million ($10.4 million
after-tax) for the third quarter of 2003 and $51.1 million ($35.7 million
after-tax) for the nine months ended September 30, 2003.
Periods Ended September 30
Third Quarter Nine Months
2003 2002 2003 2002
OUTSTANDING SHARE DATA
(in millions)
Average Common and Potentially
Dilutive Shares 189.4 170.6 178.4 173.3
Actual Common Shares at
End of Period 187.7 171.0 187.7 171.0
DILUTED EARNINGS PER SHARE DATA
Operating Income (Loss) $1.16 $(1.59) $3.82 $ .68
Realized Investment Gains .21 .17 .31 .28
Net Income (Loss) $1.37 $(1.42) $4.13 $ .96
Effect of Catastrophe
Losses $(.33) $ (.20) $(.95) $ (.28)
Effect of Asbestos and
Toxic Waste Losses $ - $(2.38) $ - $(2.50)
Effect of Chubb Financial
Solution Non-Insurance
Business $(.14) $ (.15) $(.11) $ (.21)
Effect of Expensing Stock
Options $(.05) $ - $(.20) $ -
Sept. 30 Dec. 31
2003 2002
BOOK VALUE PER COMMON SHARE $45.17 $40.06
BOOK VALUE PER COMMON SHARE,
with Available-for-Sale Fixed Maturities
at Amortized Cost 41.82 36.61
PROPERTY AND CASUALTY UNDERWRITING RATIOS
PERIODS ENDED SEPTEMBER 30
Third Quarter Nine Months
2003 2002 2003 2002
Losses to Premiums Earned 65.7% 98.8% 65.1% 77.2%
Expenses to Net Premiums Written 30.9 31.2 30.7 31.5
Combined Loss and Expense Ratio 96.6% 130.0% 95.8% 108.7%
The 2002 underwriting ratios include the effect of losses of $625.0 million
related to asbestos and toxic waste claims recognized in the third quarter.
Excluding the effect of such losses, the losses to premiums earned ratio was
68.7% for the third quarter of 2002 and 66.5% for the nine months ended
September 30, 2002 and the combined loss and expense ratio was 99.9% and 98.0%,
respectively.
PROPERTY AND CASUALTY CLAIMS AND CLAIM EXPENSES COMPONENTS
PERIODS ENDED SEPTEMBER 30
Third Quarter Nine Months
2003 2002 2003 2002
(in millions)
Paid Claims and Claim Expenses $1,337.4 $1,019.6 $3,708.9 $3,278.9
Increase in Unpaid Claims and
Claim Expenses 373.9 1,032.4 1,141.1 1,234.1
Total Claims and Claim Expenses $1,711.3 $2,052.0 $4,850.0 $4,513.0
The increase in unpaid claims and claim expenses for the third quarter and the
first nine months of 2002 includes $611.7 million and $617.5 million,
respectively, related to asbestos and toxic waste claims.
PROPERTY AND CASUALTY PRODUCT MIX
Net Premiums Combined Loss and
Written Expense Ratios
2003 2002 2003 2002
(in millions)
NINE MONTHS ENDED SEPTEMBER 30
Personal Insurance
Automobile $ 443.6 $ 402.1 98.9% 98.5%
Homeowners 1,114.2 971.1 106.6 105.7
Other 391.4 364.1 77.8 77.5
Total Personal 1,949.2 1,737.3 98.9 98.0
Commercial Insurance
Multiple Peril 809.4 687.5 90.3 101.5
Casualty 1,010.0 834.7 88.7 185.8*
Workers' Compensation 475.9 350.3 92.2 92.6
Property and Marine 766.1 652.7 89.3 86.2
Total Commercial 3,061.4 2,525.2 89.6 124.7*
Specialty Insurance
Executive Protection 1,526.0 1,214.3 104.0 105.8
Financial Institutions 603.4 508.3 111.5 103.3
Other 997.5 635.1 84.4 88.2
Total Specialty 3,126.9 2,357.7 99.8 100.9
Total $8,137.5 $6,620.2 95.8% 108.7%*
QUARTER ENDED SEPTEMBER 30
Personal Insurance
Automobile $ 154.3 $ 144.0 96.4% 94.5%
Homeowners 402.9 353.4 108.7 108.8
Other 132.1 123.3 78.7 78.3
Total Personal 689.3 620.7 99.9 99.0
Commercial Insurance
Multiple Peril 276.6 235.1 92.7 103.0
Casualty 331.4 275.9 90.8 333.1*
Workers' Compensation 158.4 116.4 94.1 91.8
Property and Marine 253.6 238.4 86.4 93.6
Total Commercial 1,020.0 865.8 90.6 175.6*
Specialty Insurance
Executive Protection 525.0 442.8 104.2 112.3
Financial Institutions 182.8 168.2 111.4 115.7
Other 428.4 217.7 87.8 84.2
Total Specialty 1,136.2 828.7 100.6 106.1
Total $2,845.5 $2,315.2 96.6% 130.0%*
* The product mix for 2002 includes the effect of losses of $625.0
million related to asbestos and toxic waste claims recognized in the
third quarter. For the nine months ended September 30, 2002, excluding
the effect of such losses, the combined loss and expense ratio was
96.5% for Casualty, 94.9% for Total Commercial and 98.0% in total. For
the third quarter of 2002, excluding the effect of such losses, the
combined loss and expense ratio was 88.5% for Casualty, 94.4% for Total
Commercial and 99.9% in total.
DATASOURCE: Chubb Corporation
CONTACT: Investors - Glenn A. Montgomery, +1-908-903-2365, or Media -
Mark E. Greenberg, +1-908-903-2682, both of Chubb Corporation
Web site: http://www.chubb.com/