Chubb Reports Q4 Net Income of $72.3 Million

The Chubb Corporation reported that net income in the fourth quarter of 2003 was $72.3 million or $0.38 per share, compared to net income of $56.6 million or $0.33 per share in the fourth quarter of 2002.

Operating income, which the company defines as net income excluding after-tax realized investment gains and losses, was $73.1 million or $0.38 per share in the fourth quarter of 2003, compared to operating income of $83.7 million or $0.48 per share in the fourth quarter of 2002.

Chubb’s financial results for the fourth quarter of 2003 included:

— A $250 million pre-tax ($0.86 per share after-tax) increase in net asbestos loss reserves;

— A pre-tax loss of $96 million ($0.33 per share after-tax) from the non-insurance business of Chubb Financial Solutions (CFS), related entirely to an agreement that caps Chubb’s exposure from two credit derivative contracts that had experienced deterioration in credit quality; and

— A $40 million ($0.21 per share) credit for the reversal of a tax
valuation allowance related to the future U.S. tax benefit of European losses.

Fourth quarter results for 2002 included a $75 million pre-tax ($0.29 per share after-tax) increase in net asbestos loss reserves reflecting a reduction in the reinsurance recoverable estimate and a $40 million ($0.23 per share) charge to establish a tax valuation allowance related to the future U.S. tax benefit of European losses.

Chubb adopted the fair value method of accounting for stock-based employee compensation as of Jan. 1, 2003. The per-share amounts for the fourth quarter of 2003 reflect a charge of $0.05 for the expensing of stock options, compared to no charge in 2002.

“Chubb has made significant progress in 2003,” said John Finnegan, chairman, president and CEO, “with solid premium growth, a significant improvement in loss ratio and a lower expense ratio. During the year, we raised new capital, grew the business while maintaining underwriting discipline, restored profitability to our European operations and infused the Chubb culture with a mindset of expense control. Just as important, we resolved the World Trade Center reinsurance recoverables issue and mitigated the risks of the CFS credit derivatives portfolio.”

Fourth quarter operations review

Property and casualty net premiums written in the fourth quarter of 2003 grew 21% to $2.9 billion. U.S. premiums grew 20%. Non-U.S. premiums grew 24%, or 10% in local currencies. Premiums for Chubb Re accounted for 4 percentage points of worldwide growth.

Excluding the asbestos charges in both years, the fourth quarter combined loss and expense ratio improved to 94.8% in 2003 from 97.8% in 2002. Including the asbestos charges, the fourth quarter combined ratio was 104.0% in 2003 and 101.2% in 2002. Catastrophe losses in the fourth quarter of 2003 were $32.5 million, accounting for 1.2 percentage points of the combined ratio, compared to $23.2 million or 1.1 points in the fourth quarter of 2002. The expense ratio for the fourth quarter was 29.6% in 2003 and 30.9% in 2002.

Chubb Commercial Insurance (CCI) net written premiums grew 19% to $1.05 billion. Excluding the asbestos charges in both years, the combined ratio for the fourth quarter improved to 88.1% in 2003 from 93.3% in 2002. Including the asbestos charges, the fourth quarter combined ratio was 113.2% in 2003 and 102.7% in 2002. Fourth quarter catastrophe losses accounted for 0.7 percentage points of the combined ratio in 2003, compared to 3.0 points in 2002.

CCI’s average renewal rate increases in the U.S. were 8%, and it retained 80% of the U.S. premiums that came up for renewal. U.S. premiums from new business exceeded lost business by a 1.4-to-1 margin. CCI wrote $275 million of new business worldwide in the fourth quarter of 2003, compared to $272 million in the fourth quarter of 2002.

Chubb Specialty Insurance (CSI) premiums grew 28% to $1.24 billion. The fourth quarter combined ratio improved to 100.6% in 2003 from 104.3% in 2002.

Executive Protection (EP) net written premiums grew 20% in the fourth quarter, and the business had a combined ratio of 103.8%. Average renewal rates in the U.S. were up 23%, and EP retained 89% of the U.S. premiums that came up for renewal. U.S. premiums from new business exceeded lost business by a 1.8-to-1 margin. EP wrote $119 million of new business worldwide in the fourth quarter of 2003, compared to $125 million in the fourth quarter of 2002.

Financial Institutions (FI) net premiums grew 32% in the fourth quarter and the business had a combined ratio of 109.7%. Average FI renewal rates in the U.S. were up 14%, and FI retained 91% of the U.S. premiums that came up for renewal. U.S. premiums from new business exceeded lost business by a 3.1-to-1 margin. FI wrote $62 million of new business in the fourth quarter of 2003, the same as in the fourth quarter of 2002.

For the other specialty lines, fourth quarter premiums were up 37%, primarily driven by 67% growth at Chubb Re. The combined ratio for the other specialty lines was 90.4%.

Chubb Personal Insurance (CPI) premiums grew 11% to $641 million. CPI’s fourth quarter combined ratio was 96.0% in 2003 and 95.0% in 2002. Catastrophe losses in the fourth quarter accounted for 4.0 percentage points of the combined ratio in 2003, compared to a negligible impact in 2002.

The homeowners line grew 13%. The combined ratio was 98.3%, which included 6.1 percentage points of catastrophe losses. Personal automobile insurance grew 9% and had a combined ratio of 98.9%, while other personal lines, which include valuable articles, excess liability and yacht insurance, grew 8% and had a combined ratio of 85.9%.

Property and casualty investment income after taxes for the fourth quarter increased 15.4% to $224.0 million from $194.1 million in 2002.

Full year results

For the 12 months ended December 31, 2003, net income was $808.8 million or $4.46 per share, compared with $222.9 million or $1.29 per share for the year ended December 31, 2002. Operating income totaled $753.9 million or $4.16 per share for 2003, compared with $200.9 million or $1.16 per share in 2002.

Results for 2003 included:

— A $250 million pre-tax ($0.90 per share after-tax) increase in net asbestos loss reserves;

— A pre-tax loss of $127 million ($0.45 per share after-tax) from CFS; and

— A $40 million ($0.22 per share) credit for the reversal of a tax
valuation allowance related to the future U.S. tax benefit of European losses.

Results for 2002 included:

— A $741 million pre-tax ($2.79 per share after-tax) increase in net asbestos and environmental (A&E) loss reserves;

— A pre-tax loss of $70 million ($0.26 per share after-tax) from CFS; and

— A $40 million ($0.23 per share) charge to establish a tax valuation allowance related to the future U.S. tax benefit of European losses.

The per-share amounts for 2003 reflect a charge of $0.25 for the expensing of stock options, compared to no charge in 2002.

Property and casualty net premiums written in 2003 increased 22% to $11.1 billion. Chubb Re accounted for about 4 percentage points of this growth. Excluding the A&E charges in both years, the combined ratio improved to 95.5% from 97.5%. Including the A&E charges, the combined ratio for the year was 98.0% in 2003 and 106.7% in 2002. Catastrophe losses for the year were $294.0 million (2.9 percentage points of the combined ratio) in 2003, compared to $98.4 million (1.2 points) in 2002. The expense ratio for the year was 30.4% in 2003 and 31.3% in 2002.

Chubb Commercial Insurance (CCI) premiums, which accounted for 37% of Chubb’s 2003 net written premiums, grew 21% to $4.11 billion. Excluding the A&E charges in both years, the combined ratio improved to 89.2% in 2003 from 93.1% in 2002. Including the A&E charges, the combined ratio was 95.9% in 2003 and 118.6% in 2002. Catastrophe losses accounted for 2.4 percentage points of the combined ratio in 2003, compared to 2.2 points in 2002.

Chubb Specialty Insurance (CSI) premiums, which accounted for 40% of Chubb’s total 2003 premiums, grew 31% to $4.37 billion. The combined ratio improved to 100.0% in 2003 from 101.8% in 2002.

Chubb Personal Insurance (CPI) premiums, which accounted for 23% of Chubb’s total 2003 premiums, grew 12% to $2.59 billion. CPI’s combined ratio was 98.2% in 2003 and 97.2% in 2002. Catastrophe losses accounted for 7.9 percentage points of the combined ratio in 2003, compared to 1.5 points in 2002.

For the 12 months ended Dec. 31, 2003, property and casualty investment income after taxes increased 10.8% to $843.1 million from $760.6 million.