Profits Surge at Chubb; Professional Liability Continues Improvement

The Chubb Corp. reported that net income in the third quarter of 2006 was $604 million, or $1.43 per share, compared to $246 million, or $0.60 per share, in the third quarter of 2005.

Operating income increased to $579 million, or $1.37 per share, from $183 million, or $0.45 per share, in the third quarter of 2005.

Last year, Chubb’s results for the third quarter were adversely affected by pre-tax costs of $511 million, or $0.81 per share after-tax, related to Hurricane Katrina. This amount included estimated net losses of $415 million, net reinsurance reinstatement premium costs of $51 million and a $45 million charge representing Chubb’s share of the Katrina losses estimated by Allied World Assurance Co., Ltd.

The third quarter combined loss and expense ratio improved to 85.5% in 2006 from 102.2% in 2005. The impact of catastrophes in the third quarter accounted for 1.5 percentage points of the combined ratio in 2006 and 17.0 points in 2005. Excluding the impact of catastrophes, the third quarter combined ratio improved to 84.0% in 2006 from 85.2% in 2005. The expense ratio for the third quarter was 28.6% in 2006 and 27.8% in 2005.

In the third quarter of 2006, net written premiums for the insurance business increased 5% to $2.9 billion. Excluding the impact of net reinsurance reinstatement premium costs related to Katrina, net written premiums for the insurance business increased 2%.

Net written premiums for the reinsurance assumed business declined 66% in the third quarter. Excluding reinstatement premium revenues related to Katrina, net written premiums for the reinsurance business declined 57%, reflecting the impact of the Chubb Re.Harbor Point transaction completed in December 2005.

Total net written premiums for the insurance and reinsurance businesses declined 1% to $3.0 billion in the third quarter. Excluding the impact of Katrina-related reinstatement premiums, total net written premiums declined 2%.

Property and casualty investment income after taxes for the third quarter increased 10% to $295 million in 2006 from $267 million in 2005.

During the third quarter of 2006, Chubb repurchased 12.8 million shares of its common stock at a total cost of $636 million.

“Chubb’s third quarter results were driven by outstanding profit contributions from all three of our insurance business units, including continued improvement in the Professional Liability segment of Chubb Specialty Insurance,” said John D. Finnegan, chairman, president and chief executive officer.

Third Quarter Operations Review
Chubb Personal Insurance (CPI) net written premiums grew 6% in the third quarter of 2006 to $913 million. Excluding the impact of reinsurance reinstatement premium costs related to Katrina, premiums grew 4%. CPI’s combined ratio was 84.1%, compared to 94.3% in the third quarter of 2005. The impact of catastrophes in the third quarter accounted for 4.1 percentage points of the combined ratio in 2006, compared with 15.4 points in 2005. Excluding the impact of catastrophes in both years, the third quarter combined ratio was 80.0% in 2006 and 78.9% in 2005.

The Homeowners line grew 8% (5% excluding the impact of Katrina-related reinsurance reinstatement premiums), and the combined ratio was 76.6%. The Personal Automobile line grew 3% and had a combined ratio of 93.1%, while Other Personal Lines grew 2% and had a combined ratio of 102.8%.

Chubb Commercial Insurance (CCI) net written premiums for the third quarter of 2006 increased 10% to $1.2 billion. Excluding the impact of reinsurance reinstatement premium costs related to Katrina, premiums grew 3%. CCI’s combined ratio was 85.4%, including 0.7 percentage points of catastrophe losses. In the third quarter of 2005, CCI’s combined ratio was 112.8%, including 29.7 percentage points from the impact of catastrophes. Excluding the impact of catastrophes, CCI’s third quarter combined ratio was 84.7% in 2006 and 83.1% in 2005.

Average renewal rates in the U.S. were down 1% for CCI, which retained 84% of the U.S. premiums that came up for renewal. The ratio of new to lost business was 1 to 1 in the U.S.

Chubb Specialty Insurance (CSI) net written premiums for the third quarter of 2006 declined 3% to $748 million. The combined ratio was 86.4%, compared to 93.8% in the third quarter of 2005.

Professional Liability (PL) net written premiums were down 4%, mostly as a result of the company’s exit from the hospital medical malpractice and managed care errors & omissions businesses. PL had a combined ratio of 91.0%. In the U.S., average renewal rates for PL were down 1%, renewal retention was 88% and the ratio of new to lost business was 1.5 to 1.

Surety net written premiums in the third quarter were up 5%. Surety’s combined ratio was 39.5%.

Nine Month Results
For the first nine months of 2006, net income was $1.9 billion, or $4.43 per share, compared with $1.2 billion, or $3.00 per share, for the first nine months of 2005. Operating income for the first nine months of 2006 totaled $1.8 billion, or a record $4.14 per share, compared with $1.1 billion, or $2.69 per share, for the first nine months of 2005.

The combined ratio for the first nine months improved to 84.5% in 2006 from 93.3% in 2005. The impact of catastrophes in the first nine months accounted for 1.4 percentage points of the combined ratio in 2006 and 6.1 points in 2005. Excluding the impact of catastrophes, the nine-month combined ratio improved to 83.1% in 2006 from 87.2% in 2005. The expense ratio for the first nine months was 28.7% in 2006 and 28.2% in 2005.

For the first nine months of 2006, net written premiums for the insurance business grew 2% to $8.7 billion. Net written premiums for the reinsurance assumed business declined 54%. Total net written premiums declined 2% to $9.0 billion. Excluding the impact of net reinsurance reinstatement premiums related to Katrina, net written premiums increased 1% for the insurance business, declined 51% for the reinsurance assumed business and declined 3% in total.