Chubb Reports Q3 Net Income of $259.8 Million; Premiums Jump 23%, Combined Ratio is 96.6%

October 28, 2003

The Chubb Corporation 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 Jan. 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 percent to $2.8 billion. Premiums for Chubb Re nearly tripled, accounting for 8 percentage points of this growth. U.S. premiums grew 23 percent. Non-U.S. premiums grew 22 percent, or 15 percent in local currencies. The combined loss and expense ratio for the third quarter was 96.6 percent in 2003 and 130.0% in 2002.

Excluding the A&E charge, the combined ratio for the third quarter of 2002 was 99.9 percent. 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 percent 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 percent 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 percent in 2003 and 108.7 percent in 2002; excluding the A&E charge, the combined ratio for the first nine months of 2002 was 98.0 percent. 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.

Operations Review Chubb Commercial Insurance (CCI) premiums, which accounted for 36 percent of Chubb’s third-quarter net written premiums, grew 18 percent to $1.02 billion. The combined ratio improved to 90.6 percent from 175.6 percent. Excluding the A&E charge, the combined ratio for the third quarter of 2002 was 94.4 percent.

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 percent for CCI, which retained 80 percent 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 percent of Chubb’s total third quarter premiums, grew 37 percent to $1.14 billion. The combined ratio was 100.6 percent, compared to 106.1 percent in the third quarter of 2002. Executive Protection (EP) net written premiums grew 19 percent, and the business had a combined ratio of 104.2 percent.

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 percent. 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 percent in the third quarter. Average renewal rates in the U.S. for FI were up 32 percent.

The combined ratio for FI was 111.4 percent 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 percent, primarily driven by 190 percent growth at Chubb Re. The combined ratio for the other specialty lines was 87.8 percent. Chubb Personal Insurance (CPI) premiums, which accounted for 24 percent of Chubb’s total premiums, grew 11 percent to $689 million. CPI’s combined ratio was 99.9 percent, compared to 99.0 percent 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 percent from 96.8 percent, driven by improvement in homeowners insurance. The homeowners line grew 14 percent due to rate increases and better insurance to value. The combined ratio was 108.7 percent, which included 18.6 percentage points of catastrophe losses.

Excluding catastrophe losses, the combined ratio was 90.1 percent. Personal automobile insurance grew 7 percent and had a combined ratio of 96.4 percent, while other personal lines, which include valuable articles, excess liability and yacht insurance, grew 7 percent and had a combined ratio of 78.7 percent.

Property and casualty investment income after taxes for the third quarter increased 12.5 percent 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 percent to $619.1 million from $566.5 million.

Topics USA Catastrophe Profit Loss Abuse Molestation Property Casualty Pricing Trends Chubb

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