Annual Report 2005 - Chubb Group of Insurance Companies

More documents

Recommendations

Info

In 2005, the Corporation transferred its ongoing reinsurance assumed business and certain related assets to Harbor Point Limited (see Note (2)). In exchange, the Corporation received from Harbor Point $200 million of 6% convertible notes and warrants to purchase common stock of Harbor Point. (i) Property and Equipment Property and equipment used in operations, including certain costs incurred to develop or obtain computer software for internal use, are capitalized and carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. (j) Income Taxes Chubb and its domestic subsidiaries Ñle a consolidated federal income tax return. Deferred income tax assets and liabilities are recognized for the expected future tax effects attributable to temporary differences between the financial reporting and tax bases of assets and liabilities, based on enacted tax rates and other provisions of tax law. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in income in the period in which such change is enacted. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax assets will not be realized. The Corporation does not consider the earnings of its foreign subsidiaries to be permanently reinvested. Accordingly, provision has been made for the expected U.S. federal income tax liabilities applicable to undistributed earnings of foreign subsidiaries. (k) Stock-Based Employee Compensation The fair value method of accounting is used for stockbased employee compensation plans. Under the fair value method, compensation cost is measured based on the fair value of the award at the grant date and recognized over the service period. (l) Foreign Exchange Assets and liabilities relating to foreign operations are translated into U.S. dollars using current exchange rates as of the balance sheet date. Revenues and expenses are translated into U.S. dollars using the average exchange rates during the year. The functional currency of foreign operations is generally the currency of the local operating environment since business is primarily transacted in such local currency. Translation gains and losses, net of applicable income tax, are excluded from net income and are credited or charged directly to a separate component of comprehensive income. (m) Cash Flow Information In the statement of cash Öows, short term investments are not considered to be cash equivalents. The eÅect of changes in foreign exchange rates on cash balances was immaterial. In 2005, a mortgage payable of $41.6 million was assumed by an unaÇliated joint venture in connection with the disposition of the Corporation's interest in a variable interest entity in which it was the primary beneÑciary. These noncash transactions have been excluded from the consolidated statement of cash Öows. (n) Accounting Pronouncements Not Yet Adopted In November 2005, the Financial Accounting Stan- dards Board (FASB) issued FASB StaÅ Position (FSP) Nos. 115-1 and 124-1, The Meaning of Other-Than- Temporary Impairment and Its Application to Certain Investments. The FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. The FSP clariÑes that an investor shall recognize an impairment loss when the impairment is deemed to be other-than-temporary even if a decision to sell the impaired security has not been made. FSP Nos. 115-1 and 124-1 nulliÑes certain requirements and carries forward other requirements of Emerging Issues Task Force (EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The guidance in the FSP is eÅective for the Corporation for the year beginning January 1, 2006. The implementation of the FSP is not expected to have a signiÑcant eÅect on the Corporation's Ñnancial position or results of operations. In December 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment, which revised SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) requires companies to adopt the fair value method of accounting for stock-based employee compensation plans. In April 2005, the Securities and Exchange Commission delayed the eÅective date for compliance with SFAS No. 123(R). As a result, the provisions of SFAS No. 123(R) are now eÅective for the Corporation for the year beginning January 1, 2006. The fair value method of accounting for stock-based employee compensation plans as deÑned in SFAS No. 123(R) is similar in most respects to the fair value method deÑned in SFAS No. 123. Since the Corporation has already adopted the fair value method of accounting for stock-based employee compensation plans, the adoption of SFAS No. 123(R) is not expected to have a signiÑcant eÅect on the Corporations's Ñnancial position or results of operations. F-9
(2) Transfer of Ongoing Reinsurance Assumed Business Other than pursuant to certain arrangements entered into with Harbor Point, the P&C Group will generally In December 2005, the Corporation completed a no longer engage directly in the reinsurance assumed transaction involving a new Bermuda based reinsurance business. Harbor Point will have the right for a transition company, Harbor Point Limited. period of up to two years to underwrite speciÑc reinsurance business on the P&C Group's behalf. The P&C As part of the transaction, the Corporation transferred Group will retain a portion of this business and will cede its ongoing reinsurance assumed business and certain the balance to Harbor Point in return for a fronting related assets, including renewal rights, to Harbor Point. commission. In exchange, the Corporation received from Harbor Point $200 million of 6% convertible notes and warrants The transaction resulted in a pre-tax gain of to purchase common stock of Harbor Point. The notes $204.2 million, of which $171.0 million was recognized and warrants represent in the aggregate on a fully diluted in 2005 and $33.2 million was deferred. The portion of basis approximately 16% of the new company. the gain that was deferred was based on the Corpora- tion's economic interest in Harbor Point. Harbor Point generally did not assume the reinsurance liabilities relating to reinsurance contracts incepting prior to December 31, 2005. Those liabilities and the related assets were retained by the P&C Group. (3) Invested Assets and Related Income (a) The amortized cost and estimated market value of Ñxed maturities were as follows: The Corporation will receive additional payments over the next two years based on the amount of P&C Group business renewed by Harbor Point. The Corporation will recognize these amounts in income when earned. December 31 2005 2004 Gross Gross Estimated Gross Gross Estimated Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Cost Appreciation Depreciation Value Cost Appreciation Depreciation Value (in millions) Held-to-maturity Ì Tax exempt ÏÏÏÏÏÏÏ $ 204.6 $ 11.2 $ Ì $ 215.8 $ 317.2 $ 21.1 $ Ì $ 338.3 Available-for-sale Tax exemptÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15,448.5 362.0 61.0 15,749.5 13,522.6 570.2 21.5 14,071.3 Taxable U.S. Government and government agency and authority obligations ÏÏÏ 2,769.9 5.7 17.2 2,758.4 2,804.7 13.6 13.6 2,804.7 Corporate bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,608.3 56.4 34.6 2,630.1 2,437.9 107.3 11.4 2,533.8 Foreign bondsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,747.0 107.1 16.7 4,837.4 4,353.6 125.8 7.2 4,472.2 Mortgage-backed securities ÏÏÏÏÏÏÏÏ 4,350.1 33.8 81.5 4,302.4 3,711.3 71.6 28.6 3,754.3 Redeemable preferred stocks ÏÏÏÏÏÏ 40.5 Ì .4 40.1 55.2 .7 .1 55.8 14,515.8 203.0 150.4 14,568.4 13,362.7 319.0 60.9 13,620.8 Total available-for-sale ÏÏÏÏÏÏÏÏÏÏ 29,964.3 565.0 211.4 30,317.9 26,885.3 889.2 82.4 27,692.1 Total Ñxed maturitiesÏÏÏÏÏÏÏÏÏÏÏ $30,168.9 $576.2 $211.4 $30,533.7 $27,202.5 $910.3 $82.4 $28,030.4 The amortized cost and estimated market value of Ñxed maturities at December 31, 2005 by contractual maturity were as follows: Estimated Amortized Cost Market Value (in millions) Held-to-maturity Due in one year or less ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 40.1 $ 40.4 Due after one year through Ñve years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 108.7 112.4 Due after Ñve years through ten years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 46.5 52.9 Due after ten years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9.3 10.1 $ 204.6 $ 215.8 Available-for-sale Due in one year or less ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,058.2 $ 1,061.7 Due after one year through Ñve years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,791.6 6,845.4 Due after Ñve years through ten years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,273.9 9,449.5 Due after ten years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,490.5 8,658.9 25,614.2 26,015.5 Mortgage-backed securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,350.1 4,302.4 $29,964.3 $30,317.9 Actual maturities could diÅer from contractual maturities because borrowers may have the right to call or prepay obligations. F-10
Page 1 and 2:
THE CHUBB CORPORATION Annual Report
Page 3 and 4:
Letter to Shareholders John D. Finn
Page 5 and 6:
Letter to Shareholders John J. Degn
Page 7 and 8:
Letter to Shareholders With the imp
Page 9 and 10:
Letter to Shareholders • In Janua
Page 11 and 12:
Featured in this year’s report ar
Page 13 and 14:
California From the moment they dec
Page 15:
Pennsylvania Among acoustic guitari
Page 18 and 19:
Canada Ellen Moore, Canada Aglobal
Page 20 and 21:
Nebraska Timothy Szerlong, U.S. Nor
Page 22 and 23:
Employee Profiles Meet six Chubb ma
Page 24 and 25:
Chubb & Son, a division of Federal
Page 26 and 27:
The Chubb Corporation Directors Zo
Page 28 and 29:
CONTENTS ITEM DESCRIPTION PAGE PART
Page 30 and 31:
Indemnity), Executive Risk Specialt
Page 32 and 33:
those reinsurers with strong balanc
Page 34 and 35:
ANALYSIS OF LOSS AND LOSS ADJUSTMEN
Page 36 and 37:
that is of value to the insured. Th
Page 38 and 39:
Another area of potential regulatio
Page 40 and 41:
However, there are inherent limitat
Page 42 and 43:
Intense competition for our product
Page 44 and 45:
Purported class actions arising out
Page 46 and 47:
PART II. Item 5. Market for the Reg
Page 48 and 49:
Item 7. Management's Discussion and
Page 50 and 51: ‚the eÅects of disclosures by, a
Page 52 and 53: PROPERTY AND CASUALTY INSURANCE A s
Page 54 and 55: Net premiums written by business un
Page 56 and 57: loss ratio. Losses from catastrophe
Page 58 and 59: premiums, multiple peril premiums w
Page 60 and 61: Our specialty insurance business pr
Page 62 and 63: District of New York. We are cooper
Page 64 and 65: Our loss reserves include signiÑca
Page 66 and 67: We regularly review the loss reserv
Page 68 and 69: theory, insurance coverage is deeme
Page 70 and 71: The following table presents the nu
Page 72 and 73: alance sheets and superior underwri
Page 74 and 75: On an after-tax basis, property and
Page 76 and 77: CORPORATE AND OTHER Corporate and o
Page 78 and 79: The writedowns of Ñxed maturities
Page 80 and 81: Ratings Chubb and its insurance sub
Page 82 and 83: The above table also excludes estim
Page 84 and 85: At December 31, 2004 Total Estimate
Page 86 and 87: Item 8. Consolidated Financial Stat
Page 88 and 89: PART III. Item 10. Directors and Ex
Page 90 and 91: SIGNATURES Pursuant to the requirem
Page 92 and 93: THE CHUBB CORPORATION INDEX TO FINA
Page 94 and 95: THE CHUBB CORPORATION Consolidated
Page 96 and 97: THE CHUBB CORPORATION Consolidated
Page 98 and 99: NOTES TO CONSOLIDATED FINANCIAL STA
Page 102 and 103: (b) The components of unrealized ap
Page 104 and 105: (7) Unpaid Losses and Loss Expenses
Page 106 and 107: In establishing toxic waste reserve
Page 108 and 109: (b) Interest costs of $134.8 millio
Page 110 and 111: (11) Stock-Based Employee Compensat
Page 112 and 113: The following table sets forth the
Page 114 and 115: (13) Commitments and Contingent Lia
Page 116 and 117: Revenues, income before income tax
Page 118 and 119: (17) Fair Values of Financial Instr
Page 120 and 121: In the event that any person or gro
Page 122 and 123: THE CHUBB CORPORATION Schedule I CO
Page 124 and 125: THE CHUBB CORPORATION Schedule II (
Page 126 and 127: THE CHUBB CORPORATION Schedule III
Page 128 and 129: Exhibit Number THE CHUBB CORPORATIO
Page 130 and 131: Exhibit Number Description 10.18 Am
Page 132 and 133: Exhibit Number Description 10.44 Fo
Page 134 and 135: Exhibit 23.1 THE CHUBB CORPORATION
Page 136 and 137: Exhibit 31.2 I, Michael O'Reilly, c
Page 138 and 139: Exhibit 32.2 CERTIFICATION OF PERIO
Page 140: The Chubb Corporation • Annual Re
show all

Annual Report 2005 - Chubb Group of Insurance Companies

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?