Annual Report 2005 - Chubb Group of Insurance Companies

(8) Debt and Credit Arrangements
The 7 1 /8% notes are obligations of Chubb Executive
(a) Long term debt consisted of the following: Risk Inc., a wholly owned subsidiary, and are fully and
December 31
unconditionally guaranteed by Chubb.
2005 2004 Executive Risk Capital Trust, wholly owned by Chubb
(in millions) Executive Risk, has outstanding $125 million of 8.675%
MortgagesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ Ì $ 42.3 capital securities. The Trust in turn used the proceeds
6.15% notes due August 15, 2005 ÏÏÏÏÏÏÏÏÏÏÏ Ì 300.0 from the issuance of the capital securities to acquire
4.934% notes due November 16, 2007* ÏÏÏÏÏÏ 600.0 600.0
$125 million of Chubb Executive Risk 8.675% junior
7±% notes due December 15, 2007ÏÏÏÏÏÏÏÏÏÏ 75.0 75.0
3.95% notes due April 1, 2008ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 225.0 225.0 subordinated deferrable interest debentures due Febru-
2.25% notes due August 16, 2008 ÏÏÏÏÏÏÏÏÏÏÏ 460.0 460.0 ary 1, 2027. The sole assets of the Trust are the deben-
6% notes due November 15, 2011 ÏÏÏÏÏÏÏÏÏÏÏ 400.0 400.0 tures. The debentures and the related income eÅects are
5.2% notes due April 1, 2013ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 275.0 275.0 eliminated in the consolidated Ñnancial statements. The
6.6% debentures due August 15, 2018 ÏÏÏÏÏÏÏ 100.0 100.0
8.675% capital securities due February 1, 2027 ÏÏ 125.0 125.0 capital securities are subject to mandatory redemption on
6.8% debentures due November 15, 2031ÏÏÏÏÏ 200.0 200.0 February 1, 2027, upon repayment of the debentures.
2,460.0 2,802.3 The capital securities are also subject to mandatory re-
Fair value of interest rate swapÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7.3 11.4 demption in certain other speciÑed circumstances begin-
$2,467.3 $2,813.7 ning in 2007 at a redemption price that includes a make
whole premium through 2017 and at par thereafter.
*These notes bore an interest rate of 4% at December 31, 2004. The Chubb Executive Risk has the right, at any time, to defer
interest rate was reset to 4.934% in August 2005 pursuant to the payments of interest on the debentures and hence distriremarketing
of these notes as described below.
butions on the capital securities for a period not exceeding
In November 2002, Chubb issued $600 million of
ten consecutive semi-annual periods up to the
unsecured 4% senior notes due November 16, 2007 and maturity dates of the respective securities. During any
24 million mandatorily exercisable warrants to purchase such period, interest will continue to accrue and Chubb
Chubb's common stock. The notes and warrants were Executive Risk may not declare or pay any dividends.
issued together in the form of 7% equity units. Each The capital securities are unconditionally and on a subor-
equity unit initially represented one warrant and $25 dinated basis guaranteed by Chubb.
principal amount of notes. In August 2005, the notes
Chubb is a party to a cancelable interest rate swap
were successfully remarketed as required by their terms.
agreement with a notional amount of $125 million that
The interest rate on the notes was reset to 4.934%, from
replaces the Ñxed rate of the capital securities with the
4%, eÅective August 16, 2005. The remarketed notes are
3-month LIBOR rate plus 204 basis points. The swap
due on November 16, 2007. The warrants are further
agreement provides only for the exchange of interest on
described in Note (18)(b).
the notional amount. The interest rate swap matures in
In June 2003, Chubb issued $460 million of unsecured February 2027. The fair value of the swap is included in
2.25% senior notes due August 16, 2008 and 18.4 million other assets, oÅset by a corresponding increase to long
purchase contracts to purchase Chubb's common stock. term debt.
The notes and purchase contracts were issued together
in the form of 7% equity units. Each equity unit initially
The amounts of long term debt due annually during
represents one purchase contract and $25 principal
the Ñve years subsequent to December 31, 2005 are as
amount of notes. The notes are pledged by the holders to
follows:
secure their obligations under the purchase contracts. Years Ending
Chubb will make quarterly interest payments to the hold- December 31
ers of the notes initially at a rate of 2.25% per year. The
(in millions)
2.25% notes will be remarketed in May 2006. At that 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ Ì
time, the remarketing agent will have the ability to reset 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 675.0
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 685.0
the interest rate on the notes in order to generate
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
suÇcient remarketing proceeds to satisfy the holder's 2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
obligation under the purchase contract. If the notes are
not successfully remarketed, Chubb will exercise its Chubb Ñled a shelf registration statement which the
rights as a secured party to obtain and extinguish the Securities and Exchange Commission declared eÅective
notes and deliver its common stock to the holders in June 2003, under which up to $2.5 billion of various
pursuant to the purchase contracts. The purchase conapproximately
$650 million remained under the
types of securities may be issued. At December 31, 2005,
tracts are further described in Note (18)(c).
shelf.
The 3.95% notes, the 6% notes, the 5.2% notes, the
6.6% debentures and the 6.8% debentures are all unsecured
obligations of Chubb.
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