Annual Report 2005 - Chubb Group of Insurance Companies

(11) Stock-Based Employee Compensation Plans An amount equal to the fair market value at the date of
grant of restricted stock unit awards, restricted stock
(a) In 2004, the Corporation adopted the Long-Term awards and performance share awards is expensed over
Stock Incentive Plan (2004), which succeeded the Long- the vesting period. The Corporation granted restricted
Term Stock Incentive Plan (2000). The Long-Term stock unit awards, restricted stock awards and perform-
Stock Incentive Plan (2004), which is similar to the ance share awards with respect to 1,122,263 shares in
2000 plan, provides for the granting of restricted stock 2005, 1,204,025 shares in 2004 and 301,037 shares in
units, restricted stock, performance shares, stock op- 2003. The weighted average fair market value per share
tions, and other stock-based awards to key employees. of such awards was $77.40, $68.41 and $48.58 in 2005,
The maximum number of shares of Chubb's common 2004 and 2003, respectively. The aggregate amount
stock in respect to which stock-based awards may be charged against income with respect to these awards was
granted under the 2004 Plan is 5,800,000 newly autho- $56.9 million, $35.0 million and $17.8 million in 2005,
rized shares, plus any shares remaining available for 2004 and 2003, respectively.
issuance under the 2000 Plan. At December 31, 2005,
5,954,000 shares were available for grant under the 2004 Stock options are granted at exercise prices not less
Plan.
than the fair market value of Chubb's common stock on
the date of grant. The terms and conditions upon which
During 2004, the Corporation changed the emphasis
options become exercisable may vary among grants. Opof
its equity compensation program from stock options
tions expire no later than ten years from the date of
to other equity awards.
grant.
Restricted stock unit awards are payable in cash, in
shares of Chubb's common stock, or in a combination of An amount equal to the fair market value of stock
both. Restricted stock unit awards are not considered to options at the date of grant is expensed over the period
be outstanding shares of common stock, have no voting that such options become exercisable. The amount
rights and are subject to forfeiture during the restriction charged against income with respect to stock options was
period. Holders of restricted stock unit awards may $9.0 million, $29.0 million and $56.0 million in 2005,
receive dividend equivalents. Restricted stock awards 2004 and 2003, respectively. The weighted average fair
consist of shares of Chubb's common stock granted at no value of stock options granted during 2005, 2004 and
cost to the employees. Shares of restricted stock become 2003 was $15.11, $15.00 and $9.71, respectively. The fair
outstanding when granted, receive dividends and have value of each stock option was estimated on the date of
voting rights. The shares are subject to forfeiture and to grant using the Black-Scholes option pricing model with
restrictions that prevent their sale or transfer during the the following weighted average assumptions.
restriction period. Performance share awards are based
2005 2004 2003
on the achievement of performance goals over perform-
Risk-free interest rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.0% 3.4% 2.9%
ance cycle periods. Performance share awards are payable Expected volatilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22.1% 25.9% 28.0%
in cash, in shares of Chubb's common stock or in a Dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.0% 2.2% 3.1%
combination of both. Expected average term (in years)ÏÏÏÏÏÏ 3.5 4.2 5.5
Additional information with respect to stock options is as follows:
2005 2004 2003
Number Weighted Average Number Weighted Average Number Weighted Average
of Shares Exercise Price of Shares Exercise Price of Shares Exercise Price
Outstanding, beginning of year ÏÏÏÏÏÏÏÏÏ 17,741,298 $62.65 22,032,594 $60.87 19,855,186 $63.51
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 379,291 85.48 179,579 71.73 4,326,225 46.90
ExercisedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (9,265,879) 60.17 (3,994,258) 52.60 (1,031,414) 47.65
ForfeitedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (176,812) 67.85 (476,617) 68.12 (1,117,403) 65.88
Outstanding, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,677,898 66.19 17,741,298 62.65 22,032,594 60.87
Exercisable, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,555,486 66.09 15,650,019 64.57 16,176,926 63.01
December 31, 2005
Options Outstanding
Options Exercisable
Weighted Average
Range of Number Weighted Average Remaining Number Weighted Average
Option Exercise Prices Outstanding Exercise Price Contractual Life Exercisable Exercise Price
$16.21 Ì$48.75 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,012,144 $46.85 5.6 2,012,144 $46.85
54.55 Ì 71.00 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,132,720 65.19 4.3 3,074,547 65.11
71.11 Ì 98.01 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,533,034 78.09 4.2 3,468,795 78.12
8,677,898 66.19 4.6 8,555,486 66.09
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