Annual Report 2005 - Chubb Group of Insurance Companies

(b) The Corporation has a Stock Purchase Plan
(12) Employee BeneÑts
under which substantially all employees are eligible to
purchase shares of Chubb's common stock at a Ñxed (a) The Corporation has several non-contributory
price at the end of the oÅering period. The price is deÑned beneÑt pension plans covering substantially all
determined on the date the purchase rights are granted employees. Prior to 2001, beneÑts were generally based
and the oÅering period cannot exceed 27 months. The on an employee's years of service and average compensa-
number of shares an eligible employee may purchase is tion during the last Ñve years of employment. EÅective
based on the employee's compensation.
January 1, 2001, the Corporation changed the formula
for providing pension beneÑts from the Ñnal average pay
An amount equal to the fair market value of purchase formula to a cash balance formula. Under the cash
rights at the date of grant is expensed over the oÅering balance formula, a notional account is established for
period. In 2002, the Corporation granted purchase rights each employee, which is credited semi-annually with an
with respect to 1,661,587 shares. The weighted average amount equal to a percentage of eligible compensation
fair market value per share of such purchase rights was based on age and years of service plus interest based on
$14.69. The amount charged against income with respect the account balance. Employees hired prior to 2001 will
to such purchase rights was $3.6 million and $10.3 mil- generally be eligible to receive vested beneÑts based on
lion in 2004 and 2003, respectively. No purchase rights the higher of the Ñnal average pay or cash balance
have been granted since 2002.
formulas.
(c) The Corporation had a leveraged Employee Stock
Ownership Plan (ESOP) in which substantially all emamounts
that meet regulatory requirements plus addi-
The Corporation's funding policy is to contribute
ployees were eligible to participate. At its inception in
1989, the ESOP used the proceeds of a $150.0 million tional amounts determined by management based on
loan from Chubb to purchase 7,792,204 newly issued actuarial valuations, current market conditions and other
shares of Chubb's common stock. The loan, which bore factors. This may result in no contribution being made in
interest at 9%, was due in September 2004. The receivable
a particular year.
from the ESOP, which was recorded as a separate
reduction of shareholders' equity on the consolidated The Corporation also provides certain other postrebalance
sheets, was reduced as repayments were made on tirement beneÑts, principally health care and life insur-
the loan principal.
ance, to retired employees and their beneÑciaries and
covered dependents. Substantially all employees hired
Chubb and its participating subsidiaries made semi- before January 1, 1999 may become eligible for these
annual contributions to the ESOP. The contributions, beneÑts upon retirement if they meet minimum age and
together with the dividends on the shares of common years of service requirements. Health care coverage is
stock in the ESOP, were used by the ESOP to make loan contributory. Retiree contributions vary based upon a
interest and principal payments to Chubb. As interest retiree's age, type of coverage and years of service with
and principal were paid, a portion of the common stock the Corporation. Life insurance coverage is nonwas
allocated to eligible employees. As of September 30, contributory.
2004, the loan was fully paid and all common shares held
by the ESOP were allocated. During the fourth quarter
In 2004, the Corporation began to fund a portion of
of 2004, the ESOP was merged into the Corporation's
the health care beneÑts obligation where such funding
Capital Accumulation Plan.
could be accomplished on a tax eÅective basis. Previously,
The Corporation used the cash payment method of the Corporation did not fund these beneÑts in advance.
recognizing ESOP expense. Cash contributions to the BeneÑts are paid as covered expenses are incurred.
ESOP of $13.1 million in 2004 and $11.2 million in 2003
were charged against income. Dividends on shares of The Corporation uses December 31 as the measurecommon
stock in the ESOP used for debt service were ment date for its pension and other postretirement bene-
$5.9 million for 2004 and $7.7 million for 2003. Ñt plans.
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