Annual Report 2005 - Chubb Group of Insurance Companies

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loss ratio. Losses from catastrophes were $270 million in 2004, which represented 2.3 percentage points of the loss ratio, and $294 million or 2.9 percentage points in 2003. The 2004 catastrophe loss amount reÖects an $80 million reduction in loss reserves related to the September 11, 2001 attack, which reduced the impact of catastrophes on the loss ratio for the year by 0.7 of a percentage point. Other than the reinsurance recoverable related to Hurricane Katrina, we did not have any recoveries from our catastrophe reinsurance program during the three year period because there were no other individual catastrophes for which our losses exceeded our initial retention under the program. Incurred losses related to asbestos claims were $35 million in 2005, $75 million in 2004 and $250 million in 2003, which represented 0.3, 0.6 and 2.5 percentage points, respectively, of the loss ratio. Our expense ratio improved in 2004 and again in 2005. The lower expense ratio in 2004 was due to premiums written growing at a higher rate than overhead expenses, as we made progress in reducing our expense structure, and to lower contingent commission expenses. The decrease in contingent commissions in 2004 was due to two factors that reduced producer compensation. First, we did not pay contingent commissions in the fourth quarter to those large brokers who elected to terminate such arrangements before year end. Second, the slowdown of premium growth in the second half of the year resulted in lower compensation to other producers whose commissions, in part, were contingent on the volume of business placed with us. The decrease in the expense ratio in 2005 was due to lower contingent commission expenses and, to a lesser extent, Öat overhead expenses compared with 2004, as we continued to make progress in reducing our cost structure through outsourcing and other initiatives, and the discontinuation of a professional liability per risk reinsurance treaty, which resulted in an increase in net premiums written without a commensurate increase in expenses. Review of Underwriting Results by Business Unit Personal Insurance Net premiums from personal insurance, which represented 27% of the premiums written by our property and casualty subsidiaries in 2005, increased by 6% in 2005 compared with a 9% increase in 2004. Net premiums written for the classes of business within the personal insurance segment were as follows: Years Ended December 31 % Increase % Increase 2005 2005 vs. 2004 2004 2004 vs. 2003 2003 (dollars in millions) Automobile ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 645 2% $ 629 7% $ 590 HomeownersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,104 8 1,951 10 1,777 Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 558 4 536 7 501 Total personalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $3,307 6 $3,116 9 $2,868 In both 2005 and 2004, premium growth was driven by our homeowners business. The growth in our homeowners business in both years was due to increased insurance-to-value and, to a lesser extent, higher rates. The in-force policy count for this class had minimal growth in both years. Homeowners premiums in 2005 were reduced by reinsurance reinstatement premium costs of $17 million related to Hurricane Katrina. The low growth in our personal automobile business in 2005 was due to our maintaining underwriting discipline in a more competitive marketplace. Growth in our other personal business, which includes insurance for excess liability, yacht and accident coverages, was lower in 2005 than in the prior year. This was attributable to lower premiums in our U.S. accident business due to increased competition and the culling of our health care business. 30
Our personal insurance business produced proÑtable underwriting results in each of the last three years. Overall results have shown substantial improvement in each succeeding year, driven largely by our homeowners results. The combined loss and expense ratios for the classes of business within the personal insurance segment were as follows: Years Ended December 31 2005 2004 2003 AutomobileÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 95.3% 93.3% 98.9% Homeowners ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 81.2 91.3 98.8 Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 96.2 96.0 91.0 Total personal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 86.6% 92.5% 97.4% Homeowners results were proÑtable in each of the last three years and showed signiÑcant improvement in 2004 and again in 2005. The improvement was largely the result of better pricing and a reduction in water damage losses primarily through contract wording changes related to mold damage and loss remediation measures that we have implemented over the past few years. Results in 2005 also beneÑted from lower catastrophe losses. The impact of catastrophes accounted for 9.8 percentage points of the combined loss and expense ratio for this class in 2005 compared with 12.6 percentage points in 2004 and 11.2 percentage points in 2003. Our personal automobile results were proÑtable in each of the past three years. Results in 2005 were slightly less proÑtable than in 2004 due to reserve strengthening in the liability component related to prior accident years. The improvement in 2004 was due to lower claim frequency and stable loss severity as well as modest rate increases. Other personal business produced proÑtable results in each of the past three years. Results in 2005 and 2004 were less proÑtable than those in 2003 due to higher losses in the excess liability and yacht components in both years. The yacht losses in 2005 were primarily related to catastrophes. Our accident business was proÑtable in all three years. Commercial Insurance Net premiums from commercial insurance, which represented 41% of our total writings in 2005, increased by 2% in 2005 compared with an 11% increase in 2004. Net premiums written for the classes of business within the commercial insurance segment were as follows: Years Ended December 31 % Increase % Increase 2005 2005 vs. 2004 2004 2004 vs. 2003 2003 (dollars in millions) Multiple peril ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,286 (1)% $1,302 10% $1,188 Casualty ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,755 4 1,682 14 1,476 Workers' compensation ÏÏÏÏÏÏÏÏÏÏÏÏ 930 5 881 18 749 Property and marine ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,059 (1) 1,073 2 1,055 Total commercial ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $5,030 2 $4,938 11 $4,468 Growth in 2004 occurred in all segments of this business but was particularly strong in the workers' compensation and casualty classes. The premium growth was due in large part to higher rates as well as an increase in our in-force policy count. However, as expected, the level of rate increases declined throughout 2004 as we experienced more competition in the marketplace, particularly in the property classes. The low growth in 2005 was the result of increased competition in the marketplace. Rates decreased slightly in 2005 compared with 2004. Multiple peril and property and marine premiums in 2005 were reduced by reinsurance reinstatement premium costs of $19 million and $66 million, respectively, related to Hurricane Katrina. Excluding the reinsurance reinstatement 31
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 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 100 and 101: In 2005, the Corporation transferre
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
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