Annual Report 2005 - Chubb Group of Insurance Companies

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CORPORATE AND OTHER Corporate and other includes investment income earned on corporate invested assets, interest expense and other expenses not allocated to the operating subsidiaries, and the results of our real estate and other non-insurance subsidiaries. It also includes income from our investment in Allied World Assurance Company, Ltd. Corporate and other produced a loss before taxes of $166 million in 2005 compared with losses of $159 million and $157 million in 2004 and 2003, respectively. Corporate and other results were similar in all three years as increases in investment income in 2004 and 2005 were substantially oÅset by increasingly larger losses in our real estate operations. Investment income was higher in 2005 compared with 2004 due to an increase in corporate invested assets resulting primarily from the issuance of common stock under stock-based employee compensation plans. Investment income was higher in 2004 compared with 2003 due to an increase in corporate invested assets resulting primarily from the issuance of debt and equity securities during 2003. In 2004 and 2003, corporate and other results included a loss at The Chubb Institute, Inc., the post secondary educational subsidiary that we sold in September 2004. In both years, the eÅect of this loss was substantially oÅset by income from our investment in Allied World. Income from our investment in Allied World was signiÑcantly lower in 2005 than in the prior two years due to losses from Hurricane Katrina, our share of which was approximately $45 million. Real Estate Real estate operations resulted in a loss before taxes of $41 million in 2005 compared with losses of $25 million in 2004 and $14 million in 2003. These amounts are included in the corporate and other results. During 2005, we committed to a plan to sell a parcel of land in New Jersey that we had previously intended to hold and develop. The decision to sell the property was based on our assessment of the current real estate market and our concern about zoning issues. As a result of our decision to sell this property, we reassessed the recoverability of its carrying value. Based on our reassessment, we recognized an impairment loss of $48 million during the year to reduce the carrying value of the property to its estimated fair value. The higher loss in 2004 compared with 2003 was due primarily to the recognition of impairment losses in 2004 on two commercial properties. Real estate revenues were $115 million in 2005, $70 million in 2004 and $72 million in 2003. In each year, we sold selected commercial properties as well as residential properties. In addition to the aforementioned parcel of land that we plan to sell, we own approximately $160 million of land that we expect will be developed in the future. Our real estate assets also include approximately $145 million of commercial properties and land parcels under lease. The recoverability of the carrying value of our real estate assets, other than the parcel of land that we plan to sell, is assessed based on our ability to fully recover costs through a future revenue stream. The assumptions used reÖect future improvement in demand for oÇce space, an increase in rental rates and the ability and intent to obtain Ñnancing in order to hold and develop such remaining properties and protect our interests over the long term. Management believes that it has made adequate provisions for impairment of real estate assets. However, if the assets are not sold or developed or if leased properties do not perform as presently contemplated, it is possible that additional impairment losses may be recognized that would have a material adverse eÅect on the Corporation's results of operations. 50
REALIZED INVESTMENT GAINS AND LOSSES Net investment gains realized were as follows: Years Ended December 31 2005 2004 2003 (in millions) Net realized gains (losses) on sales Equity securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $237 $225 $75 Fixed maturities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (35) 24 66 Transfer of reinsurance assumed business ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 171 Ì Ì Personal Lines Insurance Brokerage ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16 Ì Ì Chubb Institute ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì (31) Ì 389 218 141 Other-than-temporary impairment Equity securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 Ì 14 Fixed maturities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4 Ì 42 5 Ì 56 Realized investment gains before tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $384 $218 $85 Realized investment gains after tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $248 $146 $55 Of the net realized gains on sales of equity securities, $162 million, $155 million and $35 million in 2005, 2004 and 2003, respectively, related to our share of gains recognized by limited partnerships in which we have an interest. In December 2005, we transferred our ongoing reinsurance business and certain related assets to Harbor Point Limited. We recognized a gain of $171 million on this transaction, which is further discussed under ""Transfer of Ongoing Reinsurance Assumed Business''. In September 2005, we completed the sale of Personal Lines Insurance Brokerage, Inc. Based on the terms of the sale, we recognized a gain of $16 million. In 2004, we sold The Chubb Institute. Under the terms of the sale, we recognized a loss of $31 million. A primary reason for the sale of Ñxed maturities in each of the last three years has been to improve our after-tax portfolio return without sacriÑcing quality where market opportunities have existed to do so. In the fourth quarter of 2005, to reduce our income tax liability, we engaged in a program to sell taxable and tax-exempt Ñxed maturities to generate realized losses to oÅset a portion of the gain related to the Harbor Point transaction. We regularly review those invested assets whose fair value is less than cost to determine if an other-than-temporary decline in value has occurred. In evaluating whether a decline in value of any investment is temporary or other-than-temporary, we consider various quantitative criteria and qualitative factors including the length of time and the extent to which the fair value has been less than the cost, the Ñnancial condition and near term prospects of the issuer, whether the issuer is current on contractually obligated interest and principal payments, our intent and ability to hold the investment for a period of time suÇcient to allow us to recover our cost, general market conditions and industry or sector speciÑc factors. If a decline in the fair value of an individual security is deemed to be otherthan-temporary, the diÅerence between cost and estimated fair value is charged to income as a realized investment loss. The fair value of the investment becomes its new cost basis. 51
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 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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Annual Report 2005 - Chubb Group of Insurance Companies

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