Annual Report 2001 - Chubb Group of Insurance Companies

(3) Acquisitions and Dispositions
(4) SigniÑcant Losses
(a) In July 1999, the Corporation completed its acquilion
were incurred related to the September 11 attack in
(a) In the third quarter of 2001, net costs of $645 milsition
of Executive Risk Inc., a specialty insurance comthe
United States. The net costs consisted of estimated
pany oÅering directors and oÇcers, errors and omissions
and professional liability coverages.
net claims and claim expenses of $665 million less net
reinsurance reinstatement premium revenue of $30 million
plus a $10 million charge for the Corporation's
Executive Risk shareholders received 1.235 shares of
the Corporation's common stock for each outstanding share of the losses publicly estimated by Hiscox.
common share of Executive Risk. In addition, outstand-
Gross claims and claim expenses of the property and
ing Executive Risk stock options were assumed and
casualty insurance subsidiaries from the September 11
adjusted as options to purchase common stock of the
attack are estimated at about $3 billion. Most of the
Corporation. Approximately 14.3 million shares of comclaims
were from property exposure and business intermon
stock of the Corporation were issued to Executive
ruption losses. There were also signiÑcant workers' com-
Risk shareholders and an additional 1.8 million shares of
pensation losses. The net claims and claim expenses of
common stock of the Corporation were reserved for
$665 million were signiÑcantly lower than the gross
issuance upon exercise of the assumed Executive Risk
amount due to various reinsurance agreements. The
stock options.
property exposures were protected by facultative reinsurance,
a property per risk treaty that limited the net loss
The acquisition has been accounted for using the
purchase method of accounting. Therefore, the results of
per risk, and a property catastrophe treaty. Workers'
operations of Executive Risk are included in the Corpotrophe
treaty and a casualty clash treaty.
compensation losses were protected by a casualty catas-
ration's consolidated results of operations from the date
of acquisition. The assets and liabilities of Executive Risk While it is possible that the estimated ultimate net
were recorded at their estimated fair values at the date of losses related to the September 11 attack may change in
acquisition. The value of the stock options assumed by the future, management does not expect that any such
the Corporation was included in the purchase price. The change would have a material eÅect on the Corporation's
total purchase price was approximately $832 million. The Ñnancial condition.
excess of the purchase price over the estimated fair value
of the net assets acquired, amounting to approximately (b) In the fourth quarter of 2001, surety bond losses
$517 million, has been recorded as goodwill and is being of $220 million, net of reinsurance, were recognized
amortized using an expected useful life of 26 years. related to the bankruptcy of Enron Corp. The surety
Beginning in 2002, the remaining goodwill will no longer losses represent the maximum exposure of the property
be amortized (see Note (1)(n)).
and casualty insurance subsidiaries relating to bonds
issued to various obligees in connection with Enron
Pro forma results of operations showing the eÅects on commitments. However, certain of these bonds are the
the Corporation's operations prior to the date of acquisi- subject of litigation. Management believes there are reation
have not been presented due to immateriality. sonable grounds for challenging the validity of the obligations
under the bonds that are the subject of the
(b) In March 1999, the Corporation purchased a 28% litigation and intends to pursue the litigation vigorously.
interest in Hiscox plc, a U.K. personal and commercial If the Corporation is successful in the litigation, any
specialty insurer, for approximately $145 million.
favorable development would be reÖected in future operating
results.
(c) In November 2001, the Corporation acquired a
19% interest in Allied World Assurance Holdings, Ltd, a
newly formed Bermuda-based company, for approximately
$250 million. Allied World Assurance was established
to underwrite insurance and reinsurance business
worldwide.
(d) In September 2000, the Corporation sold its 50%
interest in Associated Aviation Underwriters, Inc.
(AAU). The consideration from the sale was $65 million,
consisting of a base purchase price of $55 million
and a non-compete payment of $10 million.
55