Annual Report 2001 - Chubb Group of Insurance Companies

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The weighted average discount rate used in determin- At December 31, 2001, future minimum rental paying the actuarial present value of the accumulated postre- ments required under non-cancellable operating leases tirement beneÑt obligation at December 31, 2001 and were as follows: 2000 was 7 1 /4% and 7 1 /2%, respectively. At December 31, Years Ending 2001, the weighted average health care cost trend rate December 31 (in millions) used to measure the accumulated postretirement cost for 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 91.3 medical beneÑts was 10% for 2002 and was assumed to 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 82.1 decrease gradually to 5% for the year 2009 and remain at 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 73.4 that level thereafter. The health care cost trend rate 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 65.0 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 58.6 assumption has a signiÑcant eÅect on the amount of the After 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 349.8 accumulated postretirement beneÑt obligation and the $720.2 net postretirement beneÑt cost reported. To illustrate, a one percent increase or decrease in the trend rate for each year would increase or decrease the accumulated (16) Commitments and Contingent Liabilities postretirement beneÑt obligation at December 31, 2001 (a) CFSI participates in the credit derivatives busiby approximately $22 million and the aggregate of the ness, principally as a counterparty to credit default swaps. service and interest cost components of net postretire- The Corporation has issued unconditional guarantees ment beneÑt cost for the year ended December 31, 2001 with respect to all obligations of CFSI arising from these by approximately $3 million. transactions. (c) The Corporation and its subsidiaries have a sav- Obligations with respect to credit default swaps are ings plan, the Capital Accumulation Plan, in which carried at estimated fair value. At December 31, 2001, substantially all employees are eligible to participate. the fair value of future obligations under credit default Under this plan, the employer makes a matching contri- swaps was $47.9 million. At that date, the aggregate bution equal to 100% of each eligible employee's pre-tax exposure or retained risk, referred to as notional elective contributions, up to 4% of the employee's com- amounts, from open credit default swaps was approxipensation. Contributions are invested at the election of mately $14.3 billion. The notional amounts are used to the employee in the Corporation's common stock or in express the extent of involvement in swap transactions. various other investment funds. Employer contributions Notional amounts are not a quantiÑcation of market risk of $18.6 million, $17.1 million and $15.1 million were or credit risk and are not recorded on the balance sheet. charged against income in 2001, 2000 and 1999, The notional amounts are used to calculate the exchange respectively. of contractual cash Öows and are not necessarily representative of the potential for gain or loss. (15) Leases (b) A property and casualty insurance subsidiary issued The Corporation and its subsidiaries occupy oÇce a reinsurance contract to an insurer that provides facilities under lease agreements that expire at various Ñnancial guarantees on asset-backed transactions. At De- dates through 2019; such leases are generally renewed or cember 31, 2001, the aggregate principal commitments replaced by other leases. In addition, the Corporation's related to the contract for which the subsidiary was subsidiaries lease data processing, oÇce and transportalion, contingently liable amounted to approximately $400 mil- tion equipment. all of which expire by 2023. Most leases contain renewal options for increments ranging from three to Ñve years; certain lease agreements provide for rent increases based on price-level factors. All leases are operating leases. Rent expense was as follows: Years Ended December 31 2001 2000 1999 (in millions) OÇce facilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $82.3 $75.2 $71.0 Equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15.5 14.6 13.4 $97.8 $89.8 $84.4 66
(17) Earnings Per Share Basic earnings per common share is based on net income divided by the weighted average number of common shares outstanding during each year. Diluted earnings per share includes the maximum dilutive eÅect of awards under stock-based compensation plans. The following table sets forth the computation of basic and diluted earnings per share: Years Ended December 31 2001 2000 1999 (in millions except for per share amounts) Basic earnings per share: Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $111.5 $714.6 $621.1 Weighted average number of common shares outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 172.2 174.3 167.7 Basic earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ .65 $ 4.10 $ 3.70 Diluted earnings per share: Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $111.5 $714.6 $621.1 Weighted average number of common shares outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 172.2 174.3 167.7 Additional shares from assumed exercise of stock-based compensation awardsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.6 4.0 2.1 Weighted average number of common shares and potential common shares assumed outstanding for computing diluted earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 175.8 178.3 169.8 Diluted earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ .63 $ 4.01 $ 3.66 In 2001, 2000 and 1999, options to purchase 4.0 million shares, 3.5 million shares and 5.2 million shares of common stock with weighted average exercise prices of $76.27 per share, $68.81 per share and $67.71 per share, respectively, were excluded from the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the Corporation's common stock. For additional disclosure regarding the stock-based compensation awards, see Note (13). (18) Segments Information The property and casualty operations include three reportable underwriting segments and the investment function. The underwriting segments are personal insurance, commercial insurance and specialty insurance. The personal segment targets the personal insurance market. The personal classes include automobile, homeowners and other personal coverages. The commercial segment includes those classes of business that are generally available in broad markets and are of a more commodity nature. Commercial classes include multiple peril, casualty, workers' compensation and property and marine. The specialty segment includes those classes of business that are available in more limited markets since they require specialized underwriting and claim settlement. Specialty classes include executive protection, Ñnancial institutions and other specialty coverages. The property and casualty underwriting segments were changed in 2001 to present results in a manner more consistent with the way the business is now managed. The property and marine business was reclassiÑed from the specialty insurance segment to the commercial insurance segment and some business that was included within executive protection was reclassiÑed to multiple peril. Prior period amounts have been reclassiÑed to conform to the new presentation. Corporate and other includes investment income earned on corporate invested assets, corporate expenses and the results of CFSI and the Corporation's real estate and other non-insurance subsidiaries. The accounting policies of the segments are the same as those described in the summary of signiÑcant accounting policies in Note (1). Performance of the property and casualty underwriting segments is based on underwriting results before deferred policy acquisition costs, amortization of goodwill and certain charges. Investment income performance is based on investment income net of investment expenses, excluding realized investment gains. 67
Page 1 and 2:
THE CHUBB CORPORATION Annual Report
Page 3 and 4:
Dean R. O’Hare, Chairman and Chie
Page 5 and 6:
work in urban areas. Clearly, the a
Page 7 and 8:
We will increase our presence in th
Page 9 and 10:
• Our integrated 31-country branc
Page 11 and 12:
DEFINING THE CHUBB BRAND Branding i
Page 13 and 14:
CHUBB = GLOBAL REACH When you manuf
Page 15 and 16:
CHUBB = THE MASTERPIECE POLICY Many
Page 17 and 18: CHUBB = STABILITY When the National
Page 19 and 20: CHUBB = FINANCIAL STRENGTH Protecti
Page 21 and 22: From southern Europe to Latin Ameri
Page 23 and 24: SUPPLEMENTARY FINANCIAL DATA Proper
Page 25 and 26: MANAGEMENT'S DISCUSSION AND ANALYSI
Page 27 and 28: The pre-tax costs of $645 million r
Page 29 and 30: the wake of heavy insurance industr
Page 31 and 32: a dramatic proliferation of water d
Page 33 and 34: underwriting results were proÑtabl
Page 35 and 36: In spite of the inherent imprecisio
Page 37 and 38: occurred, including both those know
Page 39 and 40: other marketable securities to prov
Page 41 and 42: Changes in unrealized market apprec
Page 43 and 44: At December 31, 2001 Total Estimate
Page 45 and 46: In November 2001, the Corporation s
Page 47 and 48: 1998 1997 1996 1995 1994 1993 1992
Page 49 and 50: 1998 1997 1996 1995 1994 1993 1992
Page 51 and 52: THE CHUBB CORPORATION Consolidated
Page 53 and 54: THE CHUBB CORPORATION Consolidated
Page 55 and 56: (d) Premium Revenues and Related Ex
Page 57 and 58: (3) Acquisitions and Dispositions (
Page 59 and 60: The change in unrealized appreciati
Page 61 and 62: Hazardous waste sites are another s
Page 63 and 64: (c) Interest costs of $55.0 million
Page 65 and 66: (13) Stock-Based Compensation Plans
Page 67: (14) Employee BeneÑts The weighted
Page 71 and 72: (19) Fair Values of Financial Instr
Page 73 and 74: In the event that any person or gro
Page 75 and 76: QUARTERLY FINANCIAL DATA Summarized
Page 77 and 78: CHUBB & SON, a division of Federal
Page 79 and 80: Subsidiaries Property and Casualty
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Annual Report 2001 - Chubb Group of Insurance Companies

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