Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CB > SEC Filings for CB > Form 10-Q on 8-May-2014All Recent SEC Filings

Show all filings for CHUBB CORP

Form 10-Q for CHUBB CORP


8-May-2014

Quarterly Report


Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition of the Corporation as of March 31, 2014 compared with December 31, 2013 and the results of operations for the quarters ended March 31, 2014 and 2013. This discussion should be read in conjunction with the condensed consolidated financial statements and related notes contained in this report and the consolidated financial statements and related notes and management's discussion and analysis of financial condition and results of operations included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2013.

Cautionary Statement Regarding Forward-Looking Information

Certain statements in this document are "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements are made pursuant to the safe harbor provisions of the PSLRA and include statements regarding market conditions in 2014, including premium volume, rate trends, the pricing environment and competition; the cost of our property reinsurance program in 2014; our loss reserve and reinsurance recoverable estimates; the repurchase of common stock under our share repurchase program; and our financial position, capital adequacy and funding of liquidity needs. Forward-looking statements frequently can be identified by words such as "believe," "expect," "anticipate," "intend," "plan," "will," "may," "should," "could," "would," "likely," "estimate," "predict," "potential," "continue," or other similar expressions. Forward-looking statements are made based upon management's current expectations and beliefs concerning trends and future developments and their potential effects on us. These statements are not guarantees of future performance. Actual results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties, which include, among others, those discussed or identified in our Annual Report on Form 10-K for the year ended December 31, 2013 and from time to time in our other public filings with the Securities and Exchange Commission and those associated with:

global political, economic and market conditions, particularly in the jurisdictions in which we operate and/or invest, including:

- changes in credit ratings, interest rates, market credit spreads and the performance of the financial markets;

- currency fluctuations;

- the effects of inflation;

- changes in domestic and foreign laws, regulations and taxes;

- changes in competition and pricing environments;

- regional or general changes in asset valuations;

- the inability to reinsure certain risks economically; and

- changes in the litigation environment;

the effects of the outbreak or escalation of war or hostilities;

the occurrence of terrorist attacks, including any nuclear, biological, chemical or radiological events;


Table of Contents

Page 20

premium pricing and profitability or growth estimates overall or by lines of business or geographic area, and related expectations with respect to the timing and terms of any required regulatory approvals;

adverse changes in loss cost trends;

our ability to retain existing business and attract new business at acceptable rates;

our expectations with respect to cash flow and investment income and with respect to other income;

the adequacy of our loss reserves, including:

- our expectations relating to reinsurance recoverables;

- the willingness of parties, including us, to settle disputes;

- developments in judicial decisions or regulatory or legislative actions relating to coverage and liability, in particular, for asbestos, toxic waste and other mass tort claims;

- development of new theories of liability;

- our estimates relating to ultimate asbestos liabilities; and

- the impact from the bankruptcy protection sought by various asbestos producers and other related businesses;

the availability and cost of reinsurance coverage;

the occurrence of significant weather-related or other natural or human-made disasters, particularly in locations where we have concentrations of risk or changes to our estimates (or the assessments of rating agencies and other third parties) of our potential exposure to such events;

the impact of economic factors on companies on whose behalf we have issued surety bonds, and in particular, on those companies that file for bankruptcy or otherwise experience deterioration in creditworthiness;

the effects of disclosures by, and investigations of, companies we insure, particularly with respect to our lines of business that have a longer time span, or tail, between the incidence of a loss and the settlement of the claim;

the impact of legislative, regulatory, judicial and similar developments on companies we insure, particularly with respect to our longer tail lines of business;

the impact of legislative, regulatory, judicial and similar developments on our business, including those relating to insurance industry reform, terrorism, catastrophes, the financial markets, solvency standards, capital requirements, accounting guidance and taxation;

any downgrade in our claims-paying, financial strength or other credit ratings;


Table of Contents

Page 21

the ability of our subsidiaries to pay us dividends;

our plans to repurchase shares of our common stock, including as a result of changes in:

- our financial position and financial results;

- our capital position and/or capital adequacy levels required to maintain our existing ratings from independent rating agencies;

- our share price;

- investment opportunities;

- opportunities to profitably grow our property and casualty insurance business; and

- corporate and regulatory requirements; and

our ability to implement management's strategic plans and initiatives.

Chubb assumes no obligation to update any forward-looking information set forth in this document, which speak as of the date hereof.

Critical Accounting Estimates and Judgments

The consolidated financial statements include amounts based on informed estimates and judgments of management for transactions that are not yet complete. Such estimates and judgments affect the reported amounts in the financial statements. Those estimates and judgments that were most critical to the preparation of the financial statements involved the determination of loss reserves and the recoverability of related reinsurance recoverables and the evaluation of whether a decline in value of any investment is temporary or other than temporary. These estimates and judgments, which are discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2013 as supplemented within the following analysis of our results of operations, require the use of assumptions about matters that are highly uncertain and therefore are subject to change as facts and circumstances develop. If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements.


Table of Contents

Page 22

Overview

The following highlights do not address all of the matters covered in the other sections of Management's Discussion and Analysis of Financial Condition and Results of Operations or contain all of the information that may be important to Chubb's shareholders or the investing public. This overview should be read in conjunction with the other sections of Management's Discussion and Analysis of Financial Condition and Results of Operations.

Net income was $449 million in the first quarter of 2014 compared with $656 million in the same period of 2013. Net income was lower in the first quarter of 2014 compared with the same period of 2013 due to lower operating income and, to a lesser extent, lower net realized investment gains. We define operating income as net income excluding realized investment gains and losses after tax.

Operating income was $374 million in the first quarter of 2014 compared with $566 million in the same period of 2013. The lower operating income in the first quarter of 2014 was due primarily to substantially lower underwriting income in our property and casualty insurance business and, to a lesser extent, lower property and casualty investment income. Management uses operating income, a non-GAAP financial measure, among other measures, to evaluate its performance because the realization of investment gains and losses in any period could be discretionary as to timing and can fluctuate significantly, which could distort the analysis of operating trends.

Underwriting results were profitable in the first quarter of 2014 compared with highly profitable results in the same period of 2013. Our combined loss and expense ratio was 93.2% in the first quarter of 2014 compared with 84.6% in the same period of 2013. Results were less profitable in the first quarter of 2014 compared with the same period of 2013 due primarily to a higher impact of catastrophes and, to a lesser extent, a higher current accident year loss ratio excluding catastrophes and a lower amount of favorable prior year loss development. The impact of catastrophes accounted for 6.6 percentage points of the combined ratio in the first quarter of 2014 compared with 0.6 of a percentage point in the same period of 2013.

During the first quarter of 2014, we estimate that we experienced overall favorable prior year loss development of about $160 million on loss reserves established as of the previous year end. We estimate that during the first quarter of 2013, we experienced overall favorable prior year loss development of about $190 million. In the first quarter of both years we experienced significant favorable prior year loss development in our commercial insurance segment and in the professional liability classes within our specialty insurance segment.


Table of Contents

Page 23

Total net premiums written were flat in the first quarter of 2014 compared with the same period of 2013. Net premiums written in the United States increased by 3% in the first quarter of 2014. Net premiums written outside the United States decreased by 6% in the first quarter of 2014 in U.S. dollars and by a modestly lower amount when measured in local currencies.

Property and casualty investment income after tax decreased by 4% in the first quarter of 2014 compared with the same period of 2013, due to a decline in the average yield on our investment portfolio. Management uses property and casualty investment income after tax, a non-GAAP financial measure, to evaluate its investment results because it reflects the impact of any change in the proportion of tax exempt investment income to total investment income and is therefore more meaningful for analysis purposes than investment income before income tax.

Net realized investment gains before tax were $116 million ($75 million after tax) in the first quarter of 2014 compared with $138 million ($90 million after tax) in the same period of 2013. The net realized gains in the first quarter of both years were primarily related to investments in limited partnerships, which generally are reported on a quarter lag, and sales of equity securities.

A summary of our consolidated net income is as follows:

                                                        Quarter Ended March 31
                                                        2014               2013
                                                             (in millions)
   Property and casualty insurance                   $      547         $      841
   Corporate and other                                      (60 )              (63 )

   Consolidated operating income before income tax          487                778
   Federal and foreign income tax                           113                212

   Consolidated operating income                            374                566
   Realized investment gains after income tax                75                 90

   Consolidated net income                           $      449         $      656


Table of Contents

Page 24

Property and Casualty Insurance

A summary of the results of operations of our property and casualty insurance
business is as follows:



                                                         Quarter Ended March 31
                                                          2014              2013
                                                              (in millions)
   Underwriting
   Net premiums written                                $     3,062        $  3,057
   Increase in unearned premiums                               (33 )           (53 )

   Premiums earned                                           3,029           3,004

   Losses and loss expenses                                  1,845           1,568
   Operating costs and expenses                                979             983
   Increase in deferred policy acquisition costs               (13 )           (41 )
   Dividends to policyholders                                   10               9


   Underwriting income                                         208             485


   Investments
   Investment income before expenses                           351             363
   Investment expenses                                          10              12


   Investment income                                           341             351


   Other income (charges)                                       (2 )             5


   Property and casualty income before tax             $       547        $    841


   Property and casualty investment income after tax   $       277        $    288

Property and casualty income before tax was lower in the first quarter of 2014 compared with the same period of 2013, due to substantially lower underwriting income and, to a lesser extent, a decrease in investment income. The decrease in underwriting income in the first quarter of 2014 compared with the same period of 2013 was primarily attributable to a higher impact of catastrophes and, to a lesser extent, a higher current accident year loss ratio excluding catastrophes and a lower amount of favorable prior year loss development. The decrease in investment income in the first quarter of 2014 compared with the same period of 2013 was due to a decline in the average yield on our investment portfolio.

The profitability of our property and casualty insurance business depends on the results of both our underwriting and investment operations. We view these as two distinct operations since the underwriting functions are managed separately from the investment function. Accordingly, in assessing our performance, we evaluate underwriting results separately from investment results.


Table of Contents

Page 25

Underwriting Results

We evaluate the underwriting results of our property and casualty insurance business in the aggregate and for each of our business units.

Net Premiums Written

Net premiums written were $3.1 billion in the first quarter of both 2014 and
2013. Net premiums written by business unit were as follows:



                                   Quarter Ended March 31           % Increase
                                   2014              2013           (Decrease)
                                        (in millions)
         Personal insurance     $     1,013       $       987                 3 %
         Commercial insurance         1,425             1,440                (1 )
         Specialty insurance            624               632                (1 )

         Total insurance              3,062             3,059                 -
         Reinsurance assumed              -                (2 )               *

         Total                  $     3,062       $     3,057                 -

* The change in net premiums written is not presented for this business unit since it is in runoff.

Net premiums written were flat in the first quarter of 2014 compared with the same period of 2013. Net premiums written in the United States, which represented 72% of our total net premiums written in the first quarter of 2014, increased by 3%. Net premiums written outside the United States decreased by 6% in U.S. dollars and by a modestly lower amount when measured in local currencies.

We classify business as written in the United States or outside the United States based on the location of the risk associated with the underlying policies. The method of determining location of risk varies by class of business. Location of risk for property classes is typically based on the physical location of the covered property, while location of risk for liability classes may be based on the main location of the insured, or in the case of the workers' compensation class, the primary work location of the covered employee.

Growth in net premiums written in the United States in the first quarter of 2014 was driven by significant growth in our personal insurance segment. Net premiums written in the United States increased modestly in the first quarter of 2014 in our specialty insurance segment and were flat in our commercial insurance segment. Growth in our personal insurance business in the first quarter of 2014 was attributable to higher rates and insured exposures upon renewal, new business as well as strong retention of existing business. In the first quarter of 2014, net premiums written of our commercial insurance segment and our professional liability business, which is the predominant component of our specialty insurance segment, reflected higher rates and continued strong retention. Growth in these businesses, however, remained constrained by our underwriting actions and judicious approach to new business in the competitive market.


Table of Contents

Page 26

Average renewal rates for our personal insurance business in the United States were up modestly in the first quarter of 2014, driven particularly by our homeowners and excess liability classes of business. Retention levels in our personal insurance business in the United States remained strong in the first quarter of 2014. Average renewal rates in the first quarter of 2014 in the United States were up in both our commercial insurance and professional liability businesses, but more so in our professional liability business. The amounts of coverage purchased or the insured exposures, both of which are bases upon which we calculate the premiums we charge, were down slightly in our commercial insurance and professional liability businesses in the first quarter of 2014 compared with the same period in 2013. We continued to retain a high percentage of our existing commercial insurance and professional liability business in the United States. Renewal retention levels in the first quarter of 2014 were slightly higher in our commercial insurance business and modestly higher in our professional liability business compared with those in the same period of 2013. As part of our ongoing catastrophe management activities, during the first quarter of 2014 we reduced our participation in some commercial accounts to better manage exposure aggregations. During the first quarter of 2014, we continued to seek renewal rate increases in most of the classes within the commercial insurance and professional liability businesses and to take underwriting actions to improve profitability. As components of our business have approached rate adequacy due to pricing and underwriting actions over the last several years, during the first quarter of 2014 we sought higher retention levels at more moderate rate increases, particularly in our commercial insurance business. The overall level of new business in the United States was higher in our commercial business and our professional liability business in the first quarter of 2014 compared with the same period of 2013.

Outside the United States, net premiums written decreased in each segment of our business in the first quarter of 2014. The most significant decrease occurred in our personal insurance segment. Excluding the effect of foreign currency translation, the decline in net premiums written outside the United States in the first quarter of 2014 in each segment of our business was modest.

Net premiums written in our personal insurance business outside the United States in the first quarter of 2014 reflected a modest increase in the overall average renewal rate compared with that in the same period of 2013, but included a more significant increase in our automobile business. Average renewal rates outside the United States were up slightly in both our commercial insurance business and our professional liability business in the first quarter of 2014. Retention levels for our commercial insurance and professional liability business written outside the United States were about the same in the first quarter of 2014 compared with the same period of 2013. For both our commercial insurance and professional liability businesses, the level of new business written outside the United States was modestly lower in the first quarter of 2014 compared with the same period of 2013.

We expect that market conditions will remain competitive but that the positive pricing environment, particularly in the United States, will continue during the remainder of 2014. However, we expect that the average renewal rate increases achieved in some of our commercial and professional liability classes of business may be at levels below those achieved in recent years, as a greater portion of this business approaches or attains rate adequacy.


Table of Contents

Page 27

Ceded Reinsurance

Our premiums written are net of amounts ceded to reinsurers who assume a portion of the risk under the insurance policies we write that are subject to reinsurance.

The most significant component of our ceded reinsurance program is property reinsurance. We purchase two main types of property reinsurance: catastrophe and property per risk.

For property risks in the United States and Canada we purchase traditional catastrophe reinsurance, including our primary treaty, which we refer to as our North American catastrophe treaty, as well as supplemental catastrophe reinsurance that provides additional coverage for our exposures in the northeast United States. For certain exposures in the United States, we have also arranged for the purchase of multi-year, collateralized reinsurance funded through the issuance of collateralized risk-linked securities, known as catastrophe bonds. For events outside the United States, we also purchase traditional catastrophe reinsurance.

We renewed our primary traditional property catastrophe treaties and our commercial property per risk treaty in April 2014 with limit structures similar to the expiring treaties and some modest enhancements to coverage provided under the North American catastrophe treaty. The supplemental catastrophe reinsurance that provides coverage for our exposures in the northeast United States remains in effect until June 2014. In March 2014, we arranged for the purchase of reinsurance through the issuance of a catastrophe bond to replace the portion of a catastrophe bond that expired in March 2014. The three catastrophe bond arrangements currently in place expire between 2015 and 2018.

The North American catastrophe treaty has an initial retention of $500 million and provides coverage for exposures in the United States and Canada of approximately 34% of losses (net of recoveries from other available reinsurance) between $500 million and $900 million and approximately 75% of losses (net of recoveries) between $900 million and $1.75 billion. For certain catastrophic events in the northeast United States or along the southern U.S. coastline, the combination of the North American catastrophe treaty, supplemental catastrophe reinsurance and/or the catastrophe bond arrangements provide additional coverages as discussed below.

The catastrophe bond arrangements provide reinsurance coverage for specific types of losses in specific geographic locations. They are generally designed to supplement coverage provided under the North American catastrophe treaty. We currently have three catastrophe bond arrangements in effect. We have a $250 million reinsurance arrangement that expires in March 2015 and a $270 million reinsurance arrangement that incepted in March 2014 and expires in March 2018. Both of these catastrophe bond arrangements provide coverage for our exposure to homeowners and commercial losses related to certain perils, including hurricanes, earthquakes, severe thunderstorms and winter storms in twelve states in the northeast United States and the District of Columbia. The $270 million reinsurance arrangement also provides similar coverage for named storms in addition to hurricanes. We also have a $150 million reinsurance arrangement that expires in March 2016 that provides coverage for homeowners-related hurricane and severe thunderstorm losses in eight states along the southern U.S. coastline.


Table of Contents

Page 28

For the indicated catastrophic events in the northeast United States, the combination of the North American catastrophe treaty, the supplemental catastrophe reinsurance, and the $250 million and $270 million catastrophe bond arrangements provides additional coverage of approximately 63% of losses (net of recoveries from other available reinsurance) between $1.75 billion and $3.65 billion.

For hurricane and severe thunderstorm events along the southern U.S. coastline, the $150 million catastrophe bond arrangement provides additional coverage of approximately 50% of homeowners-related hurricane and severe thunderstorm losses (net of recoveries from other available reinsurance) between $855 million and $1.15 billion.

For hurricane events in Florida, in addition to the coverage provided by the North American catastrophe treaty and the $150 million catastrophe bond arrangement discussed above, we have reinsurance from the Florida Hurricane Catastrophe Fund, which is a state-mandated fund designed to reimburse insurers for a portion of their residential catastrophic hurricane losses. Our participation in this program, for which the most recent annual period began on June 1, 2013, provides coverage of 90% of homeowners-related hurricane losses in . . .

  Add CB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CB - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.