The Chubb Corporation

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The Chubb Corporation

15 Mountain View Road
Warren, New Jersey 07061
U.S.A.
(908) 903-2000
Fax: (908) 580-3430

Public Company
Incorporated: 1882 as Chubb & Son
Employees: 10,000
Sales: $5.7 billion
Stock Exchanges: New York
SICs: 6231 Security and Commodity Exchanges; 6311 Life
Insurance; 6324 Hospital and Medical Service Plans; 6331
Fire, Marine and Casualty Insurance; 6552 Subdividers
and Developers, Not Elsewhere Classified; 6719 Holding
Companies, Not Elsewhere Classified; 8748 Business
Consulting Services, Not Elsewhere Classified

The Chubb Corporation operates as a holding company for an internationally diversified group of companies whose core business is in commercial, personal property, casualty, health, and life insurance. The company has further diversified since its founding with the addition of real estate development, consulting, and financial subsidiaries. Chubb is best known as a provider of specialty insurance policies for upscale clients, including both individuals and organizations. In the mid-1990s, the company was the fourth largest insurer in the United States and among the top fifteen worldwide. Consistently a top performer in the industry, Chubb moved into the late 1990s with a reputation as a reliable and prestigious insurer.

Chubb was formed over a century ago with the partnership of Chubb & Son, a New York underwriter of cargo and ship insurance formed by Thomas Chubb and his son, Percy Chubb, in 1882. The venture was initially funded with $100,000 collected in $1,000 portions from each of 100 prominent merchants. Soon after its formation, Chubb & Son was one of the 100 founders of the New York Marine Underwriters (NYMU). Chubb first operated as a representative of NYMU and Sea Insurance Company Limited of England. In 1901 NYMU, Chubb’s principal property and casualty affiliate, was reorganized as Federal Insurance Company.

During its first 40 years of business, Chubb & Son grew quickly, acting as an agent for several insurers. The company established itself as a respected underwriter of insurance for ships and cargo. During the 1920s the company explored new areas. In 1921 Chubb & Son began to represent U.S. Guarantee Company. Through that company, Chubb began to underwrite fidelity, surety, and casualty insurance. In 1923 Chubb opened its first branch, in Chicago. In March 1929 Chubb and another transportation insurance agent, the Marine Office of America, organized Associated Aviation Underwriters, the largest aviation insurance-underwriting group in the United States. Seven companies represented by Chubb and eight insurers represented by the Marine Office joined to form the association. During the Depression Chubb’s growth slowed as the insurance industry suffered. Nevertheless, in April 1930 Chubb & Son bought a 9,000-square-foot plot in Manhattan to house its companies and allow room for expansion. In 1939 Chubb founded Vigilant Insurance Company, a wholly owned fire and marine subsidiary. During World War II the economy recovered and Chubb & Son’s business began to grow more quickly.

In December 1941 Chubb gave employees with more than six months of service their first Christmas bonuses. The workers each received half of their bonus in cash and half in war bonds. Also in December 1941, Chairman Charles A. Seibert, a 55-year veteran of the company, announced his retirement.

Chubb’s growth continued apace. The company acquired The Colonial Life Insurance Company of America in 1957, and in 1959 Chubb & Son reincorporated under the laws of New York. In 1967 the company’s management formed The Chubb Corporation to act as a holding company. Chubb & Son became a wholly owned subsidiary of The Chubb Corporation, as did Chubb & Son’s subsidiaries. The property and casualty companies within the Chubb group of insurance companies fell under the management of Chubb & Son, the branch responsible for the company’s domestic property and casualty insurance companies and U.S. branches of foreign insurers. The primary property and casualty insurance company managed by Chubb & Son remains Federal Insurance Company.

The Chubb Corporation saw many changes in the late 1960s. In July 1967 Chubb acquired Pacific Indemnity Corporation of Los Angeles. In November 1967 Pacific Indemnity president and chief executive officer Carl Fisher was elected senior vice-president and director of Chubb. In January 1969, First National City Corporation—now Citicorp—agreed to acquire The Chubb Corporation. In April 1969, however, the two corporations confirmed that the Department of Justice was examining the antitrust implications of the merger. Later that month, the two companies agreed to postpone the merger until the summer of 1969 in order to allow the Department of Justice to complete its study of the transaction. On June 13, 1969, the Department of Justice announced its intention to bring suit to bar the acquisition. Three hours later First National City Corporation canceled the planned merger.

In September 1969 William M. Rees, then president of The Chubb Corporation, was elected chief executive officer, and became responsible for all operations excluding investment. Investment responsibilities and general corporate policy and development remained with Chairman Percy Chubb II.

In 1970 Chubb acquired Bellemead Development Corporation, a Delaware real estate company with land holdings primarily in New Jersey and Florida. This acquisition was Chubb’s first major move into the real estate field. Chubb confirmed that its real estate consultants placed a value of more than $25 million on Bellemead’s properties if sold individually on the open market.

In 1971 Chubb acquired United Life & Accident Insurance Company and founded Chubb Custom Market. Chubb Custom Market became involved heavily in the entertainment industry. The subsidiary specializes in insurance for the film industry and has insured such movies as E.T. The Extra-Terrestriai, Tootsie, The Verdict, and Missing. When Dustin Hoffman developed laryngitis and was unable to perform for three days during the filming of Tootsie, Chubb covered the additional expense. In addition to insuring films, Chubb Custom Market provides entertainment coverage for television productions, special entertainment events, and Broadway shows. In 1983 Chubb insured 75 percent of the productions on Broadway. Chubb’s coverage was popular because of its comprehensive nature, which included theft, injuries, and equipment failure.

On June 9, 1971, American Financial Corporation, a Cincinnati, Ohio-based financial holding company, sold 875,000 shares of Chubb stock to Salomon Brothers in a transaction valued at more than $54 million. American Financial had begun to acquire the stock in 1969 and had planned to attempt a buyout of Chubb. Salomon Brothers resold the shares, which represented a 14 percent stake in Chubb, to the public later in the day. In 1973 Chubb, through the international division of Chubb & Son, joined First National City Corporation’s subsidiary, FNC Comercio, in buying a majority interest in Companhia de Seguros Argos Fluminense, a Brazilian multiple-line insurance company.

The Chubb Corporation formed Chubb Life Insurance Company of America in 1978 to serve as an intermediate holding company for life insurance subsidiaries. In 1981 the company began to consolidate the activities of The Colonial Life Insurance Company of America and United Life & Accident Insurance Company at Chubb Life’s headquarters in Concord, New Hampshire. This consolidation was completed in 1984.

In 1983 The Chubb Corporation completed and relocated to a new head office on 185 acres in Warren, New Jersey. The following year, Chubb focused its efforts on growth in its international division. The company sought to increase its international property and casualty insurance business and to expand its worldwide coverage for U.S. multinationals. The company’s strategy for distinguishing itself was not to offer universal contracts or preformulated programs, but instead to create policies tailored to meet the needs of its clients. Chubb set a goal of maintaining 20 percent annual growth of its international business. Also in 1984, Chubb acquired Volunteer State Life Insurance Company of Chattanooga, Tennessee, and discontinued its money-losing medical-malpractice insurance policies.

During the summer of 1987 a nine-person delegation from the People’s Republic of China spent two days at the company’s Warren, New Jersey headquarters. The company’s relations with China dated to before World War II, when Chubb owned and operated the Cathay Insurance Company. The delegation, consisting of government officials and representatives from the People’s Insurance Company of China, studied Chubb’s safety and loss control problems. Also in 1987, Chubb acquired Sovereign Corporation, a life insurance holding company. Profits were significantly lower that year due to higher catastrophe losses from the Chicago rainstorms, Edmonton tornadoes, and a hurricane in Bermuda.

Through a New York firm called Good Weather International Incorporated, Chubb began advertising rain insurance in ten states in May 1988. Drought insurance was also offered to midwestern farmers by the Chubb subsidiary, Federal Insurance. Chubb usually reserved the authority to approve each policy that its independent agents sold, but in this case Good Weather was given the authority to approve Chubb policies. Because rain insurance was a small part of Chubb’s business— Chubb issued $5 million of coverage to approximately 200 farmers in 1987—the company set a total limit of $30 million of coverage. Response was moderate until early June, when lack of rain threatened farmers with the most serious drought in over 50 years. On June 14 and June 15, 1988, Good Weather received over 6,600 applications seeking $275 million worth of coverage, and applications kept coming after the deadline. While farmers worried about the drought, Good Weather and Chubb worried about the flood of applications. The figures were not totaled until the end of June. In the confusion, agents had signed up at least $350 million of coverage for nearly 9,000 farmers. The drought continued, and on July 15 Chubb notified 7,616 farmers that they had been denied coverage. In a goodwill effort, Chubb offered to return double the original premiums to farmers who had applied on June 14 or 15. The effort was unsuccessful, and by 1991 many lawsuits filed by these farmers remained unresolved. After this experience, Chubb decided to discontinue drought insurance.

In July 1988, Dean R. O’Hare, chairman and chief executive officer of The Chubb Corporation and Federal Insurance Company since May, was elected chairman and chief executive officer of Chubb & Son. In August 1988 Chubb agreed to let American National General Agencies Incorporated (ANGA) take over its entertainment insurance underwriting responsibilities on the East Coast. Headquartered in Los Angeles as a wholesale entertainment insurance broker, ANGA branched into New York to assume the underwriting function for production risks through Chubb Custom Market.

In 1989 Chubb took great measures to reestablish a positive corporate image. This time, its efforts were successful, and 1989 was a good year for the company overall. In April 1989 Chubb Life Insurance of America joined The Geese Theatre Company, a non-profit touring theater group working exclusively in prisons, in establishing a theater residency program in Concord, New Hampshire. Chubb generated more good press later that year when it won the Insurance Marketing Communications Association Special Award from members. The competition was mounted to recognize and award superior marketing communications work in the property and casualty industry.

Hurricane Hugo and the California earthquake had a significant impact on Chubb’s 1989 domestic earnings. Although earnings still increased, the catastrophes took a substantial bite out of profits. International operations continued to contribute greatly to the company’s financial success, and revenues from international operations that year approached $500 million, about 12.5 percent of the year’s $4 billion total. Chubb worked to increase its international activities and set a goal of generating 25 percent of total revenue from international operations by the year 2000.

The softening of the property and casualty insurance market in the early 1990s affected Chubb less than some of its competitors. The company’s focus on specialty products helped Chubb outperform the industry through those years. Chubb had showed great improvement in life and health insurance during 1989 and anticipated that earnings would continue to increase as group health operating conditions improved. At $4.2 billion, earnings for 1990 reached a new high, setting the company’s fifth consecutive year of record earnings. The success was attributed to conservative underwriting, a large network of branch offices (71 with plans to open 4 more), and a solid balance sheet. With the failure of many large financial institutions shaking public confidence in the late 1980s, a clear ability to cover liabilities with liquid assets became essential to maintaining a reliable reputation; Chubb fulfilled this requirement well.

At the same time, a downturn in the economy and unfavorable regulatory conditions began to reveal potential vulnerabilities in Chubb’s real estate and commercial insurance businesses. Commercial overbuilding in the 1980s glutted the market, and regulatory scrutiny following the Savings and Loan bank failures led banks to curtail real estate lending. Unable to counteract these changes, Chubb’s real estate holdings and development ventures began to lose money. Chubb said in its 1990 annual report that it saw these market conditions as more than a cyclical downturn and that it would begin to view real estate holdings as long-term investments. The company predicted that conditions in the real estate market would even worsen as companies economized on space as a result of consolidating and downsizing their operations. In fact, Chubb reported a steady decline in net income from real estate after 1989 and a loss of about $2 million a year in 1993 and 1994.

Potential changes in regulations in the environmental and health care arenas from the administration of President Clinton and from state legislatures presented challenges for Chubb and the insurance industry in general. On the environmental side, uncertainties relating to toxic waste and asbestos claims made on policies written decades earlier posed an increasingly larger threat to profitability. Chubb began to lobby actively for regulatory reform, hoping to narrow the widening judicial interpretations of such regulations as Superfund toxic waste clean-up rules. In 1994, Chubb settled its most costly asbestos exposure from an insurance policy issued in 1956 to Fibreboard Corporation by Pacific Indemnity Corporation, a subsidiary of Chubb. Pacific Indemnity entered into a global settlement agreement in 1993 that set up a $1.525 billion trust for future claims and to which Pacific Indemnity would contribute $538 million, the rest to come from Continental Casualty Company. The agreement was pending court approval at the end of 1994.

New legislation in New York and New Jersey significantly changed the way the company would handle health insurance in that region. The legislation created community-based rating and limited restrictions on pre-existing conditions. Whereas other insurers left that market, Chubb restructured its offerings, encouraging clients to move to managed health care policies, and remained effective in the region, which accounted for 80 percent of Chubb’s group health business.

In the mid-1990s Chubb increased its international expansion and accelerated the growth of its domestic network. The company’s London branch, at the center of the world insurance market, had doubled in size since its formation in the early 1980s. In 1993, Chubb added offices in Birmingham, Reading, and Manchester to take advantage of profitable opportunities in more local business. When the company determined that London lacked the service-oriented insurance products required for that city’s growing affluent population, personal insurance—which represents 23 percent of Chubb’s total business—was highlighted. In Germany, the new opportunities created by the formation of the European Community and the deregulation of the European insurance industry led Chubb to promote its commercial lines. As a commercial powerhouse, Germany provided an attractive new market for foreign insurers. In 1993, Chubb opened five more offices in new locations: Des Moines, Iowa; Buffalo, New York; Miami; Vancouver; and Hamilton, Bermuda.

In 1994, premiums from international business passed 20 percent of the total, approaching the goal of 25 percent for the year 2000. Offices were opened in Beijing, Hamburg, Munich, London, and Glasgow. In the United States, Chubb opened a new office in Fresno, California. By 1995, the company had grown from 20 domestic branches in 1965 to 89 branches worldwide. The company estimated hiring 1,300 new underwriters a year for the next five years. Some analysts questioned if the quality of operations could be maintained at such a high growth rate in a soft market. By choosing markets and products carefully, Chubb felt it was well positioned to compete in the new global marketplace.

Principal Subsidiaries

Bellemead Development Corporation; Chubb & Son Inc.; Chubb Capital Corporation; Chubb Custom Insurance Company; Chubb de Colombia Compania de Seguros, S.A.; Chubb de Chile de Seguros Generales, S.A.; Chubb de Mexico, Compania Afianzadora, S.A. de S.V.; Chubb Indemnity Insurance Company; Chubb Insurance Company of Australia, Limited; Chubb Insurance Company of Canada; Chubb Insurance Company of Europe, S.A. (Belgium); Chubb Life Insurance Company of America; Chubb Securities Corporation; Chubb Services Corporation; The Colonial Life Insurance Company of America; Federal Insurance Company; Great Northern Insurance Company; Pacific Indemnity Company; Personal Lines Insurance Brokerage, Inc.; Vigilant Insurance Company.