Chubb Notes Record 1stQ Net Income of $224.6M

May 1, 2003

The Chubb Corporation reported that net income in the first quarter of 2003 was a record $224.6 million, a 13.3 percent increase over net income of $198.2 million in the first quarter of 2002. Net income per share increased 13.9 percent to a record $1.31 from $1.15.

Operating income, which the company defines as net income excluding after-tax realized investment gains and losses, increased 8.5 percent in the first quarter of 2003 to a record $221.7 million from $204.3 million in the first quarter of 2002. Operating income per share grew 9.3 percent to a record $1.29 from $1.18 a year ago. First quarter operating income for 2003 includes $9 million ($0.05 per share) of after-tax income from the non-insurance business of Chubb Financial Solutions (CFS), compared to breakeven results in the first quarter of 2002.

Net written premiums for the first quarter increased 22 percent to $2.7 billion. U.S. premiums grew 21 percent. Non-U.S. premiums grew 26 percent, or 16 percent in local currencies.

The combined loss and expense ratio for the first quarter was 95.3 percent, compared with 95.9 percent in the corresponding year-earlier quarter. In the first quarter of 2003, catastrophe losses for Chubb were $94.9 million and accounted for 4.1 points of the combined ratio. In the first quarter of 2002, catastrophe losses were $13.3 million and accounted for 0.7 point of the combined ratio. Excluding catastrophe losses, the first quarter combined ratio was 91.2 percent in 2003 and 95.2 percent in 2002.

“We had an excellent first quarter,” said John Finnegan, president and CEO, “with record earnings and continued rate increases across all lines. We are continuing to maintain underwriting discipline, and we expect that results will continue to benefit from higher earned premiums, better risk selection and favorable terms and conditions. Strong operating cash flow of about $650 million during the quarter continued to help offset the effect of lower interest rates on investment income. The strong first quarter performance is consistent with our operating earnings forecast of $4.60 to $5.00 per share for 2003, which assumes breakeven results for CFS’s non-insurance business.”

The year-over-year increase in earnings for the quarter reflected substantially improved performance by Chubb Commercial Insurance, partially offset by a decline in earnings for Chubb Personal Insurance due to a large increase in catastrophe losses.

Chubb Commercial Insurance (CCI), which accounted for 41 percent of Chubb’s first quarter net written premiums, had premium growth of 21 percent and a combined ratio of 86.5 percent for the quarter, compared to 95.7 percent in the first quarter of 2002. CCI catastrophe losses in the first quarter accounted for 3.4 points of the combined ratio in 2003 and 0.1 point in 2002.

CCI premium growth during the first quarter resulted from a 13 percent annualized increase in the number of policies in force and a 16 percent average increase in renewal premium rates in the U.S. CCI retained 83 percent of the premiums that were up for renewal during the quarter, up from 80 percent a year ago, and premiums from new accounts exceeded nonrenewed business by a 2-to-1 margin.

Chubb Specialty Insurance (CSI), which accounted for 38 percent of net written premiums, had net premium growth of 29 percent and a combined ratio of 99.2 percent, compared to 95.4 percent in the corresponding year-earlier quarter. The decline in CSI profitability compared to the first quarter of 2002 resulted mainly from the adverse claim environment in directors & officers (D&O) and errors & omissions (E&O) insurance.

Executive Protection (EP) net written premiums grew 34 percent, and the business had a combined ratio of 103.6 percent.

While results were good in crime, fiduciary liability and employment practices liability, EP’s results continued to be adversely affected by D&O and E&O claims that have arisen from the corporate abuses and Wall Street scandals of recent years. Renewal rates in the U.S. for D&O for publicly held companies were up 125 percent, while rates for the private for-profit sector were up 26 percent and rates for the not-for-profit sector were up 32 percent. Renewal retention for D&O overall was 84 percent. E&O rates in the U.S. were up 56 percent for the quarter, and employment practices liability rates were up 19 percent.

Financial Institutions (FI) net premiums grew 26 percent in the first quarter. Standard commercial renewal rates in FI were up 24 percent in the U.S. for the quarter, while rates in fidelity were up 37 percent. In professional liability, including D&O and E&O, rates were up 60 percent. The combined ratio for FI was 110.9 percent for the first quarter, reflecting the adverse effect of D&O and E&O claims, partially offset by favorable results in the fidelity and standard commercial portions.

For the other specialty lines, net written premiums were up 23 percent, primarily driven by growth in Chubb Re. The combined ratio was 78.8 percent. Chubb Re had a 58 percent increase in net written premiums and a combined ratio of 90.4 percent. Accident business grew 25 percent and had a combined ratio of 94.6 percent. Surety grew net written premiums by 4 percent and had a combined ratio of 43.2 percent.

Chubb Personal Insurance (CPI), which accounted for 21 percent of net written premiums in the first quarter, had premium growth of 12 percent and a combined ratio of 103.6 percent, compared to 97.4 percent in the first quarter of 2002. Catastrophes accounted for 10.9 points of the combined ratio in the first quarter of 2003, compared to 2.4 points in the first quarter of 2002. Excluding catastrophes, the CPI combined ratio for the quarter was 92.7 percent in 2003 and 95.0 percent in 2002.

The Homeowners line grew 15 percent and had a combined ratio of 114.1 percent, compared to 102.6 percent in the corresponding year-earlier quarter. Homeowners results reflect 19.6 points of catastrophes in the 2003 first quarter, compared to 4.5 points in the first quarter of 2002. Excluding catastrophe losses, the combined ratio for Homeowners improved to 94.5 percent from 98.1 percent.

Personal automobile insurance grew 12 percent and produced a combined ratio of 101.4 percent. Other personal lines, which include valuable articles and personal excess liability, grew 8 percent and had a combined ratio of 77.8 percent.

Property and casualty investment income after taxes was up 6.7 percent to $198.0 million in the first quarter of 2003 from $185.6 million in the first quarter of 2002. The increase reflected strong operating cash flow and the contribution of $1 billion by the parent company to the operating companies in the fourth quarter of 2002, partially offset by the negative impact of investing the proceeds of maturing bonds at lower interest rates.

Other Highlights:
*Chubb and its property per risk reinsurers have resolved all of the
questions raised regarding Sept. 11 claims. This resolution
confirms Chubb’s confidence that it will collect an amount of reinsurance under the property per risk treaties which leaves intact the company’s estimate of $645 million in net costs related to the
Sept. 11 attack;

*One of the company’s large gas forward purchase contract surety bond customers, Aquila Inc., has successfully refinanced its debt that was due in April 2003 and continues to perform its obligations under contracts covered by the bonds;

*Chubb intends to run off the financial products portfolio of CFS. The
company does not intend to write any new credit derivative transactions, but might enter into transactions for hedging and other
risk management reasons;

*Chubb has undertaken a restructuring plan to improve performance in Europe, including several actions to significantly reduce operating
expenses on the Continent. The costs of the restructuring are included in the company’s earnings guidance for 2003. Premiums in
Europe are expected to grow at a double-digit rate in 2003. In the
first quarter of 2003, the European operations were profitable;

*Chubb has posted to its web site additional information regarding its
previously disclosed 2002 asbestos review which resulted in an addition in 2002 to its asbestos reserves.

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