Chubb Makes Happy Forecast After A Drop

By Daniel Hays

NU Online News Service, Feb. 7, 4:23 p.m.EST?Executives at Chubb Corp. of Warren, N.J., whilereporting a gloomy fourth quarter result with profits plunging 83percent, were bubbling with optimism today over rate hikes they seeahead for this year.

Net income for the New Jersey insurer fell by $132.7 million forthe final quarter of 2001 to $28.7 million or 16 cents per sharecompared with $168.4 million or 95 cents a share in the fourthquarter of 2000.

A good portion of the drop was attributed to a $142.9 millionafter tax charge the company took to account for surety bondcoverage losses to its specialty insurance line?brought on by thebankruptcy of energy trader Enron. But even that event was seen asa positive in the upbeat view of Dean R. O'Hare, Chubb chairman andchief executive.

"I view Enron as a wonderful thing for the industry," he said.The Enron collapse, which was preceded by questionable accounting,will force top company management to focus on governance, Mr.O'Hare said.

There may be some similar "debacles" to come in the future, butlong term it will make insuring such risks much more profitable forinsurers, because "rates are going sky high," he declared. "Happydays are here," Mr. O'Hare exulted.

At a recent meeting of The Business Roundtable, a businessmanagement group, chief executive officers told of renewal quotesthat would double their premium prices, he said.

Chubb has taken a $220 million pretax reserve to cover its Enronexposure. So far it has paid out $130 million, but the net was only$15 million, Mr. O'Hare said.

In addition, Chubb and other insurers are suing J.P. MorganChase & Co. over more than $1 billion in surety bond claims,contending that the coverage was obtained through fraud. "There isa significant amount that could come back into earnings in thefuture if we are successful in dealing with the Enron litigation,"Mr. O'Hare said.

Chubb reported that the 111.9 property casualty combined ratiofor the quarter of would have been 99 without Enron claims.Operating income was $36.5 million, or 21 cents per share, for thequarter, compared with $165.9 million, or 93 cents a share, theprevious year.

Mr. O'Hare said the company was encouraged by its ability toraise rates and take advantage of a hardening market. Priceincreases of 25 percent in this year's first quarter are "not onlysustainable, but hopefully increasable," he noted.

Chubb reported its commercial insurance premiums had grown 16percent in the fourth quarter and its personal lines were raisingrates to cover underpriced insurance and deal with a concern aboutan increase in expensive water damage claims.

Mr. O'Hare said workers' compensation made up only five percentof Chubb business. Because of terrorism concerns, he said, thecompany is telling firms with a lot of employees in one buildingthat it can't provide coverage.

Many insureds are being forced into state residual market,"which will be the reason those state residual markets go bust," heforecast.

Mr. O'Hare said that Chubb reserve increases had accounted for60 percent of reserve growth of the entire insurance industry ofwhich "we're a tiny portion, and that really tells you whatdirection the industry is going in."

He said his company shies away from writing employment practicesliability for large concerns, because such firms are a constanttarget for lawsuits that were instigated by attorneys involved inlegal "blackmailing."

Chubb would like to make a European acquisition because of thestrength of the dollar, but "we can't find anything that's worthit?.these guys are smoking something when they set their reserves,"said Mr. O'Hare.