Chubb Makes Happy Forecast After A Drop

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., while reporting a gloomy fourth quarter result with profits plunging 83 percent, were bubbling with optimism today over rate hikes they see ahead for this year.

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

A good portion of the drop was attributed to a $142.9 million after tax charge the company took to account for surety bond coverage losses to its specialty insurance line?brought on by the bankruptcy of energy trader Enron. But even that event was seen as a positive in the upbeat view of Dean R. O'Hare, Chubb chairman and chief 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, but long term it will make insuring such risks much more profitable for insurers, because "rates are going sky high," he declared. "Happy days are here," Mr. O'Hare exulted.

At a recent meeting of The Business Roundtable, a business management group, chief executive officers told of renewal quotes that would double their premium prices, he said.

Chubb has taken a $220 million pretax reserve to cover its Enron exposure. 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. Morgan Chase & Co. over more than $1 billion in surety bond claims, contending that the coverage was obtained through fraud. "There is a significant amount that could come back into earnings in the future if we are successful in dealing with the Enron litigation," Mr. O'Hare said.

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

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

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

Mr. O'Hare said workers' compensation made up only five percent of Chubb business. Because of terrorism concerns, he said, the company is telling firms with a lot of employees in one building that 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," he forecast.

Mr. O'Hare said that Chubb reserve increases had accounted for 60 percent of reserve growth of the entire insurance industry of which "we're a tiny portion, and that really tells you what direction the industry is going in."

He said his company shies away from writing employment practices liability for large concerns, because such firms are a constant target for lawsuits that were instigated by attorneys involved in legal "blackmailing."

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