-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kobx18RDhIdSgadsc1XOseZealFGVPngodJkSLhxlo00D/kTBaRZUz6d6huy25pd 6MP6w+B4iq08SOyJIZfN+w== 0000950123-97-006948.txt : 19970815 0000950123-97-006948.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950123-97-006948 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHUBB CORP CENTRAL INDEX KEY: 0000020171 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 132595722 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08661 FILM NUMBER: 97663767 BUSINESS ADDRESS: STREET 1: 15 MOUNTAIN VIEW RD P O BOX 1615 CITY: WARREN STATE: NJ ZIP: 07061 BUSINESS PHONE: 9805802000 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - -- ACT OF 1934 For the quarterly period ended June 30, 1997 --------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to __________________ Commission file number 1-8661 ------ THE CHUBB CORPORATION ----------------------------------- (Exact name of registrant as specified in its charter) NEW JERSEY 13-2595722 -------------- ------------ (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 15 MOUNTAIN VIEW ROAD, WARREN, NEW JERSEY 07061-1615 - ----------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (908) 903-2000 --------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --------- -------- The number of shares of common stock outstanding as of July 31, 1997 was 172,467,338. 2 THE CHUBB CORPORATION INDEX
Page Number ----------- Part I. Financial Information: Item 1 - Financial Statements: Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996.......................... 1 Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 1997 and 1996..... 2 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996...................... 3 Notes to Consolidated Financial Statements.................... 4 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 8 Part II. Other Information: Item 4 - Submission of Matters to a Vote of Security Holders.... 16 Item 6 - Exhibits and Reports on Form 8-K....................... 17
3 Page 1 THE CHUBB CORPORATION CONSOLIDATED BALANCE SHEETS
June 30, Dec. 31, 1997 1996 --------- --------- (in millions) Assets Invested Assets Short Term Investments............................... $ 1,100.5 $ 275.9 Fixed Maturities Held-to-Maturity - Tax Exempt (market $2,465.1 and $2,573.4)..................................... 2,342.2 2,443.6 Available-for-Sale Tax Exempt (cost $4,953.2 and $4,415.1)........... 5,173.2 4,622.6 Taxable (cost $3,880.3 and $4,038.7).............. 3,948.8 4,092.7 Equity Securities (cost $650.4 and $540.5)........... 793.1 646.3 --------- --------- TOTAL INVESTED ASSETS......................... 13,357.8 12,081.1 Cash................................................... 7.8 4.7 Accrued Investment Income.............................. 196.6 195.3 Premiums Receivable.................................... 1,161.6 984.9 Reinsurance Recoverable on Unpaid Claims............... 1,280.3 1,767.8 Prepaid Reinsurance Premiums........................... 114.3 326.7 Funds Held for Asbestos-Related Settlement............. 593.2 599.9 Deferred Policy Acquisition Costs...................... 662.0 601.2 Real Estate Assets..................................... 1,629.4 1,604.0 Deferred Income Tax.................................... 377.4 365.6 Other Assets........................................... 585.9 564.3 Net Assets of Discontinued Operations.................. - 843.4 --------- --------- TOTAL ASSETS.................................. $19,966.3 $19,938.9 ========= ========= Liabilities Unpaid Claims.......................................... $ 9,575.3 $ 9,523.7 Unearned Premiums...................................... 2,623.6 2,617.5 Short Term Debt........................................ 223.0 189.5 Long Term Debt......................................... 837.8 1,070.5 Dividend Payable to Shareholders....................... 50.3 47.2 Accrued Expenses and Other Liabilities................. 1,084.4 1,027.6 --------- --------- TOTAL LIABILITIES............................. 14,394.4 14,476.0 --------- --------- Shareholders' Equity Common Stock - $1 Par Value; 176,060,309 and 176,084,173 Shares.................................... 176.1 176.1 Paid-In Surplus........................................ 609.2 695.7 Retained Earnings...................................... 4,811.6 4,530.5 Foreign Currency Translation Losses, Net of Income Tax. (20.5) (15.6) Unrealized Appreciation of Investments, Net............ 280.4 238.7 Receivable from Employee Stock Ownership Plan.......... (101.6) (106.3) Treasury Stock, at Cost - 2,984,733 and 1,223,182 Shares...................................... (183.3) (56.2) --------- --------- TOTAL SHAREHOLDERS' EQUITY.................... 5,571.9 5,462.9 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $19,966.3 $19,938.9 ========= =========
See Notes to Consolidated Financial Statements. 4 Page 2 THE CHUBB CORPORATION CONSOLIDATED STATEMENTS OF INCOME PERIODS ENDED JUNE 30
Second Quarter Six Months 1997 1996 1997 1996 -------- -------- -------- -------- (in millions) Revenues Premiums Earned....................... $1,249.0 $1,144.3 $2,570.0 $2,265.8 Investment Income..................... 192.8 174.5 379.6 349.1 Real Estate........................... 47.5 51.0 91.8 217.4 Realized Investment Gains............. 20.3 12.2 45.1 31.3 -------- -------- -------- -------- Total Revenues................. 1,509.6 1,382.0 3,086.5 2,863.6 -------- -------- -------- -------- Claims and Expenses Insurance Claims...................... 785.7 732.4 1,625.6 1,500.3 Amortization of Deferred Policy Acquisition Costs.................... 337.5 312.0 699.2 616.9 Other Insurance Operating Costs and Expenses............................. 83.2 73.5 161.7 140.1 Real Estate Cost of Sales and Expenses 58.3 46.1 100.6 206.0 Investment Expenses................... 2.6 2.9 5.9 7.5 Corporate Expenses.................... 2.9 7.4 8.6 14.7 -------- -------- -------- -------- Total Claims and Expenses...... 1,270.2 1,174.3 2,601.6 2,485.5 -------- -------- -------- -------- Income from Continuing Operations Before Federal and Foreign Income Tax.. 239.4 207.7 484.9 378.1 Federal and Foreign Income Tax.......... 50.7 42.9 104.1 72.9 -------- -------- -------- -------- Income from Continuing Operations....... 188.7 164.8 380.8 305.2 Income from Discontinued Operations, Net of Tax............................. - 9.5 - 20.5 -------- -------- -------- -------- Net Income.............................. $ 188.7 $ 174.3 $ 380.8 $ 325.7 ======== ======== ======== ======== Average Common and Common Equivalent Shares Outstanding (In Thousands)...... 174,311 180,416 176,566 180,436 PER SHARE DATA Income from Continuing Operations....... $1.09 $.93 $2.18 $1.72 Income from Discontinued Operations..... - .05 - .11 ----- ---- ----- ----- Net Income.............................. $1.09 $.98 $2.18 $1.83 ===== ==== ===== ===== Dividends Declared...................... $ .29 $.27 $ .58 $ .54
See Notes to Consolidated Financial Statements. 5 Page 3 THE CHUBB CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30
1997 1996 --------- --------- (in millions) Cash Flows from Operating Activities Net Income............................................. $ 380.8 $ 325.7 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Increase in Unpaid Claims, Net....................... 539.1 142.2 Increase in Unearned Premiums, Net................... 218.5 117.8 Increase in Premiums Receivable...................... (176.7) (164.4) Decrease in Medical Malpractice Reinsurance Related Receivable.................................. - 191.2 Decrease in Funds Held for Asbestos-Related Settlement.......................................... 6.7 209.8 Increase in Deferred Policy Acquisition Costs........ (60.8) (27.5) Change in Deferred Federal Income Tax................ (36.6) (5.2) Depreciation......................................... 32.7 28.7 Realized Investment Gains............................ (45.1) (31.3) Income from Discontinued Operations, Net of Tax...... - (20.5) Other, Net........................................... (31.5) (12.4) --------- --------- Net Cash Provided by Operating Activities.............. 827.1 754.1 --------- --------- Cash Flows from Investing Activities Proceeds from Sales of Fixed Maturities................ 1,991.1 1,866.3 Proceeds from Maturities of Fixed Maturities........... 312.0 617.5 Proceeds from Sales of Equity Securities............... 176.1 136.5 Proceeds from Sale of Discontinued Operations, Net..... 861.2 - Purchases of Fixed Maturities.......................... (2,576.3) (3,018.6) Purchases of Equity Securities......................... (249.6) (134.5) Increase in Short Term Investments, Net................ (824.6) (31.8) Increase (Decrease)in Net Payable from Security Transactions Not Settled.............................. 49.0 (4.1) Other, Net............................................. (49.9) (65.4) --------- --------- Net Cash Used in Investing Activities.................. (311.0) (634.1) --------- --------- Cash Flows from Financing Activities Proceeds from Issuance of Long Term Debt............... 8.1 2.0 Repayment of Long Term Debt............................ (12.2) (77.7) Increase in Short Term Debt, Net....................... 33.5 55.9 Dividends Paid to Shareholders......................... (96.6) (89.9) Repurchase of Shares................................... (479.8) (34.0) Other, Net............................................. 34.0 18.2 --------- --------- Net Cash Used in Financing Activities.................. (513.0) (125.5) --------- --------- Net Increase (Decrease) in Cash.......................... 3.1 (5.5) Cash at Beginning of Year................................ 4.7 11.9 --------- --------- Cash at End of Period.................................. $ 7.8 $ 6.4 ========= =========
See Notes to Consolidated Financial Statements. 6 Page 4 THE CHUBB CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1) General The amounts included in this report are unaudited but include those adjustments, consisting of normal recurring items, which management considers necessary for a fair presentation. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the 1996 Annual Report to Shareholders. 2) Discontinued Operations On May 13, 1997, the Corporation completed the sale of Chubb Life Insurance Company of America and its subsidiaries to Jefferson-Pilot Corporation for $875 million in cash, subject to closing related adjustments. The life and health insurance subsidiaries have been classified as discontinued operations. 7 Page 5 3) Investments Short term investments, which have an original maturity of one year or less, are carried at amortized cost which approximates market value. Fixed maturities classified as held-to-maturity are carried at amortized cost. Fixed maturities classified as available-for-sale and equity securities are carried at market value as of the balance sheet date. The net change in unrealized appreciation of investments carried at market value was as follows:
Periods Ended June 30 -------------------------------------------------- Second Quarter Six Months --------------------- --------------------- 1997 1996 1997 1996 ------ ------ ------ ------ (in millions) Continuing Operations Change in unrealized appreciation of equity securities ................ $ 50.7 $ 7.7 $ 36.9 $ 10.5 Change in unrealized appreciation of fixed maturities.................. 119.8 (79.5) 27.0 (252.7) ------ ------ ------ ------ 170.5 (71.8) 63.9 (242.2) Deferred income tax (credit)........ 59.5 (25.0) 22.2 (84.7) ------ ------ ------ ------ Change in unrealized appreciation... 111.0 (46.8) 41.7 (157.5) Discontinued operations, net............. -- (13.4) -- (33.8) ------ ------ ------ ------ Change in unrealized appreciation of investments, net....................... $111.0 $(60.2) $ 41.7 $(191.3) ====== ====== ====== ======
4) Real Estate In June 1997, a definitive agreement was reached to sell a substantial portion of the Corporation's commercial real estate properties to PW/MS Acquisition I, LLC, a joint venture company formed by Paine Webber Real Estate Securities Inc. and Morgan Stanley Real Estate Fund II, L.P. The purchase price of $758 million includes $649 million in cash and the assumption of $109 million in debt. The sale is subject to various closing adjustments and other customary conditions. The carrying value of certain real estate assets was reduced by $10.2 million in the second quarter of 1997 to reflect the terms of the agreement. This charge is included in real estate cost of sales and expenses in the consolidated statements of income. The closings for the properties sold to PW/MS Acquisition I are expected to occur by the end of 1997. Revenues from the sale will be recognized at the time of the closings. The Corporation is continuing to explore the sale of certain of its residential, retail and remaining commercial properties. 8 Page 6 5) Property and Casualty Unpaid Claims A discussion of the 1993 Fibreboard asbestos-related settlement is presented in Note 14 of the notes to consolidated financial statements in the 1996 Annual Report to Shareholders. The following development during 1997 relates to the settlement. In June 1997, the United States Supreme Court set aside the ruling by the United States Court of Appeals for the Fifth Circuit that had approved the global settlement agreement among Pacific Indemnity Company (a subsidiary of the Corporation), Continental Casualty Company (a subsidiary of CNA Financial Corporation), Fibreboard Corporation and attorneys representing claimants against Fibreboard. The Supreme Court ordered the Fifth Circuit Court to further consider the global settlement agreement in light of a June 1997 ruling by the Supreme Court that had rejected an unrelated settlement that included several former asbestos manufacturers. The trilateral agreement among Pacific Indemnity, Continental Casualty and Fibreboard was not appealed to the Supreme Court and is now final. The trilateral agreement will be triggered if the global settlement agreement is ultimately disapproved. Since the trilateral agreement is unaffected by the Supreme Court's recent action, management continues to believe that the uncertainty of Pacific Indemnity's exposure with respect to asbestos-related bodily injury claims against Fibreboard has been eliminated. 6) Reinsurance Effective January 1, 1997, the agreements pertaining to the exchange of reinsurance on a quota share basis with Royal & Sun Alliance Insurance Group plc were terminated. As a result, there were portfolio transfers of unpaid claims, unearned premiums, reinsurance recoverable on unpaid claims and prepaid reinsurance premiums. The effect of the portfolio transfers, which were recorded in the first quarter of 1997, was to decrease unpaid claims and unearned premiums by $183.8 million and $93.6 million, respectively, and reinsurance recoverable on unpaid claims and prepaid reinsurance premiums by $470.0 million and $174.6 million, respectively. 7) Exchangeable Subordinated Notes At January 1, 1997, Chubb Capital Corporation had outstanding $229.3 million of 6% exchangeable subordinated notes due May 15, 1998. In 1997, the holders of $228.6 million of the notes elected the option to exchange each $1,000 of principal amount into 23.256 shares of common stock of the Corporation, resulting in the issuance of 5,316,565 shares of common stock. The remaining notes were redeemed at 101.7% of the principal amount plus accrued interest. The exchange of the notes into common stock of the Corporation is considered a noncash transaction which has been excluded from the consolidated statements of cash flows. 9 Page 7 8) Per Share Data Earnings per share amounts are based on the weighted average number of common and common equivalent shares outstanding. The 6% exchangeable subordinated notes were considered to be common equivalent shares during the period they were outstanding. The computation assumes the addition to income of the after-tax interest expense applicable to such notes. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share, which establishes new standards for computing and presenting earnings per share. SFAS No. 128 requires presentation of basic and diluted earnings per share on the face of the statements of income. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997 and requires restatement of all prior periods presented. Earlier adoption is not permitted. The adoption of SFAS. No. 128 is not expected to have a significant effect on the Corporation's earnings per share. 10 Page 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND FOR THE QUARTERS ENDED JUNE 30, 1997 AND 1996 PROPERTY AND CASUALTY INSURANCE Earnings from our property and casualty business were substantially higher in the first six months of 1997 compared with the same period of 1996. The increase was due primarily to a significant improvement in underwriting results in 1997. Underwriting results in 1996 were adversely affected by substantially higher catastrophe losses in the first quarter. Investment income increased in 1997 compared with 1996. Property and casualty income after taxes amounted to $343.7 million in the first six months of 1997 and $173.8 million in the second quarter compared with $269.9 million and $149.6 million, respectively, in 1996. Net premiums written were $2.8 billion in the first six months of 1997 and $1.4 billion in the second quarter representing increases of 17.0% and 8.8%, respectively, over the comparable periods of 1996. A portion of the increase in premiums written in the first six months of both 1996 and 1997 was due to changes to the agreements pertaining to the exchange of reinsurance on a quota share basis with the Sun Alliance Group plc. Effective January 1, 1996, these agreements were amended to reduce the portion of each company's business reinsured with the other. As a result of the 1996 merger of Sun Alliance with Royal Insurance Holdings plc, these agreements were terminated effective January 1, 1997. The Corporation's property and casualty subsidiaries now retain a greater portion of the business they write directly and no longer assume any reinsurance from Sun Alliance. Excluding the effects of the 1996 changes to the reinsurance agreements with Sun Alliance and the 1997 termination of such agreements, net premiums written increased by 9.1% in the first six months of 1997 and 6.6% in the second quarter over the comparable periods in 1996. The marketplace continued to be competitive, particularly in the commercial classes. Competitors continued to place significant pressure on pricing as they attempted to maintain or increase market share. As a result, price increases continued to be difficult to achieve. Underwriting results were profitable in 1997 and 1996. Our combined loss and expense ratio was 95.8% in the first six months of 1997 and 95.3% in the second quarter compared with 98.8% and 96.3%, respectively, in 1996. The loss ratio was 63.6% for the first six months of 1997 and 63.3% for the second quarter compared with 66.6% and 64.3%, respectively, in the prior year. The loss ratios continue to reflect the favorable experience resulting from the consistent application of our disciplined underwriting standards. The loss ratio in the first six months of 1996 was adversely affected by catastrophe losses in the first quarter, resulting primarily from the winter storms in the eastern part of the United States. Catastrophe losses in the first six months of 1997 amounted to $28.5 million which represented 1.1 percentage points of the loss ratio compared with $83.9 million or 3.7 percentage points in 1996. Catastrophe losses for the second quarter of 1997 amounted to $18.1 million or 1.5 percentage points of the loss ratio compared with $10.9 million or 1.0 percentage point in 1996. Our expense ratio was 32.2% for the first six months of both 1997 and 1996 and 32.0% for the second quarter of both years. 11 Page 9 Underwriting results during 1997 and 1996 by class of business were as follows:
Six Months Ended June 30 ---------------------------------------- Net Premiums Combined Loss and Written Expense Ratios ------------------- ---------------- 1997 1996 1997 1996 -------- -------- ------ ------ (in millions) Personal Insurance Automobile........................ $ 153.0 $ 121.9 85.9% 85.5% Homeowners........................ 352.6 274.7 92.9 112.6 Other............................. 163.7 130.3 65.3 67.5 -------- -------- ----- ----- Total Personal................ 669.3 526.9 84.7 95.3 -------- -------- ----- ----- Commercial Insurance Multiple Peril.................... 413.1 325.7 111.2 118.2 Casualty.......................... 472.0 421.8 114.4 111.2 Workers' Compensation............. 157.1 128.0 104.5 96.3 Property and Marine............... 302.9 255.2 107.0 93.0 Executive Protection.............. 436.2 381.6 72.7 81.6 Other............................. 341.7 275.8 82.8 87.4 -------- -------- ----- ----- Total Commercial.............. 2,123.0 1,788.1 98.4 99.0 -------- -------- ----- ----- Total Before Reinsurance Assumed...................... 2,792.3 2,315.0 95.2 98.2 Reinsurance Assumed................. (3.8) 68.6 N/M N/M -------- -------- ----- ---- Total......................... $2,788.5 $2,383.6 95.8% 98.8% ======== ======== ===== =====
Quarter Ended June 30 ---------------------------------------- Net Premiums Combined Loss and Written Expense Ratios ------------------- ---------------- 1997 1996 1997 1996 -------- -------- ------ ------ (in millions) Personal Insurance Automobile........................ $ 74.7 $ 62.3 83.4% 81.8% Homeowners........................ 178.4 144.6 93.2 98.2 Other............................. 78.7 65.4 65.5 69.6 -------- -------- ----- ----- Total Personal................ 331.8 272.3 84.4 87.5 -------- -------- ----- ----- Commercial Insurance Multiple Peril.................... 193.6 167.2 113.7 117.4 Casualty.......................... 230.7 213.1 114.1 108.7 Workers' Compensation............. 65.1 55.1 107.4 97.0 Property and Marine............... 154.6 143.8 108.2 87.9 Executive Protection.............. 223.6 200.6 71.8 82.8 Other............................. 167.3 136.8 81.9 88.3 -------- -------- ----- ----- Total Commercial.............. 1,034.9 916.6 98.7 98.1 -------- -------- ----- ----- Total Before Reinsurance Assumed...................... 1,366.7 1,188.9 95.3 95.6 Reinsurance Assumed................. - 66.9 - 107.6 -------- -------- ----- ----- Total......................... $1,366.7 $1,255.8 95.3% 96.3% ======== ======== ===== =====
12 Page 10 PERSONAL INSURANCE Premiums from personal insurance coverages, which represent approximately 24% of the premiums written by our property and casualty subsidiaries, increased by $142.4 million or 27.0% in the first six months of 1997 and $59.5 million or 21.9% in the second quarter compared with the same periods in 1996. Of these increases, $67.7 million in the first six months of 1997 and $37.0 million in the second quarter were due to the increase in our retention percentage for these classes resulting from the termination of the reinsurance agreement with Sun Alliance. In addition, net premiums written for the personal classes included $65.8 million and $30.6 million in the first quarter of 1997 and 1996, respectively, due to the effect of the portfolio transfer of unearned premiums as of January 1 of each year resulting from the termination of the reinsurance agreement. Excluding the effects of the termination of the reinsurance agreement with Sun Alliance, premium growth for the personal classes was 8.0% in the first six months of 1997 and 8.3% in the second quarter. We continued to grow our homeowners and other non-automobile business in non-catastrophe prone areas. Personal automobile premiums increased as a result of an increase in the number of in-force policies for high value automobiles. Our personal insurance business produced substantially more profitable underwriting results in the first six months of 1997 than in the prior year. Underwriting results in 1996 were adversely affected by significant catastrophe losses in the first quarter. Underwriting results were highly profitable in the second quarter of both years. The combined loss and expense ratios were 84.7% for the first six months of 1997 and 84.4% for the second quarter compared with 95.3% and 87.5%, respectively, in 1996. Homeowners results were profitable in 1997, benefiting from stable loss activity and fewer catastrophe losses. Results for this class in 1996 were adversely affected by significant weather-related catastrophe losses in the first quarter. Catastrophe losses represented 3.1 percentage points of the loss ratio for this class in the first six months of 1997 and 5.2 percentage points in the second quarter compared with 23.7 percentage points and 5.2 percentage points, respectively, in 1996. Other personal coverages, which include insurance for personal valuables and excess liability, produced highly profitable results in 1997 and 1996 due to continued favorable loss experience. Our automobile business produced profitable results in 1997 and 1996 due primarily to stable loss frequency and severity. COMMERCIAL INSURANCE Premiums from commercial insurance, which represent approximately 76% of our total writings, increased by $334.9 million or 18.7% in the first six months of 1997 and $118.3 million or 12.9% in the second quarter compared with the same periods a year ago. Of these increases, $124.5 million in the first six months of 1997 and $62.1 million in the second quarter were due to the increase in our retention percentage for these classes resulting from the termination of the reinsurance agreement with Sun Alliance. In addition, net premiums written for the commercial classes included $108.8 million and $61.0 million in the first quarter of 1997 and 1996, respectively, due to the effect of the portfolio transfer of unearned premiums as of January 1 of each year resulting from the termination of the reinsurance agreement. 13 Page 11 Excluding the effects of the termination of the reinsurance agreement with Sun Alliance, premium growth for the commercial classes was 9.4% in the first six months of 1997 and 6.1% in the second quarter. Such premium growth was due primarily to the selective writing of new accounts, exposure growth on existing business and the purchase of additional coverages by current customers. The competitive market has continued to place significant pressure on prices and has made price increases difficult to achieve for most coverages. Our commercial insurance business produced modestly profitable underwriting results in 1997 and 1996. The combined loss and expense ratios were 98.4% for the first six months of 1997 and 98.7% for the second quarter compared with 99.0% and 98.1%, respectively, in 1996. Multiple peril results improved in 1997 compared with 1996 but remained unprofitable. The improvement was in the property component of this business due to an absence of catastrophe losses and favorable loss experience. Catastrophe losses in the first six months of 1997 represented only 1.5 percentage points of the loss ratio for this class compared with 5.1 percentage points in 1996. Results for our casualty business were somewhat more unprofitable in 1997 than in 1996 due primarily to deterioration in the automobile component. Casualty results were adversely affected in both years by increases in loss reserves for asbestos-related and toxic waste claims. The excess liability component of our casualty coverages has remained profitable due to favorable loss experience in this class. Results in the automobile component were unprofitable in 1997 compared with profitable results in 1996 due to an increase in the frequency of large losses for this class. Workers' compensation results were unprofitable in 1997 compared with profitable results in 1996. Results in our voluntary business deteriorated due primarily to the impact of price reductions. Results from our share of the involuntary pools and mandatory business in which we must participate by law also deteriorated in 1997. Property and marine results were unprofitable in 1997 compared with profitable results in 1996. Results in 1997 were adversely affected by an increase in the frequency of large losses, including several large overseas losses. Catastrophe losses in the first six months of 1997 represented 4.8 percentage points of the loss ratio for this class compared with 3.7 percentage points in 1996. Results for our executive protection business were highly profitable in 1997 and 1996 due to favorable loss experience. Our financial institutions business also produced highly profitable results in 1997 and 1996. Lower profits in the non-fidelity portion of this business in 1997 were substantially offset by improvement in the financial fidelity results. Results in our other commercial classes were profitable in 1997 compared with modestly unprofitable results in 1996. 14 Page 12 REINSURANCE ASSUMED Reinsurance assumed is treaty reinsurance that was assumed from Sun Alliance. The reinsurance agreement with Sun Alliance was terminated effective January 1, 1997. However, due to the lag in our reporting of such business, net premiums written in the first quarter of 1997 included $89.8 million related to business we assumed from Sun Alliance for the second half of 1996. Net premiums written for this segment were reduced by $93.6 million and $65.2 million in the first quarter of 1997 and 1996, respectively, due to the effect of the portfolio transfer of unearned premiums back to Sun Alliance as of January 1 of each year. Underwriting results for this segment in 1997, which represent our share of the Sun Alliance business for the last six months of 1996, were near breakeven. Results for this segment were somewhat unprofitable in the first six months of 1996. The combined loss and expense ratio for this business was not meaningful for the first six months of both years due to the effect on the expense ratio of the portfolio transfer of unearned premiums as of January 1 of each year. LOSS RESERVES Gross loss reserves were $9,575.3 million and $9,523.7 million at June 30, 1997 and December 31, 1996, respectively. Reinsurance recoverables on such loss reserves were $1,280.3 million and $1,767.8 million at June 30, 1997 and December 31, 1996, respectively. As a result of the termination of the reinsurance agreements with Sun Alliance, there were portfolio transfers of gross loss reserves and reinsurance recoverables as of January 1, 1997. The effect of these portfolio transfers was a decrease in gross loss reserves of $183.8 million and a decrease in reinsurance recoverables of $470.0 million. Excluding the effects of the portfolio transfers, loss reserves, net of reinsurance recoverable, increased by $252.9 million during the first six months of 1997. Substantial reserve growth continued to occur in those liability classes, primarily excess liability and executive protection, that are characterized by delayed loss reporting and extended periods of settlement. Losses incurred related to asbestos and toxic waste claims were $63.6 million in the first six months of 1997 and $76.9 million for the same period in 1996. A discussion of the 1993 Fibreboard asbestos-related settlement is incorporated by reference from Item 7 of the Corporation's Form 10-K for the year ended December 31, 1996. The following development during 1997 relates to the settlement. In June 1997, the United States Supreme Court set aside the ruling by the United States Court of Appeals for the Fifth Circuit that had approved the global settlement agreement among Pacific Indemnity Company (a subsidiary of the Corporation), Continental Casualty Company (a subsidiary of CNA Financial Corporation), Fibreboard Corporation and attorneys representing claimants against Fibreboard. The Supreme Court ordered the Fifth Circuit Court to further consider the global settlement agreement in light of a June 1997 ruling by the Supreme Court that had rejected an unrelated settlement that included several former asbestos manufacturers. 15 Page 13 The trilateral agreement among Pacific Indemnity, Continental Casualty and Fibreboard was not appealed to the Supreme Court and is now final. The trilateral agreement will be triggered if the global settlement agreement is ultimately disapproved. Since the trilateral agreement is unaffected by the Supreme Court's recent action, management continues to believe that the uncertainty of Pacific Indemnity's exposure with respect to asbestos-related bodily injury claims against Fibreboard has been eliminated. INVESTMENTS Investment income after deducting expenses and taxes increased by 8.9% in the first six months of 1997 and by 9.6% in the second quarter compared with the same periods in 1996. The growth was due to an increase in invested assets since the second quarter of 1996, reflecting strong cash flow from operations, which was partially offset by lower yields on new investments. The effective tax rate on investment income increased to 16.7% in the first six months of 1997 from 15.5% in the comparable period of 1996 due to holding a larger proportion of our investment portfolio in taxable securities. New cash available for investment in the first six months of 1997 included approximately $330 million received in late March as the net result of the portfolio transfers of unearned premiums and loss reserves as of January 1, 1997 related to the termination of the reinsurance agreements with Sun Alliance. New cash available for investment, together with the proceeds from the sale of approximately $250 million of foreign bonds in the first quarter, was invested in tax-exempt bonds and, to a lesser extent, mortgage-backed securities and corporate bonds. The foreign bonds were sold due to the reduction in foreign liabilities resulting from the termination of the reinsurance agreements with Sun Alliance. We maintain investments in highly liquid, short term securities at all times to provide for immediate cash needs. REAL ESTATE In June 1997, a definitive agreement was reached to sell a substantial portion of our commercial real estate properties to PW/MS Acquisition I, LLC, a joint venture company formed by Paine Webber Real Estate Securities Inc. and Morgan Stanley Real Estate Fund II, L.P. The purchase price of $758 million includes $649 million in cash and the assumption of $109 million in debt. The sale is subject to various closing adjustments and other customary conditions. To reflect the terms of the agreement, the carrying value of certain assets was reduced by $10.2 million, or $6.6 million after tax, in the second quarter of 1997. Real estate operations resulted in a loss after taxes of $5.2 million in the first six months of 1997 compared with income of $7.0 million in 1996. The loss in 1997 reflects the $6.6 million after tax charge. Earnings in 1996 benefited from the sale of several rental properties. Revenues were $91.8 million in the first six months of 1997 compared with $217.4 million in 1996, which included the revenues from the sale of the rental properties. The closings for the properties sold to PW/MA Acquisition I are expected to occur by the end of 1997. Revenues from the sale will be recognized at the time of the closings. We are continuing to explore the sale of certain of our residential, retail and remaining commercial properties. 16 Page 14 CORPORATE Investment income earned on corporate invested assets and interest and other expenses not allocable to the operating subsidiaries are reflected in the corporate segment. Corporate income after taxes was $13.0 million in the first six months of 1997 compared with $7.9 million in the same period of 1996. The increase was due primarily to a reduction in interest expense. INVESTMENT GAINS AND LOSSES Decisions to sell securities are governed principally by considerations of investment opportunities and tax consequences. As a result, realized investment gains and losses may vary significantly from period to period. Net investment gains before taxes of $45.1 million were realized in the first six months of 1997 compared with net gains of $31.4 million for the same period in 1996. DISCONTINUED OPERATIONS - LIFE AND HEALTH INSURANCE On May 13, 1997, the Corporation completed the sale of Chubb Life Insurance Company of America to Jefferson-Pilot Corporation for $875 million in cash, subject to closing related adjustments. The life and health insurance subsidiaries have been classified as discontinued operations. The discontinued life and health insurance operations did not affect the Corporation's net income in the first six months of 1997 and will not affect net income in future periods. Earnings from the discontinued life and health insurance operations were $20.5 million in the first six months of 1996, including realized investment gains of $3.7 million. CAPITAL RESOURCES In February 1994, the Board of Directors authorized the repurchase of up to 10,000,000 shares of common stock. Through March 6, 1997, the Corporation repurchased 6,851,600 shares under the 1994 share repurchase program, including 3,148,600 shares repurchased in the first quarter of 1997. On March 7, 1997, the Board of Directors replaced the 1994 program with a new share repurchase program, which authorized the repurchase of up to 17,500,000 shares of common stock. Through June 30, 1997, the Corporation repurchased 4,825,200 shares under the new repurchase program. In the aggregate, the Corporation repurchased 7,973,800 shares in open-market transactions in the first six months of 1997 at a cost of $479.8 million. At June 30, 1997, an additional 12,674,800 shares may be repurchased under the new authorization. The Corporation intends to use a substantial portion of the proceeds from the sale of Chubb Life Insurance Company of America, which were held in short term securities at June 30, 1997, to repurchase shares of common stock. At January 1, 1997, Chubb Capital Corporation had outstanding $229.3 million of 6% exchangeable subordinated notes due May 15, 1998. In the first quarter of 1997, the holders of $14.1 million of the notes elected the option to exchange them into shares of common stock of the Corporation, resulting in the issuance of 327,207 shares of common stock. Chubb Capital called for redemption on May 14, 1997 the remaining $215.2 million of the notes. Prior to the redemption date, the holders of $214.5 million of the notes elected the option to exchange them, resulting in the issuance of 4,989,358 shares of common stock in the second quarter. The cash proceeds from the sale of real estate properties to PW/MS Acquisition I are expected to be applied to further debt reduction. 17 Page 15 FORWARD LOOKING INFORMATION Certain statements in this document may be considered to be "forward looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995, such as statements that include the words or phrases "will likely result", "expected to", "will continue", "is anticipated", "estimate", "project", "intends to" or similar expressions. In particular, this document includes forward looking statements relating, but not limited to, the Corporation's expectations of litigation developments and its recent and ongoing sale activities relating to portions of its non-property and casualty business and associated with its expectations of proceeds deployment. Such statements are subject to certain risks and uncertainties. The factors which could cause actual results to differ materially from those suggested by any such statements include, but are not limited to, those discussed or identified from time to time in the Corporation's public filings with the Securities and Exchange Commission and specifically to: risks or uncertainties associated with the Corporation's announced sale activities relating to portions of its non-property and casualty businesses, or associated with its expectations of proceeds deployment and, more generally, to: general economic conditions including changes in interest rates and the performance of the financial markets, changes in domestic and foreign laws, regulations and taxes, changes in competition and pricing environments, regional or general changes in asset valuations, the occurrence of significant natural disasters, the inability to reinsure certain risks economically, the adequacy of loss reserves, as well as general market conditions, competition, pricing and restructurings. 18 Page 16 PART II. OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of The Chubb Corporation was held on April 22, 1997. Matters submitted to Shareholders at the meeting were as follows: Votes were cast in the following manner in connection with the election of each Director to serve until the next Annual Meeting of Shareholders.
Votes Against Director Votes For or Withheld - -------- --------- ----------- John C. Beck 148,541,928 71,004 Sheila P. Burke 148,547,628 65,304 James I. Cash, Jr 148,558,744 54,188 Percy Chubb, III 147,186,437 1,426,495 Joel J. Cohen 147,147,062 1,465,870 David H. Hoag 145,452,643 3,160,289 Robert V. Lindsay 148,451,884 161,048 Thomas C. MacAvoy 148,538,527 74,405 Gertrude G. Michelson 148,459,751 153,181 Dean R. O'Hare 148,295,837 317,095 Warren B. Rudman 147,154,346 1,458,586 David G. Scholey 147,183,563 1,429,369 Raymond G. H. Seitz 147,167,036 1,445,896 Lawrence M. Small 148,352,845 260,087 Richard D. Wood 148,515,462 97,470
For each Director, there were 1,180,594 abstaining votes. There were no broker non-votes cast. Votes were cast in the following manner in connection with the proposal to approve the selection of Ernst & Young LLP as the independent auditors of the Registrant for the year 1997.
Votes For Votes Against --------- ------------- 149,231,919 281,130
There were 280,477 abstaining votes and no broker non-votes cast. 19 Page 17 Item 6 - Exhibits and Reports on Form 8-K a. Exhibits Exhibit 3 - Restated by-laws of the Corporation filed herewith. Exhibit 10 - Material Contracts - Executive severance agreement between Mr. Edward Dunlop and The Chubb Corporation dated June 19, 1997. Exhibit 11.1 - Computation of earnings per share. b. Reports on Form 8-K The Registrant filed a current report on Form 8-K dated May 13, 1997 with respect to the announcement on May 13, 1997 that the Registrant completed the previously announced sale of all of the capital stock of Chubb Life Insurance Company of America, a wholly owned subsidiary of the Registrant, to Jefferson-Pilot Corporation for $875 million in cash. The Registrant filed a current report on Form 8-K dated June 12, 1997 with respect to the announcement on June 12, 1997 that Bellemead Development Corporation, a wholly owned subsidiary of the Registrant, reached a definitive agreement to sell a substantial portion of its commercial real estate properties for $758 million to PW/MS Acquisition I, LLC, a joint venture company formed by Paine Webber Real Estate Securities Inc. and Morgan Stanley Real Estate Fund II, L.P. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, The Chubb Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE CHUBB CORPORATION (Registrant) By: /s/ Henry B. Schram -------------------------- Henry B. Schram Senior Vice-President and Chief Accounting Officer Date: August 14, 1997 20 EXHIBIT INDEX A. Exhibit 3 - Restated by-laws of the Corporation filed herewith B. Exhibit 10 - Material Contracts - Executive severance agreement between Mr. Edward Dunlop and The Chubb Corporation dated June 19, 1997. C. Exhibit 11.1 - Computation of earnings per share. EX-3 2 RESTATED BY-LAWS OF THE REGISTRANT 1 By-Laws OF The Chubb Corporation Incorporated under the Laws of the State of New Jersey ADMINISTRATIVE OFFICES 15 Mountain View Road, P.O. Box 1615 Warren, N.J. 07061-1615 REVISED TO JUNE 13, 1997 2 BY-LAWS of THE CHUBB CORPORATION ARTICLE I OFFICES Section 1. The Corporation shall maintain a registered office in the State of New Jersey as required by law. The Corporation may also have offices in such other places as the Board of Directors may from time to time appoint or as the business of the Corporation may require. ARTICLE II SEAL Section 1. The seal of the Corporation shall be circular in form and shall have the name of the Corporation on the circumference and the words and numerals "Corporate Seal 1967 New Jersey" in the center. ARTICLE III MEETINGS OF STOCKHOLDERS Section 1. Meetings of the stockholders of the Corporation shall be held at such places in the State of New Jersey or in the City of New York, State of New York, as may from time to time be designated by the Board of Directors and stated in the Notice of Meeting. Section 2. The Annual Meeting of the Stockholders of the Corporation shall be held on such day in the month of April of each year, as shall be designated by the Board of Directors and as stated in the notice of meeting, for the election of Directors and for the transaction of such other business as may be brought before the meeting. Any business which may properly be 1 3 brought before a meeting of the stockholders may be considered and transacted at the Annual Meeting. Section 3. Special meetings of the stockholders may be called on the order of the Chairman, of the Chairman of the Executive Committee, if any, of a majority of the Board of Directors or of the holder or holders of fifty percent or more of the issued and outstanding Common Stock of the Corporation. Section 4. Written notice of all meetings of the stockholders shall be mailed to or delivered to each stockholder at least ten days prior to the meeting. Notice of any special meeting shall state in general terms the purposes for which the meeting is to be held. Section 5. The holders of a majority of the issued and outstanding shares of the Common Stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders; but, if there be less than a quorum, the holders of a majority of the stock so present or represented may adjourn the meeting from time to time. Section 6. At all meetings of the stockholders, every registered owner of shares entitled to vote may vote in person or proxy and shall have one vote for each such share standing in his name on the books of the Corporation. Elections of directors need not be by ballot. Section 7. The Chairman, or in his absence, the Vice-Chairman, or in his absence, the President, or in his absence, the Chairman of the Executive Committee, if any, shall preside at all meetings of the stockholders; and, in the absence of all the foregoing officers, the stockholders present shall elect a chairman by a plurality vote. The chairman presiding at any meeting of stockholders shall have the power to appoint two or more persons to act as inspectors or tellers to receive, canvass and report the votes cast by the stockholders at such meeting; but no candidate for the office of director shall be appointed as inspector or teller at any meeting for the election of directors. 2 4 Section 8. The Secretary of the Corporation shall act as secretary of all meetings of the stockholders; and in his absence, the Chairman shall appoint a person to act as secretary of the meeting. ARTICLE IV BOARD OF DIRECTORS Section 1. The property, business and affairs of the Corporation shall be managed and controlled by its Board of Directors. The number of directors shall be such number, not less than seven nor more than thirty, as shall be fixed from time to time by the Board of Directors. At each Annual Meeting the stockholders shall elect the number of directors as fixed by the Board of Directors (not less than seven nor more than thirty) and such directors shall hold office until the next Annual Meeting, and until their successors are elected and qualify. Any director may be removed from office at any time, with or without cause, by the affirmative vote of the holders of a majority of the stock present in person or represented by proxy at any meeting at which a quorum is present. Directors need not be residents of the State of New Jersey, but each director shall at the time of his election be a stockholder of the Corporation or of a corporation holding twenty-five percent (25%) or more of the Common Stock of the Corporation. Section 2. Whenever any vacancy shall occur in the Board of Directors, by reason of death, resignation or increase in the number of directors or otherwise, it may be filled by a majority of the remaining directors, though less than a quorum, for the balance of the term. Section 3. The Board of Directors may hold meetings and keep the books of the Corporation (except the stock transfer books) outside of the State of New Jersey. Section 4. Regular meetings of the Board of Directors, shall be held quarterly on the second Thursday of March, June, September and December (or if such Thursday be a legal holiday, then on the next succeeding business day) at the offices of the Corporation in New Jersey or at the offices of the Corporation 3 5 in the City of New York unless in the judgment of the Board or the Executive Committee a regular meeting should be held on a different date or at a different place. Written notice of regular meetings of the Board shall be given to each director at least one full day in advance of the meeting. Section 5. Special meetings of the Board of Directors may be called by order of the Chairman, of the Chairman of the Executive Committee, if any, or by two directors at the time in office. The Secretary shall give notice of each special meeting by mailing the same at least two days before the meeting or by telephoning or telegraphing the same at least one day before the meeting to each director. Section 6. At meetings of the Board of Directors the Chairman or President, or in their absence, the Chairman of the Executive Committee, if any, shall preside. The attendance of seven directors in office shall be necessary to constitute a quorum for the transaction of business, but less than a quorum may adjourn any meeting from time to time until a quorum shall be present, whereupon the meeting may be held, as adjourned, without further notice. Section 7. The directors shall receive such compensation for their services as directors as may be prescribed by the Board of Directors and shall be reimbursed by the Corporation for ordinary and reasonable expense incurred in the performance of their duties. ARTICLE V COMMITTEES Section 1. There shall be an Executive Committee consisting of the Chairman, The Chairman of the Executive Committee, if any, and not less than two nor more than seven other directors, to be appointed by the Board of Directors which committee shall meet at the call of its Chairman or of any member thereof and shall have authority to exercise, so far as may be permitted by law, all the powers of the Board of Directors in the management of the business, property and affairs of the Corporation during the intervals between the meetings of the Board of Directors. A majority of the members of such committee 4 6 shall constitute a quorum. The Executive Committee or a quorum thereof may act from time to time on the basis of written approval of proposals without formal meeting. Section 2. There shall be a Finance Committee consisting of the Chairman, the Chairman of the Executive Committee, if any, and not less than two nor more than seven other directors to be appointed by the Board of Directors, which committee shall have authority to direct and control the investment of funds and the purchase and sale of securities by the Corporation. A majority of the members of such committee shall constitute a quorum. The Finance Committee or a quorum thereof may act from time to time on the basis of written approval of proposals without formal meeting. Regular meetings of the Committee shall be held quarterly at dates set by vote of the Committee. Special meetings may be called at any time at the request of any member. Section 3. There shall be an Audit Committee consisting of not less than three, nor more than seven directors, to be appointed annually by the Board of Directors who shall appoint one of the members of such Committee as Chairman. The Committee shall review the accounting principles and practices employed by the Corporation, and, to the extent it deems appropriate, of its subsidiaries. It shall have authority to order interim and surprise audits and to perform such other duties as may from time to time be assigned to it by the Board. The Committee shall meet with the Corporation's Independent Public Accountants to review their report on their examination of the Corporation's accounts, their comments on the internal accounting controls and audit procedures of the Corporation, and the action taken by Management with regard to such comments. The Committee shall also, to the extent it deems appropriate, review the independent and internal audits, and the accounting procedures and controls of the Corporation's subsidiaries. The Committee shall report to the Board of Directors the results of its reviews and such recommendations as it may deem appropriate. 5 7 Meetings may be held at the call of the Chairman, and may be initiated by any member of the Committee or by the Independent Public Accountants or an appropriate officer of the Corporation, to deal with additional matters as they may arise. The Committee shall recommend annually to the Board of Directors the appointment of the Corporation's Independent Public Accountants, which appointment shall be submitted to the shareholders for ratification. The Committee shall have authority to confer with the appropriate officers of the corporation, or its subsidiaries, regarding the accounting principles and practices employed by the Corporation and its subsidiaries. Any reports issued by the Independent Public Accountants of the Corporation, or by the Corporation, or by any of its subsidiaries, and any reports by Audit Committees of its subsidiaries shall, at its request, be made available to the Committee. The Committee may request the attendance of appropriate officers of the Corporation or its subsidiaries, at its meetings. No officer of the Corporation or any of its subsidiaries may serve on the Audit Committee. A majority of the members of such Committee shall constitute a quorum. Section 4. The Board of Directors may appoint other committees which shall have such powers and perform such duties as from time to time may be prescribed by the Board. Section 5. The Board shall have the power to fill vacancies in, to change the membership of, or to dissolve any committee, and to appoint alternate members of any committee, but in no event may an officer of the Corporation or any of its subsidiaries serve as a member or as an alternate member of the Audit Committee or of any committee which has powers or duties with respect to compensation of the Corporation's officers. Directors appointed as alternate members of any committee shall act in the absence or disability of members of that committee with all of the powers of such absent or disabled members and shall serve on such committee in the order established by resolution adopted by a majority of the Board of Directors. Action taken by any committee shall be reported at the meeting of the Board next succeeding such action, 6 8 except that, when such meeting of the Board is held within two days after such action, such report, if not made at the first meeting, shall be made to the Board at its second meeting following such committee action. ARTICLE VI OFFICERS Section 1. Elected Officers. The elected officers of the Corporation shall be a Chairman, a President, one or more Vice Presidents, a Treasurer and a Secretary. The Board of Directors may also elect a Vice Chairman, a Chairman of the Executive Committee and may designate Vice Presidents as Executive or Senior Vice Presidents and may elect from time to time, such other officers as it considers necessary, each of whom shall hold office for such period, have such authority, and perform such duties as the Board may from time to time determine. Any person may hold two, but no more than two, offices. The Chairman, the Vice Chairman, if any, and the Chairman of the Executive Committee, if any, shall be chosen from among the directors. Section 2. Appointed Officers. The Chairman may appoint as officers of the Corporation such Assistant, Associate, Regional or Resident Officers and such other subordinate officers as he may deem proper, and shall specify the authority of and the duties to be performed by such officers, and may remove them at any time with or without cause. Section 3. Term of Office. The principal officers shall be chosen annually by the Board of Directors at the first meeting of the Board following the stockholders' annual meeting, or as soon thereafter as is conveniently possible. Additional Vice Presidents may be elected from time to time. The term of office of all Executive Officers shall be for one year and until their respective successors are duly chosen and qualified, but any Executive Officer may be removed, with or without cause, at any time by the Board. 7 9 Section 4. Vacancies. Any vacancy in an office from any cause may be filled for the unexpired portion of the term by the Board of Directors. Section 5. Duties and Responsibilities. (a) The Chairman shall be the chief executive officer of the Corporation and shall exercise general supervision of the management of its business and shall be responsible for the development of its policies and their execution. He shall, in general, perform all duties incident to the office of Chairman and such other duties as may be assigned to him by the Board of Directors. (b) The Vice Chairman, if any, shall have such powers and perform such duties as the Chairman may delegate to him and, in the absence of the Chairman, shall exercise the functions and duties of the Chairman. (c) The President shall have such powers and perform such duties as the Chairman may delegate to him and, in the absence of the Chairman and the Vice Chairman, if any, shall exercise the functions and duties of the Chairman. (d) The Chairman of the Executive Committee, if any, shall perform such functions as may be assigned to him by the Board of Directors, the committees of which he is chairman, or the Chairman of the Corporation. (e) Each Vice President shall have such powers and perform such duties as the Board of Directors or the Chairman, may from time to time prescribe. The Vice Presidents in the order of priority designated by the Chairman or the Board of Directors shall exercise the functions of the President in his absence. (f) The Treasurer shall have the custody and care of all the funds and securities of the Corporation, and shall deposit all funds to the credit of the Corporation in such institution or institutions as the Board of Directors may designate; he or an Assistant Treasurer or such other officer or officers or appointee or appointees as may be authorized by the Board of Directors shall endorse all instruments or documents requiring endorsement for or on behalf of the Corporation; he shall perform all acts incident to the position of Treasurer, subject to the control of the Board; he shall have such other powers and perform such 8 10 other duties as the Board of Directors or the President may from time to time prescribe; and he may be required by the Board of Directors to give security for the faithful discharge of his duties. He shall have custody of the stock registers and transfer books of the Corporation. (g) The Secretary shall keep the minutes of all meetings of the Board of Directors and of the Stockholders, and shall attend to the giving of proper notices to Directors and stockholders; he may sign, with the President or a Senior Vice President, all authorized contracts, instruments or documents in the name of the Corporation; he shall be the custodian of the seal of the Corporation and shall attest such seal when required; he shall perform all the duties incident to the office of Secretary, subject to the control of the Board of Directors; he shall have such other powers and perform such other duties as the Board of Directors or the President may from time to time prescribe or as may be prescribed by these By-Laws. (h) In case of the absence or disability of any officer of the Corporation and of any person hereby authorized to act in his place during such period of absence or disability, the Board of Directors may from time to time delegate the powers and duties of such officer to any other officer, or any director, or any other person whom it may select. ARTICLE VII CAPITAL STOCK Section 1. Certificates for stock of the Corporation shall be in such form as the Board of Directors may from time to time prescribe and shall be signed by the Chairman or the Vice-Chairman or the President or a Vice-President and by the Treasurer or an Assistant Treasurer. Section 2. Shares of capital stock of the Corporation shall be transferable on the books of the Corporation only by the holder of record thereof in person or by duly authorized attorney, upon surrender and cancellation of certificates for a like number of shares. Section 3. In case any certificate for the capital stock of the Corporation shall be lost, stolen or destroyed, the Corporation as a condition 9 11 precedent to the issuance of a new certificate in place thereof, may require such proof of the fact and such indemnity to be given to it as shall be deemed necessary or advisable by it. Section 4. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder thereof in fact and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 5. The Board of Directors shall have the power to close the stock transfer books of the Corporation for a period not exceeding fifty (50) days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect; provided, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding fifty (50) days preceding the date of any meeting of stockholders, or the date for the payment of any dividend or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of and to vote at any such meetings or entitled to receive payment of any such dividends, or any such allotment or rights, or to exercise the rights in respect to any such change, conversion or exchange of capital stock, and, in such case, only, stockholders of record on the date so fixed shall be entitled to such notice of and to vote at such meetings, or to receive payment of such dividends or any such allotment of rights, or to exercise such rights, in respect to any such change, conversion or exchange of the capital stock as the case may be, and notwithstanding any transfer of any stock on the books of the Corporation after any such record date as fixed as aforesaid. 10 12 ARTICLE VIII MISCELLANEOUS Section 1. The Board of Directors shall have power to fix, and from time to time change, the fiscal year of the Corporation. Unless otherwise fixed by the Board, the calendar year shall be the fiscal year. Section 2. Any notice required to be given under the provisions of these By-Laws or otherwise may be waived by the stockholder, director or officer to whom such notice is required to be given, either before or after the meeting or action of which notice is waived. Section 3. Any notice required to be given to any stockholder, director or officer under the provisions of these By-Laws or otherwise shall (subject to the provisions of law and of the Certificate of Incorporation of the Corporation) be deemed to be sufficiently given if such notice be written or printed and be deposited in the post office addressed to such stockholder, director or officer at his address as the name appears on the books or records of the Corporation, or such notice may be sent by telegram or delivered in person to such stockholder, director or officer and the mailing of such notice or positing of such telegram or delivery of such notice, as the case may be, shall constitute due and sufficient notice. Section 4. The Corporation may lend money to, guarantee any obligation of, or otherwise assist, any officer or other employee of the Corporation or of any subsidiary, including an officer or other employee who is a director of the Corporation, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the Corporation, provided, however, that any such loan, guarantee or assistance to an officer or other employee who is also a director of the Corporation shall be authorized by a majority of the entire Board of Directors. The loan, guarantee or other assistance may be made with or without interest, and may be unsecured, or secured in such manner as the Board of Directors shall approve, and may be made upon such other terms and conditions as the Board of Directors may determine. 11 13 ARTICLE IX INVESTMENTS AND MONEYS Investment of the funds of the Corporation and the purchase and sale of securities by the Corporation shall be made only as authorized or approved by the Board of Directors or the Executive Committee or the Finance Committee or by some other committee appointed by the Board of Directors and charged with the duty of supervising or making such investments, purchases and sales. Securities representing the invested funds of the Corporation shall be placed for safekeeping in safe deposit vaults in the name of the Corporation, or pursuant to a custodian account, in such Banks, Trust or Safe Deposit Companies as shall be approved by the Board of Directors or the Executive Committee. Access to the vaults shall be in accordance with procedure approved by resolution of the Board of Directors or the Executive Committee and such resolution shall be effective upon a copy thereof being lodged with the Bank, Trust or Safe Deposit Company in which the securities are lodged. In the event that the Board of Directors shall determine to establish a custodian account with a Bank or Trust Company and shall provide that all or any part of the securities now or hereafter representing the invested funds of the Corporation shall be delivered to such Bank or Trust Company approved by the Board of Directors or the Executive Committee, then and in that event such Bank or Trust Company shall hold such securities so delivered in the custodian account in accordance with the procedure and under the authority of the resolution approved by the Board of Directors or the Executive Committee. Any two of the following: The Chairman, the Vice Chairman, if any, the President, the Chairman of the Executive Committee, if any, or any Vice President acting jointly, or any one of them acting jointly with any Vice President or the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer, is authorized and empowered to sell, assign, exchange and transfer any and all shares of stock, bonds and other securities owned by or standing in the name of the Corporation, and to make, execute and deliver in the name and as the act of the Corporation 12 14 under its corporate seal any and all instruments in writing necessary or proper to carry such sales, assignments, exchanges and transfers into effect. Money received by the Corporation may be deposited to its credit in such Trust Companies or Banks as the Board of Directors may designate. The Chairman, or the Vice Chairman, if any, or the President, or the Chairman of the Executive Committee, if any, or any Vice President shall have authority to vote in person or by proxy any of the stock of any other corporation which the Corporation may hold and to execute any and all consents or other documents relating to such stocks. ARTICLE X Amendment The Board of Directors shall have power to make, alter and repeal By-Laws of the Corporation by a vote of a majority of all of the directors at any regular or special meeting of the Board, provided that notice of the proposed action shall have been given in the notice or waiver of notice of such meeting of the Board. The By-Laws may be altered or repealed by the stockholders by the vote of a majority of all of the stockholders at any meeting, provided that notice of the proposed alteration or repeal shall have been given in the notice or waiver of notice of such meeting of stockholders. Certified to be a true copy. Date Secretary 13 EX-10 3 EXECUTIVE SEVERANCE AGREEMENT 1 June 19, 1997 Mr. Edward Dunlop [address] Dear Mr. Dunlop: In order to induce you to remain in the employ of The Chubb Corporation (the "Company") and in consideration of your continuing in the Company's employ, the Company agrees to provide the severance benefits specified below on the terms and subject to the conditions stated. However, in the absence of a Change in Control of the Company, as defined below, nothing in this Agreement shall affect the Company's normal right to terminate your employment or your right to leave its employ. 1. Change in Control. For purposes of this Agreement a Change in Control will be deemed to have occurred (A) if following (i) a tender or exchange offer for voting securities of the Company, (ii) a proxy contest for the election of Directors of the Company or (iii) a merger or consolidation or sale of all or substantially all of the business or assets of the Company, the Directors of the Company immediately prior to the initiation of such event cease to constitute a majority of the Board of Directors of the Company upon the occurrence of such event or within one year after such event, or (B) if any "person" or "group" (as defined under the beneficial ownership rules of Sections 12(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934 and Rule 13d-3 thereunder) acquires ownership or control, or power to control, 25% or more of the outstanding voting securities of the Company without prior approval or ratification by a majority of the Company's Directors in office at the time of such event. 2. Conditions to Severance Benefits. The benefits provided for in Section 5 shall be payable or accrue to you if (a) a Change in Control has occurred and (b) your employment with the Company has terminated within two years after the Change in Control, other 2 Mr. Edward Dunlop June 19,1997 Page 2. than termination by reason of (i) your death, (ii) your retirement at normal retirement age ("Retirement") under the Company's pension plan as in effect immediately prior to the Change in Control, (iii) your voluntary termination other than for Good Reason, (iv) your retirement for Disability or (v) your discharge for cause. Termination by you of your employment for "Good Reason" shall mean termination by you of your employment, subsequent to a Change in Control, because of: (A) the assignment to you, without your express written consent, of any duties inconsistent with your positions, duties, responsibilities, authority and status with the Company and its principal subsidiaries immediately prior to such Change in Control, or a change in your reporting responsibilities, titles or offices as in effect immediately prior to the Change in Control, or any removal of you from or any failure to re-elect you to any of such positions, except in connection with the termination of your employment for Cause, Disability, Retirement, as a result of your death or by you without Good Reason; (B) a reduction by the Company in your base salary as in effect at the time of such Change in Control; (C) a failure by the Company to continue (or to replace with equivalent plans) the Performance Share Plan, the Annual Incentive Compensation Plan or any other Bonus Plan in which you participated for the year immediately preceding such Change in Control (the "Bonus Plans") which are in effect at the time of such Change in Control or a failure by the Company to continue you as a participant in such Bonus Plans (or equivalent plans) on a basis which would entitle you to receive under such Bonus Plans (or equivalent plans) amounts at least equal to the average amounts you received pursuant to such Bonus Plans for the three years preceding such Change in Control; (D) the Company's requiring you to maintain your principal office or conduct your principal activities anywhere other than at the Company's principal executive offices in the New York Metropolitan area, including Somerset County, New Jersey; (E) the failure by the Company to continue in effect (or to replace with equivalent plans) the Company's Capital Accumulation Plan or any other compensation plan, any stock ownership plan, stock purchase plan, stock option plan, life insurance plan, health and accident plan, financial services plan, hospital-medical plan, dental plan, or disability plan in which you are participating or eligible to participate at the time of such Change in Control, or the taking of any action by the Company which would adversely affect your participation in or materially reduce your benefits under any such plans (or equivalent plans) or 3 Mr. Edward Dunlop June 19, 1997 Page 3. deprive you of any material fringe benefit enjoyed or to be enjoyed by you at the time of such Change in Control; (F) the failure by the Company to obtain the assumption of the agreement to perform this Agreement by any successor as contemplated in Section 7 hereof; (G) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the applicable requirements with respect to such Notice; or (H) a determination made by you in good faith, whether before or after the date you are eligible for early retirement under the Company's pension plan, that as a result of such Change in Control you are not able to discharge your duties effectively; or (I) any termination of this Agreement pursuant to Section 6 prior to the expiration of two years from the occurrence of the Change in Control. Termination of your employment for "Cause" shall mean termination because of (A) the willful and continued failure by you substantially to perform your duties with the Company and its principal subsidiaries (other than any such failure resulting from your incapacity due to physical or mental illness), after a demand for substantial performance is delivered to you by the Chief Executive Officer of the Company, which specifically identifies the manner in which such executive believes that you have not substantially performed your duties, or (B) the willful engaging by you in misconduct which is materially injurious to the Company, monetarily or otherwise. For purposes of this paragraph, no act, or failure to act, on your part shall be considered "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in or not opposed to the best interests of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a Notice of Termination from the Chief Executive Officer of the Company after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board of Directors, and a finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this paragraph and specifying the particulars thereof in detail. Termination of your employment for Disability shall mean termination in accordance with the provisions of the Company's Long Term Disability Plan as in effect immediately preceding the Change in Control. 3. Notice of Termination. Any purported termination of your employment shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific 4 Mr. Edward Dunlop June 19, 1997 Page 4. termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. No purported termination of your employment by the Company shall be effective if it is not effected pursuant to a Notice of Termination satisfying the requirements of this Section 3. 4. Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the performance of your duties on a full-time basis during such 30-day period) and (B) if your employment is terminated for any other reason, the date on which a Notice of Termination is given. 5. Severance Benefits. Subject to the conditions in Section 2, on termination of your employment you shall be entitled to the following benefits: (A) You shall be entitled to an amount (the "Severance Compensation") equal to 2 times the sum of (i) one year's salary at the annual rate in effect at the time of the Change in Control and (ii) the average for the three calendar years preceding such Change in Control of your bonuses under the Annual Incentive Compensation Plan (1984) (or successor plan), provided, however, that your Severance Compensation shall not be greater than the amount you would have received as salary and such bonuses from the Company had you remained in the employ of the Company from the Date of Termination until your normal retirement date under the Company's pension plan (on the assumption that your salary would remain at the same annual rate as in effect at the time of Change in Control and that your annual bonuses would be the average for the three calendar years preceding such Change in Control of such bonuses). The Severance Compensation will be payable in full on the Date of Termination. (B) The Company shall also pay to you an amount equal to all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce or retain any right or benefit provided by this Agreement); (C) The Company shall maintain in full force and effect, for your continued benefit until the earlier of (a) two years after the Date of Termination or, (b) your commencement of full time employment with a new employer, all life insurance, hospital-medical, dental, health and accident, and disability plans in which you were entitled to participate immediately prior to such Change in Control, provided that your continued participation is possible under the general terms and provisions of such plans and programs. In the event that your participation in any such plan or program is barred for any reason whatsoever, the 5 Mr. Edward Dunlop June 19, 1997 Page 5. Company shall arrange to provide you with benefits substantially similar to those which you are entitled to receive under such plan or program; (D) You shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section 5 be reduced by any compensation earned by you as the result of employment by another employer after the Date of Termination or otherwise. 6. Term of Agreement. This Agreement shall have an initial term of two (2) years from the date hereof and shall be automatically extended at the expiration of said two-year period for successive two (2) year periods unless the Company gives you one year's prior written notice that it is terminating this Agreement at the expiration of the then current two year period. 7. Successors; Binding Agreement. (A) The Company will require any purchaser of all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to you to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such purchase had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business or assets as aforesaid which executes and delivers the agreement provided for in this Section 7(A) or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (B) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, divisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such designee, to your estate. 8. Notices. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prep aid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Chairman of the Company, with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 6 Mr. Edward Dunlop June 19, 1997 Page 6. 9. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and such officer as may be specifically designated by the Board of Directors of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement; provided, however that this Agreement shall not supersede or in any way affect the rights, duties or obligations you may have under any other written agreement with the Company. This Agreement shall be governed by, and construed in accordance with, the laws (other than principles of conflicts of laws) of the State of New York. 10. Validity. The invalidity or unenforceability of any provision of this Agreement in any respect shall not affect the validity or enforceability of such provision in any other respect or of any other provision of this Agreement, all of which shall remain in full force and effect. If the foregoing correctly sets forth our understanding on the subject matter hereof kindly sign and return to the Company the enclosed copy hereof which will thereupon become our binding agreement. Sincerely, THE CHUBB CORPORATION /s/ Dean R. O'Hare By_____________________ Dean R. O'Hare Chairman Agreed to this day of July 13, 1997 /s/ Edward Dunlop Edward Dunlop EX-11.1 4 COMPUTATION OF PER SHARE EARNINGS 1 Exhibit 11.1 THE CHUBB CORPORATION COMPUTATION OF EARNINGS PER SHARE PERIODS ENDED JUNE 30
Second Quarter Six Months --------------- --------------- 1997 1996 1997 1996 ------ ------ ------ ------ (in millions) Net income.................................. $188.7 $174.3 $380.8 $325.7 After-tax interest expense on 6% exchangeable subordinated notes............ 1.1 2.5 3.3 4.9 ------ ------ ------ ------ Net income for computing earnings per share. $189.8 $176.8 $384.1 $330.6 ====== ====== ====== ====== Weighted average number of common shares outstanding................................ 172.3 174.6 172.9 174.6 Additional shares from assumed conversion of 6% exchangeable subordinated notes as if each $1,000 of principal amount had been converted at issuance into 23.256 shares of common stock............. 2.0 5.8 3.7 5.8 ------ ------ ------ ------ Weighted average number of common and common equivalent shares assumed outstanding for computing earnings per share.............. 174.3 180.4 176.6 180.4 ====== ====== ====== ====== Net income per share........................ $ 1.09 $ .98 $ 2.18 $ 1.83
EX-27 5 FINANCIAL DATA SCHEDULE
7 THE CHUBB CORPORATION Financial Data Schedule(*) (*) This schedule contains summary financial information extracted from the Consolidated Balance Sheets and the Consolidated Statements of Income and is qualified in its entirety by reference to such financial statements. 1,000,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 9,122 2,342 2,465 793 0 0 13,358 8 68 662 19,966 9,575 2,624 0 0 1,061 176 0 0 5,396 19,966 2,570 380 45 92 1,626 699 162 485 104 381 0 0 0 381 2.18 0 0 0 0 0 0 0 0 DEBT-HELD-FOR-SALE REPRESENTS FIXED MATURITY INVESTMENTS CLASSIFIED AS AVAILABLE-FOR-SALE AND CARRIED AT MARKET VALUE AS PRESCRIBED BY SFAS NO. 115. DEBT-CARRYING-VALUE REPRESENTS FIXED MATURITY INVESTMENTS CLASSIFIED AS HELD-TO-MATURITY AND CARRIED AT AMORTIZED COST AS PRESCRIBED BY SFAS NO. 115. DEBT-MARKET-VALUE REPRESENTS THE RELATED MARKET VALUE OF FIXED MATURITIES CLASSIFIED AS HELD-TO-MATURITY. RECOVER-REINSURE REPRESENTS REINSURANCE RECOVERABLE ON PAID CLAIMS. POLICY-LOSSES EXCLUDE THE REDUCTIONS FOR REINSURANCE RECOVERABLES ON UNPAID CLAIMS (1,280) AS PRESCRIBED BY SFAS NO. 113. THIS AMOUNT IS INCLUDED IN TOTAL ASSETS. UNEARNED-PREMIUMS EXCLUDE THE REDUCTION FOR PREPAID REINSURANCE PREMIUMS ($114), AS PRESCRIBED BY SFAS NO. 113. THIS PREPAID AMOUNT IS INCLUDED IN TOTAL ASSETS. NOTES-PAYABLE INCLUDES SHORT-TERM DEBT OF $223 AND LONG-TERM DEBT OF $838. OTHER-SE INCLUDES PAID-IN SURPLUS; RETAINED EARNINGS; FOREIGN CURRENCY TRANSLATION LOSSES, NET OF INCOME TAX; UNREALIZED APPRECIATION OF INVESTMENTS, NET; RECEIVABLE FROM ESOP AND TREASURY STOCK. OTHER-INCOME REPRESENTS REVENUES FROM REAL ESTATE OPERATIONS. AMOUNTS FOR SECURITIES ACT INDUSTRY GUIDE 6 AND EXCHANGE ACT INDUSTRY GUIDE 4 DISCLOSURES ARE REQUIRED FOR ANNUAL FILINGS ONLY. ACCORDINGLY, NO AMOUNTS WILL BE REPORTED FOR INTERIM FILINGS.
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