The Chubb Corporation History

Company Perspectives:

Chubb has always been known for its appetite for risk and its innovative approaches to satisfying customers' needs. These traits have enabled us to grow and prosper over the decades. However, we are also known for our financial strength and fairness and speed in paying claims-qualities that are very important to our customers. We are committed to protecting this financial strength by accepting only prudent risks and leaving the reckless gambles to our competitors. Key Dates:

Key Dates:

1882:

Thomas and Percy Chubb form Chubb & Son.

1901:

Chubb's principal property and casualty affiliate reorganizes as Federal Insurance Company.

1923:

Chubb opens its first branch in Chicago.

1939:

Chubb founds Vigilant Insurance Company.

1957:

The company acquires The Colonial Life Insurance Company of America.

1959:

Chubb & Son reincorporates under the laws of New York.

1967:

The company's management forms The Chubb Corporation to act as a holding company for Chubb & Son and its subsidiaries; Chubb acquires Pacific Indemnity Corporation.

1970:

Chubb acquires Bellemead Development Corporation.

1971:

Chubb acquires United Life & Accident Insurance Company and founds Chubb Custom Market.

1978:

The Chubb Corporation forms Chubb Life Insurance Company of America.

1983:

The Chubb Corporation relocates its head office in Warren, New Jersey.

1984:

Chubb acquires Volunteer State Life Insurance Company.

1987:

Chubb acquires Sovereign Corporation.

1993:

Chubb adds offices in Birmingham, Reading, and Manchester.

1998:

Chubb sells a substantial portion of its Bellemead Development portfolio and forms Chubb Re.

1999:

Chubb purchases Executive Risk Inc.

Company History:

Chubb is best known as a provider of specialty insurance policies for upscale clients, both individuals and organizations. The Chubb Corporation operates as a holding company for an internationally diversified group of companies whose core business is in commercial, personal property and casualty insurance. The company used to also do business in health and life insurance, real estate development, consulting, and financial subsidiaries, but exited these areas in the early 1990s. What distinguishes Chubb from its competitors is its focus on niche products--such as policies covering liability for corporate officers and directors, or insuring stage productions--which account for more than one third of its property and casualty revenues. In the mid-1990s, the company was the fourth largest insurer in the United States, and among the top 15 worldwide.

Steady Growth During the First 75 Years

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

During its first 40 years of business, Chubb & Son grew quickly, acting as an agent for several insurers. The company established itself as a respected underwriter of insurance for ships and cargo. During the 1920s, the company explored new areas. In 1921, Chubb & Son began to represent U.S. Guarantee Company. Through that company, Chubb began to underwrite fidelity, surety, and casualty insurance. In 1923, Chubb opened its first branch in Chicago. In March 1929, Chubb and another transportation insurance agent--the Marine Office of America--organized the Associated Aviation Underwriters, the largest aviation insurance-underwriting group in the United States. Seven companies represented by Chubb and eight insurers represented by the Marine Office joined to form the association.

During the Depression, Chubb's growth slowed as the insurance industry suffered. Nevertheless, in April 1930, Chubb & Son bought a 9,000-square-foot plot in Manhattan to house its companies and allow room for expansion. In 1939, Chubb founded Vigilant Insurance Company, a wholly owned fire and marine subsidiary. During World War II, the economy recovered, and Chubb & Son's business began to grow more quickly.

In December 1941, Chubb gave employees with more than six months of service their first Christmas bonuses. The workers each received half of their bonus in cash, and half in the form of war bonds. Also in December 1941, Chairman Charles A. Seibert, a 55-year veteran of the company, announced his retirement. The company acquired The Colonial Life Insurance Company of America in 1957, and, in 1959, Chubb & Son reincorporated under the laws of New York.

Reorganization and Acquisitions: Late 1960s--80s

The Chubb Corporation saw many changes in the late 1960s. In 1967, the company's management formed The Chubb Corporation to act as a holding company. Chubb & Son became a wholly owned subsidiary of The Chubb Corporation, as did Chubb & Son's subsidiaries. The property and casualty companies within the Chubb group of insurance companies fell under the management of Chubb & Son, the branch responsible for the company's domestic property and casualty insurance companies and U.S. branches of foreign insurers. The primary property and casualty insurance company managed by Chubb & Son remained Federal Insurance Company.

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

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

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

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

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

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

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

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

Specialties and International Expansion: Late 1980s through Mid-1990s

Through a New York firm called Good Weather International Incorporated, Chubb began advertising rain insurance in ten states in May 1988. Drought insurance was also offered to Midwestern farmers by the Chubb subsidiary, Federal Insurance Company. Chubb usually reserved the authority to approve each policy that its independent agents sold, but in this case Good Weather was given the authority to approve Chubb policies. Because rain insurance was a small part of Chubb's business--Chubb issued $5 million of coverage to approximately 200 farmers in 1987--the company set a total limit of $30 million of coverage.

Response was moderate until early June, when lack of rain threatened farmers with the most serious drought in over 50 years. On June 14 and June 15, 1988, Good Weather received over 6,600 applications seeking $275 million worth of coverage, and applications kept coming after the deadline. While farmers worried about the drought, Good Weather and Chubb worried about the flood of applications. The figures were not totaled until the end of June. In the confusion, agents had signed up at least $350 million of coverage for nearly 9,000 farmers. The drought continued, and, on July 15th, Chubb notified 7,616 farmers that they had been denied coverage. In a goodwill effort, Chubb offered to return double the original premiums to farmers who had applied on June 14th or 15th. The effort was unsuccessful, and, by 1991, many lawsuits filed by these farmers remained unresolved. After this experience, Chubb decided to discontinue drought insurance.

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

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

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

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

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

Simultaneously, potential changes in environmental and healthcare regulations initiated by the Clinton administration and state legislatures presented challenges for Chubb and the insurance industry in general. On the environmental side, uncertainties relating to toxic waste and asbestos claims made on policies written decades earlier posed an increasingly large threat to profitability. Chubb began to lobby actively for regulatory reform, hoping to narrow the widening judicial interpretations of such regulations as Superfund toxic waste clean-up rules. In 1994, Chubb settled its most costly asbestos exposure claim from an insurance policy issued in 1956 to Fibreboard Corporation by Pacific Indemnity Corporation, a Chubb subsidiary.

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

In the mid-1990s, Chubb increased its international expansion and accelerated the growth of its domestic network. The company's London branch, at the center of the world insurance market, had doubled in size since its formation in the early 1980s. In 1993, Chubb added offices in Birmingham, Reading, and Manchester to take advantage of profitable opportunities in more local business. When the company determined that London lacked the service-oriented insurance products required for that city's growing affluent population, it focused upon personal insurance--which represented 23 percent of Chubb's total business. In Germany, the new opportunities created by the formation of the European Community and the deregulation of the European insurance industry led Chubb to promote its commercial lines. As a commercial powerhouse, Germany provided an attractive new market for foreign insurers.

In 1994, premiums from international business passed 20 percent of the total, approaching the company's goal of 25 percent for the year 2000. Chubb opened offices in Beijing, Hamburg, Munich, London, and Glasgow. In the United States, Chubb opened a new office in Fresno, California. By 1995, the company, which had 20 domestic branches in 1965, had grown to 89 branches worldwide. The company estimated hiring 1,300 new underwriters a year for the next five years. Some analysts questioned if quality operations could be maintained at such a high growth rate in a soft market, but by 1999, the number of offices worldwide was 132.

A Narrower Focus in the Late 1990s

Chubb's gains were impressive, particularly in light of that fact that the early to mid-1990s were hard years for property and casualty insurers. With too many companies chasing too little business, and premiums that had stagnated at 1987 levels, the industry was rocked in 1994 by a series of underwriting losses: the California earthquake, snowstorms in the Northeast, flooding in the south and west United States, and a series of environmental clean-up claims. Insurers paid out $15 billion in disasters in 1994 alone, leading the industry as a whole to institute a 4.9 percent premium hike in 1994 and a 6.6 hike in 1995.

Over the next several years, Chubb began to shed some of its businesses, following a trend in the insurance industry to concentrate on a single segment. Chubb chose to focus on its property and casualty lines. In 1996, it severed its 114-year relationship with Sun Alliance, the United Kingdom's largest insurer, as part of this refocusing. In 1998, it sold a substantial portion of its Bellemead Development portfolio to PW/MS Acquisition for $737 million, and its life insurance business to the Jefferson-Pilot Corporation for $875 million. It used proceeds from the sales to buy back about 30 percent of the company's outstanding shares during 1997 through 1999.

Chubb made news repeatedly in 1997 for having issued President Clinton a personal-liability umbrella policy in the early 1990s and for later assuming half of the legal costs of his defense in the suit brought against him by Paula Jones. Some argued that the president appeared to be receiving preferential treatment from Chubb and State Farm, who paid the other half of his legal costs, but both companies insisted that they were paying his defense costs as a matter of policy.

Chubb also was noted for its leadership in tackling issues unique to the nascent-online publishing industry. Beginning in 1997, it began to offer multimedia coverage--liability insurance for the multimedia business. Such coverage, as defined by Chubb, included the unauthorized use of ideas, an area not touched upon by normal liability insurance--for example, the stealing of someone's videogame scenario.

The company continued to grow through new ventures and acquisition throughout the late 1990s. In 1998, in a move to enter the global reinsurance market, it formed Chubb Re, Inc. and became a low-cost reinsurance provider. In December, it purchased a 28 percent stake in Hiscox, the integrated Lloyd's of London insurer. Chubb also expanded its umbrella liability policy, offering liability insurance for food processors, suppliers, and franchisers. In 1999, it purchased Executive Risk Inc., the third largest insurer of executives and directors in a $750 million stock deal.

Unfortunately for Chubb, the commercial and property insurance markets continued to struggle through hard times. The industry's overcapacity created a bad pricing environment for insurers and slowed revenue growth, and the strength of the company's personal and specialty lines were not sufficient to counterbalance its losses in standard commercial insurance in 1998 and 1999. Announced earnings for 1998 were short of expectations, despite rate increases in commercial premiums, and stock prices tumbled. To make matters worse, catastrophic losses were heavy in both 1998 and 1999 as a result of Hurricane Floyd, which caused the largest number of claims from a single event in the company's history.

Chubb set itself the task of turning its standard commercial lines around in the year 2000, by continuing its 'pricing and pruning' strategy of premium increases, while continuing to grow in its personal and specialty businesses. Analysts as a group, however, were positive that the company, with its solid history and experience, would pull through its hard times. In January 2000, Fortune magazine named the company to its list of 'The 100 Best Companies to Work for in America.' In August 2000, Chubb received an operating license to open a branch in Shanghai, which the company estimated would bring in about $200 million in business each year. Despite mid-year rumors that the company was ripe for a takeover, the company insisted it was not for sale.

Principal Subsidiaries: Federal Insurance Co.; Vigilant Insurance Co.; Great Northern Insurance Co.; Pacific Indemnity Co.; Northwestern Pacific Indemnity Co.; Texas Pacific Indemnity Co.; Executive Risk Indemnity Inc.; Quadrant Indemnity Co.; Chubb Custom Insurance Co.; Chubb Insurance Co. of New Jersey; Chubb National Insurance Co.; Chubb Atlantic Indemnity, Ltd.; Chubb Insurance Co. of Australia, Ltd.; Chubb Insurance Co. of Canada; Chubb Insurance Co. of Europe; Chubb Argentine de Seguros, S.A.; Chubb do Brasil Companhis de Seguros (Brazil); Chubb de Colombia Compañia de Seguros S.A.; Chubb de Chile Compañia de Seguros Generales S.A.; Chubb de Mexico, Compania de Seguros, S.A. de C.V.; Chubb de Venezuela Compania de Seguros C.A.; PT Asuransi Chubb Indonesia; Chubb Custom Market, Inc.; Chubb Multinational Managers, Inc.; Foundation Reinsurance (PCC) Ltd.; Chubb Re, Inc.; Personal Lines Insurance Brokerage, Inc.; Bellemead Development Corp.; Chubb Capital Corp.; Chubb Asset Managers, Inc.; Chubb Computer Services, Inc.; The Chubb Institute, Inc.

Principal Competitors: Aetna Life and Casualty Co.; State Farm Insurance Companies; The St. Paul Companies; American International Group, Inc.

Further Reading:

• 'Chubb Vanguard Swoops in Ahead of WTO Accession,' South China Morning Post, October 2, 2000, p. 3.
• 'Chubb Corporation: It's an Ill, Dry Wind,' Economist, September 3, 1988, p. 76.
• Fefer, Mark D., 'Chubb: How to Win in a Land of Losers,' Fortune, August 23, 1993, p. 80.
• Gallagher, Kathleen, 'Industry Problems Make Insurer's Stock Undervalued,' Milwaukee Journal Sentinel, February 14, 1999, Business p. 4.
• Hutton, Cynthia, 'How Chubb Got Soaked on Drought Insurance,' Fortune, September 12, 1988, p. 10.
• 'Insuring Stage Productions Can Be a Titanic Expense,' Tampa Tribune, April 16, 1997, p. 7.
• 'Is the President Getting Special Insurance Treatment for the Paula Jones Lawsuit?,' Insight on the News, July 21, 1997, p. 24.
• Kirk, Don, 'Germany Imports New Style Market,' Business Insurance, November 7, 1994, p. 35.
• Liscio, John, 'Chubb Corp.,' Barron's, December 28, 1987, pp. 33--34.
• Mack, Gracian, 'At the Top of His Game,' Black Enterprise, March 1995, pp. 84--87.
• Moreau, Dan, 'Chubb Thinks Small, But All Its Little Pieces Add Up,' Kiplinger's, May 1995, pp. 38--40.

Source: International Directory of Company Histories, Vol. 37. St. James Press, 2001.

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