Chubb Net Income Plunges
TRENTON, N.J. (AP) _ Fourth-quarter net income plunged 83 percent at Chubb Corp., a major property and casualty insurer, due to big losses related to bankrupt energy trader Enron Corp., Chubb reported Thursday.
The Warren-based commercial, specialty and homeowners insurer reported net income of $28.7 million, or 16 cents per share, down from $168.4 million, or 95 cents per share, in 2000′s fourth quarter.
Operating income, which excludes income taxes, was $36.5 million, or 21 cents per share, for the fourth quarter. That included a charge of $220 million before taxes _ $143 million, or 83 cents per share, after taxes _ from surety bond losses related to Enron. A year earlier, fourth-quarter operating income was $165.9 million, or 93 cents per share, Chubb said.
Surety bonds are contracts by which one party agrees to make good on the debt or default of another party. Some of the Enron surety bonds are in litigation, and the company might not end up paying the entire $220 million, Dean R. O’Hare, chairman and chief executive, told analysts during a conference call.
``We intend to pursue the litigation vigorously,″ chief financial officer Weston M. Hicks said.
O’Hare said two Chubb employees, whom he did not identify, had resigned over the Enron business. He added that ``short-term jiggles″ caused by Enron and other business scandals would ultimately benefit commercial insurers because they will force corporate executives to be more conservative with accounting.
O’Hare said that excluding the Enron costs, fourth quarter earnings per share would have been $1.04.
Analysts surveyed by Thomson Financial/First Call had forecast earnings per share of 43 cents per share, but it was unclear whether they were keying on operating income or a different figure.
Chubb spokesman Glenn Montgomery refused to discuss any information related to the financial report until later Thursday.
The big hit from Enron follows even bigger losses in Chubb’s third quarter due to claims over damage from the Sept. 11 terrorist attacks. Chubb had a pretax loss of $645 million for that and took an after-tax charge of $420 million, or $2.46 per share, in the third quarter.
``Even after Sept. 11 and Enron, we were profitable last year,″ O’Hare said. ``I feel completely justified in saying, `Happy days are here again.′ Rates are up, retention is up and growth is back.″
He said the rates Chubb is charging for new and renewal policies are ``much higher,″ with tighter conditions, a trend he thought likely to stretch across the industry, and the company is taking steps to minimize ``exposure to terrorism.″
O’Hare said Chubb has lower long-term debt, better cash flow and other advantages over competitors that will help it outperform them with market conditions changing.
For all of 2001, Chubb posted net income of $111.5 million, or 63 cents per share. That was down 84 percent from net income of $714.6 million, or $4.01 per share, in 2000.
Excluding the Sept. 11 claims, net income for 2001 would have been $531.5 million.
O’Hare said Chubb’s commercial insurance business is growing again, with premium growth of 16 percent in the fourth quarter, after an ``intentional growth drought″ since 1998 as the company pruned less-profitable parts of the business.
Still, he said, top executives got no bonuses for 2001.
In midday trading on the New York Stock Exchange, Chubb shares were up $2.13 to $68.56.
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