Chubb Corp CB
Q1 2013 Earnings Call Transcript
Transcript Call Date 04/25/2013

Operator: Good day, everyone and welcome to The Chubb Corporation's First Quarter 2013 Earnings Conference Call. Today's call is being recorded. Before we begin, Chubb has asked me to make the following statements.

In order to help you understand Chubb, its industry and its results, members of Chubb's management team will include in today's presentation, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

It is possible that actual results might differ materially from estimates and forecasts that Chubb's management team makes today. Additional information regarding factors that could cause such differences appears in Chubb's filings with the Securities and Exchange Commission.

In the prepared remarks and responses to questions during today's presentation Chubb's management may refer to financial measures that are not derived from generally accepted accounting principles or GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures and related information are provided in the press release and the financial supplement for the first quarter 2013, which are available on the Investors section of Chubb's website at www.chubb.com.

Please also note that no portion of this conference call may be reproduced or rebroadcast in any form without Chubb's prior written consent. Replays of this webcast will be available through May 24, 2013. Those listening after April 25, 2013, should please note that the information and forecasts provided in this recording will not necessarily be updated and it is possible that the information will no longer be current.

Now, I will turn the call over to Mr. Finnegan.

John D. Finnegan - Chairman, President and CEO: Thank you for joining us. As you can see from our earnings release, Chubb had a great first quarter. We recorded the highest operating income per share and the highest net income per share of any quarter in the Company's history.

The quarter was highlighted by strong underlying performance in each of our business units and relatively benign catastrophe losses. We were also very pleased that the positive rate momentum we have seen in recent quarters has continued.

Operating income per share was $2.14, a 26% increase over last year's first quarter. Annualized operating ROE was 16.3% for the first quarter of this year. The combined ratio for the quarter was 84.6% compared to 90.2% last year. Excluding the impact of cats, the combined ratio for the first quarter was 84% in 2013, a 5.4 point improvement over last year's first quarter.

Our overall growth and net loss estimates for storm Sandy remained unchanged although the CCI loss estimate declined slightly and the CPI loss estimate increased by a similar amount.

During the first quarter, we had net realized investment gains of $138 million before tax, but $0.34 per share after-tax. This brought our first quarter net income per share to $2.48, resulting in an annualized ROE of 16.5%.

GAAP book value per share at March 31, 2013 was $61.79, that's a 2% increase since year-end 2012 and an 8% increase this March 31 a year ago. Our capital position is excellent. During the first quarter, we increased our common stock dividend for the 31st consecutive year and we also continued our share repurchase program as Ricky will discuss later.

Net written premiums were up 4%, driven by growth in all three of our business units.

In terms of pricing, average renewal rates increased in both our U.S. commercial and specialty lines by high single digits in the first quarter, consistent with the rate increases we saw in the second half of last year. We also had continued rate improvement in personal lines. We continue to push for rate as we focus on improving the profitability of our business in the face of low interest rates and the higher catastrophe losses that the industry has experienced over the past several years.

Now, for more details on our operating performance, we'll start with Paul, who will discuss Chubb's commercial and specialty insurance operations.

Paul J. Krump - EVP, The Chubb Corporation and President, Commercial and Specialty Lines: Thanks John. The Chubb Commercial Insurance net written premiums for the first quarter increased 2% to $1.4 billion. The combined ratio was a terrific 81.9% versus 93.3% in the first quarter of 2012. The impact of catastrophes in the first quarter of 2013 improved CCI's combined ratio by 1.7 percentage points of which 2.1 points were related to a decrease in estimated commercial losses from storm Sandy.

Excluding the impact of catastrophes, CCI's first quarter combined ratio was 83.6% compared to 92.4% in the first quarter of 2012. This was an outstanding quarter as CCI benefited from continued favorable development and the impact of earned rate increases and excess of loss costs in our current accident year.

Much of our favorable loss experience is attributable to our underwriting initiatives, which we commenced in 2011, and which we have discussed at length on previous calls. At the same time, we recognized that we also had a measure of good fortune in the form of a very low level of large losses in our property and marine business, which contributed to its exceptionally low combined ratio in the first quarter. This is obviously attributable to luck as well as underwriting discipline and it is unlikely to persist indefinitely.

Accordingly, while we expect that our performance will continue to benefit from the earn-out of higher rates and underwriting discipline, we also believe that there is a good chance we could see some reversion to higher historical levels of loss experience for large losses sometime in future quarters.

We are pleased that CCI's average U.S. renewal rates increased by 8% in the first quarter, continuing the favorable rate environment we experienced in 2012. This 8% is consistent with the average renewal rate increases we obtained throughout last year.

In the first quarter of this year, CCI secured average renewal increases in the U.S. in every line of business, led by workers' compensation and general liability, which were in the low double-digits. These lines were followed by monoline property, package, automobile and excess umbrella, all of which were in the mid to high single-digits.

Turning to markets outside of the U.S., CCI saw renewal rate increases in the low single-digits in both Canada and Europe. In Latin America and Asia Pacific, renewal rates were flat to slightly positive.

CCI's first quarter U.S. renewal retention was 84%, up 1 point from the fourth quarter of 2012. The new to loss business ratio in the U.S. was 0.8 to 1 in the first quarter, up from 0.7 to 1 in the fourth quarter.

Renewal exposure change for CCI in the first quarter was negative 1%. Likewise, a smaller premium contribution from CCI's endorsement and audit activity had a slightly negative impact on first quarter growth.

Moving on now to Chubb Specialty Insurance; we are very pleased by the progress we saw in the first quarter. CSI's combined ratio improved to 87.4% from 93.6% in the first quarter a year ago, reflecting enhanced profitability in both our professional liability and surety lines. CSI's net written premiums increased 5% in the first quarter to $632 million. We are especially encouraged by the improvement in professional liability as we recorded a combined ratio of 92.4% compared to 98.5% in the first quarter last year, reflecting the rate increases and culling actions that we have discussed with you on recent calls.

Net written premiums for professional liability were up 2% to $549 million. Average professional liability renewal rates in the U.S. increased by 9% in the first quarter. This compares to 4% in the first quarter a year ago and 9% in the fourth quarter. This is the sixth consecutive quarter in which we secured higher rates in our professional liability business, thus achieving continued rate on rate.

Each of our professional liability lines of business in the U.S. experienced renewal rate increases in the first quarter. The increases were led by private company, D&O, and Employment Practices Liability; both of which obtained increases that averaged in the low teens. These lines were followed by not-for-profit D&O, public company D&O, crime E&O and fiduciary. All of which obtained average rate increases in the mid-single-digits.

In markets outside of the U.S., renewal rate increases for our Professional Liability business continued in the low single-digits similar to what we obtained in 2012.

Renewal premium retention for Professional Liability in the first quarter was 81% in the U.S. identical to the fourth quarter, the new to loss business ratio for Professional Liability in the U.S. in the first quarter was 0.6 to 1, also unchanged from the fourth quarter of 2012. Endorsements had a slightly positive impact on Professional Liability growth in the U.S. for the first quarter.

Regarding the surety portion of CSI, net written premiums in the first quarter were up 30% to $83 million and the combined ratio was again a very good 50.7% compared to 56.3% in the first quarter of 2012. As we have mentioned in the past, surety is a lumpy business. The large increase in premiums in the first quarter of this year resulted from new bondable projects that were won by our existing U.S. customers, as well as from growth in Latin America.

With that, I will turn it over to Dino, who will review Personal Lines and our corporate-wide claim results.

Dino E. Robusto - EVP, The Chubb Corporation and President, Personal Lines and Claims: Thanks, Paul. Chubb Personal Insurance had another very good quarter. Net written premiums increased 5% to $987 million and CPI produced a combined ratio of 87% compared to 85.5% in the corresponding quarter last year. The impact of catastrophes on CPI's first quarter combined ratio was 3.9 points in 2013, of which 2.6 points were related to an increase in estimated personal line losses from storm Sandy.

In the first quarter a year ago, the cat impact on CPI's combined ratio was 1.2 points. On an ex-cat basis CPI's combined ratio was 83.1% in the first quarter, compared to 84.3% in the first quarter of 2012.

Homeowners' premiums grew 3% for the quarter and the combined ratio was 82.5%, compared to 80.1% in the corresponding quarter last year. Cat losses accounted for 6.1 points of the homeowners combined ratio in the first quarter of 2013, compared to 1.9 points in the first quarter of 2012. The 6.1 points of homeowners cat in this year's quarter includes 4.1 points related to the increase in estimated storm Sandy losses. Excluding the impact of catastrophes, the 2013 first quarter homeowners' combined ratio was 76.4%, compared to 78.2% in the same period a year ago.

Personal Auto premiums increased 7% and the combined ratio was 94%, compared to 91.3% in the first quarter of 2012. The strong growth in Personal Auto for the quarter reflected higher growth both in the United States and outside the U.S.

In other Personal, which includes our accident, personal excess liability and EEOC line, premiums were up 9% and the combined ratio was 94% compared to 97.3% in the first quarter a year ago. The first quarter of 2013 was the 10th consecutive quarter of net written premium growth in the U.S. for both homeowners and personal auto. Policy retention in the first quarter was 91% for homeowners and 89% for auto, both of which are essentially unchanged from the fourth quarter of 2012 and the first quarter of 2012.

In the first quarter of 2013, we achieved homeowners' rate and exposure premium increases totaling 7% in the United State. Given rate changed either already approved or being planned for later this year we anticipate the momentum of rate and exposure increases continuing throughout 2013. In short, we are very pleased with the performance and prospects of personal lines.

Turning now to claims corporate-wide, in the first quarter of 2013, the cat impact on the combined ratio was only 0.6 points, reflecting about $21 million or losses from three cat events in the United States and one event outside the U.S., partially offset by about a $3 million decrease in our estimated losses from catastrophes which occurred in prior years. As John mentioned earlier, the overall gross and net loss numbers for Storm Sandy that we provided last quarter remained unchanged, although the amount of CPI losses increased slightly and the amount of CCI losses decreased by about the same amount. In dollar terms this shift was about $25 million.

Now, I'll turn it over to Ricky who will review our financial results in more detail.

Richard G. Spiro - EVP and CFO: Thanks Dino. As usual, I'll discuss our financial results for the quarter and I will also provide an update on the April 1st renewal of our major property reinsurance program.

Looking first at our operating results; we had very strong underwriting income of $485 million in the quarter, a 60% increase over the first quarter a year ago. Property and casualty investment income after tax was down 6% to $288 million, due once again to lower reinvestment rates in both our domestic and international fixed maturity portfolios.

Net income was higher than operating income in the quarter due to net realized investment gains before tax of $138 million or $0.34 per share after-tax with $0.14 per share coming from our alternative investment portfolio. For comparison in the first quarter of 2012, we had net realized investment gains before tax of $56 million, or $0.13 per share after-tax of which $0.02 per share came from alternatives.

Unrealized depreciation before tax at March 31st, 2013 was $3.1 billion, which is unchanged from year-end 2012. The total carrying value of our consolidated investment portfolio was $43.8 billion as of March 31, 2013. The composition of our portfolio remains largely unchanged from the prior quarter. The average duration of fixed maturity portfolio is 3.7 years and the average credit rating is Aa3.

We continue to have excellent liquidity at the holding company. At March 31st, our holding Company portfolio had $1.9 billion of investments, including approximately $250 million of short-term investments. These amounts have already been reduced by the funds we set aside to repay $275 million of senior notes that matured on April 1st.

Book value per share under GAAP at March 31 was $61.79 compared to $60.45 at year-end 2012.

Adjusted book value per share, which we calculate with available-for-sale fixed maturities at amortized cost was $55.57 compared to $53.80 at 2012 year-end.

As per loss reserves, we estimate that we had favorable development in the first quarter of 2013 on prior-year reserves by SBU as follows.

In CPI, we had approximately $5 million, CCI had $125 million, CSI had $55 million, and reinsurance assumed had $5 million, bringing our total favorable development to approximately $190 million for the quarter. This represents the favorable impact on the first quarter combined ratio of about six points overall.

For comparison, in the first quarter of 2012 we had another $100 million of favorable development for the Company overall, including $30 million in CPI, $20 million in CCI, $40 million in CSI, and $10 million in reinsurance assumed. The favorable impact on the combined ratio in the first quarter of 2012 was about 3.5 points.

For the first quarter of 2013, our ex-cat accident year combined ratio was 90.2% compared to 92.1% in last year's first quarter.

During the first quarter of 2013, our loss reserves decreased by $343 million, including a decrease of $330 million for the insurance business and a decrease of $13 million for the reinsurance assumed business which is in run-off. The overall decrease in reserves reflects a decrease of $390 million related to catastrophes.

The impact of currency translation on loss reserves during the quarter resulted in a decrease in reserves of about $70 million.

Turning to capital management, we repurchased 3.9 million shares at an aggregate cost of $326 million during the quarter. The average cost of our repurchases in the quarter was $82.86 per share.

At the end of the first quarter, we had $1.1 billion available for share repurchases under our current authorization and as we said on our last earnings call, we expect to complete this program by the end of January 2014.

In February, as John mentioned, our Board raised the quarterly common stock dividend by 7% to $0.44 per share or $1.76 on an annual basis. This was our 31st consecutive annual dividend increase a continued indication of our consistent performance in financial strength in a cyclical industry.

I would now like to say a few words about our reinsurance program. On April 1, we renewed our major property treaties including our North American cat treaty, our non-U.S. cat treaty and or commercial property per risk treaty. We renewed these programs with the exact same coverage structure as we had in 2012.

The reinsurance market was orderly and there was plenty of capacity to meet our needs in each treaty. In terms of cost, we had a very modest increase for our North American cat treaty largely due to Storm Sandy, but after taking exposure into account, the price for this treaty actually declined in the low single digits compared to last year.

In addition, we received double-digit price decreases on each of the two other property treaties, which we renewed. Overall, the aggregate cost of these three treaties will be moderately lower than last year.

Now I'll turn it back to John.

John D. Finnegan - Chairman, President and CEO: Thanks, Ricky. In short, we had an outstanding quarter. Record operating income per share was driven by very strong underwriting results. Substantial realized gains reflected excellent investment performance and the combination of the two resulted in record quarterly net income per share and an ROE of 16.5%.

On the underwriting side, we benefited from both, very favorable prior period development as well as excellent current accident year performance. Favorable development came in at 6 points, reflecting continued benign loss experience.

On the accident year side, we are also benefiting from favorable loss experience as well as the impact of continued rate increases. Our ex-cat accident year combined ratio of 90.2% is almost 2 points better than last year's first quarter and reflects strong contributions from all three business units, including significantly improved performance of CSI.

Importantly, earned rate increases are now exceeding longer term loss cost trends in all three of our major business units, all doing well for future profitability. Of course, results in any quarter are more a function of actual loss experience in that quarter than longer term loss cost trend lines.

Over the last five quarters, our results have benefited from very benign ex-cat loss experience, well below longer term trends. We believe much of this improvement in loss experience reflects underwriting initiatives we implemented beginning in the second half of 2011 to call our existing book and to greatly enhance our underwriting discipline as it relates to new business.

On the other hand, we've undoubtedly also enjoyed a great run of good fortune in terms of non-cat related weather and an unusually low level of other large losses. As Paul mentioned, this is particularly illustrated by the property and marine line, where our extremely low combined ratio this quarter benefited from the absence of almost any major fire or other large losses, an unusually positive occurrence, which can hardly be attributed to underwriting discipline alone.

In terms of the current environment, the market remains firm as evidenced by the fact that we continued in the first quarter to achieve mid-to-high single-digit renewal increases in all of our business units, with generally stable retention levels.

Going forward, assuming we achieve rate increases at current levels, we will see continued margin expansion, although results in any given quarter will be more a function of swings and actual loss experience than longer-term loss trends, where we might expect some reversion to higher historical levels of loss experienced or large losses as the year goes on. On balance, however, 2013 is off to a great start from both the market and profitability perspective, and we believe we have every region to be optimistic about the rest of the year.

With that, I'll open the line to your questions.

Transcript Call Date 04/25/2013

Operator: Mike Zaremski, Credit Suisse.

Michael Zaremski - Credit Suisse: John, I noticed this isn't an exact science, but I understood your commentary correctly, it sounded like this was a very benign non-cat weather quarter. I believe I could be wrong that, I know last year was also benign non-cat weather. So was this quarter even more benign than 1Q '12? Is there any way to put some kind of numbers behind how lower it was versus 'normal'?

John D. Finnegan - Chairman, President and CEO: I think that, you know we've had some good non-cat related weather experience the last five quarters. Now, that's probably because we've had some pretty good weather, although this quarter it was a little bit different in that there were a number of storms and yet many of them not cats and yet they came in pretty good, but we're up I think maybe a point in non-cat related.

Dino E. Robusto - EVP, The Chubb Corporation and President, Personal Lines and Claims: Yeah, about point and a half in homeowners against the first quarter, still a bit lower than our five-year average.

John D. Finnegan - Chairman, President and CEO: Maybe 1 to 2 points below five-year average.

Dino E. Robusto - EVP, The Chubb Corporation and President, Personal Lines and Claims: Yeah.

John D. Finnegan - Chairman, President and CEO: So that's good. I would say the real – the very benign loss experience we suffered – we enjoyed in this quarter really related more to the lack of major large losses, some of that in Specialty, but primarily where you see the biggest impact would be in the property and marine line. There, obviously, our combined ratio is benefiting from another number of things. It's incredibly low at 60, right; it's benefiting from a number of things. I mean for one year you've got about 5 or 6 point positive from the change in the estimate on Sandy. We also had some good favorable development against the year last year where we didn't have positive development in the first quarter. But and – kind of if we look the fact we have gotten substantially rate increases in that business for a couple of years…

Richard G. Spiro - EVP and CFO: Over 20%.

John D. Finnegan - Chairman, President and CEO: Yes. So that certainly impacted, but having said all of that, we had very few fire losses or other large losses in the quarter in the property line.

Michael Zaremski - Credit Suisse: Lastly on workers' comp, one of your competitors put up reserve for legislation in New York related to reopen workers' comp cases, I was hoping you could comment on that and also just on loss costs in workers' comp?

Dino E. Robusto - EVP, The Chubb Corporation and President, Personal Lines and Claims: On the legislation, as you know, the legislation was just signed into law in April and it's got many facets so we are still analyzing the impact of the reopen case fund being eliminated January 1, 2014. Our review to date indicates that in recent years only a very small percentage of Chubb claims has been submitted to the fund, but we obviously need to complete our analysis on that. Giving you some information on work comp, and just what we are seeing in terms of loss trends. Now I think it's important to keep in mind that our period to period claim stats may not be as indicative as the industry trends as we have less than about a 2% market share, but work comp newer rights claim counts are down 3%. From a severity perspective, work comp claim cost in the first quarter were somewhat favorable relative to longer-term trends in the mid-to-high single digits. However, severity data is inherently noisy and considering the long tail nature of these claims, our primary focus still remains on the longer-term trends.

Michael Zaremski - Credit Suisse: If I can slip one in on workers' comp then lastly, the premium growth was flat versus high teens last year such as lumpiness as well?

Paul J. Krump - EVP, The Chubb Corporation and President, Commercial and Specialty Lines: Yeah, Mike, this is Paul. There is a number of factors that cause workers' compensation growth to be flat this past quarter. The first thing I guess I would note is that the comparable year-ago first quarter was particularly strong at plus 23%. So, we're comparing a relatively high base amount in terms of the various timing-related issues that can affect work comp premium. For one thing, the year-over-year change in audit endorsement premiums was slightly negative in the first quarter this year compared to significant positive effect in 2012. Then we also reduced our participation in a large work comp program last year and that had a slightly bigger negative impact this quarter than in the preceding few quarters. That effect has largely worked its way through though. So, I want to make certain that you understand that should taper off from here. We also saw fewer favorable large new business opportunities and had a lower renewal retention compared to the first quarter of 2012. You have to keep in mind that workers' comp for us is only about 20% of our overall CCI book, which is going to be a much smaller percentage than most of our competitors and most of our work comp business is written as a part of an overall account. So, that being the case, our goal is to have this line produce a consistent profit over the long-term. This strategy along with our underwriting discipline will sometimes result in quarters where growth just lags or it surges. Going forward, I think bottom line, what I'd say is that we think that it's likely that our work comp growth will be neither as small as it was in this past quarter, not as large as it was in the first quarter of 2012. So, hopefully, that gives you a little bit of color on our thinking.

Operator: Jay Gelb, Barclays.

Jay Gelb - Barclays: My first question was on the negative 1% exposure growth in the quarter, that's a little contrary to what we would of thought, given the improvement in the overall economy. So can you discuss that a bit?

John D. Finnegan - Chairman, President and CEO: Sure. I will have Paul address that.

Paul J. Krump - EVP, The Chubb Corporation and President, Commercial and Specialty Lines: Sure. First off, CCI renewal exposure change was just slightly negative. To put a little more color on it, we experienced some positive exposure, increases in workers' comp. But we're dealing with a fairly sluggish economy and we just didn't see there is much as we normally would expect to see. But that said, it's been running at a tight range here over the last couple of years of negative one to plus one. So it wasn't all that surprising to us.

Jay Gelb - Barclays: And then on loss cost inflation. Can you tell us about where you set your picks at for 2013 versus '12? And what type of underlying loss cost inflation are you assuming in the CCI book as opposed to the specialty book?

John D. Finnegan - Chairman, President and CEO: To talk about longer-term trend lines and loss costs, (we began about) 4% in CCI and 4.5% in CSI. That's kind of the general – each line though obviously has significantly different trends. That's going to be the long-term loss cost trends.

Jay Gelb - Barclays: So that means it's coming in more at two to three.

John D. Finnegan - Chairman, President and CEO: Jay, This is – it's not a science in this area. If you looked at the fourth quarter of last year and our results in compared to the fourth quarter of the prior year, you would've attributed a – if you adjusted it mathematically and looked at the improvement in combined ratio, the improvement in combined ratio significantly exceeded what one would otherwise call margin expansion. That was the comparison of earned rate to long-term loss trend cost. In the first quarter of this year, if you take the 5, 5.5 point improvement in combined ratio, take out the 3 points of development, you get 3.5 points, you get 2 points of improvement in the accident year and it would – as it happens mathematically, margin expansion was about 2 points on average in our lines or aggregate in our lines. So you wouldn't say – you'd say maybe actual loss experienced year-over-year first quarter to first quarter was about in line with the trend. This is no real science to that and it moves from period to period though. One of the reasons is the fourth quarter of 2011 loss cost were very bad, the first quarter of 2012 loss cost were pretty good. So I attributed the fourth quarter performance largely to better than – a loss cost better than long-term trends. The first quarter, I really can't do that except in development area, it was very positive. Mathematically it comes out to be about equivalent to margin expansion.

Jay Gelb - Barclays: Can you comment on competitions for new business as opposed to your renewal?

Paul J. Krump - EVP, The Chubb Corporation and President, Commercial and Specialty Lines: Sure. This is Paul again. I would tell you that the competition for new is still alive and well and that is one of the reasons that you see our new to loss business ratios running where they are. Now that said, I want to remind everybody, and John talked about this in his prepared remarks, that we had some experiences in the past that were pretty rough, in particular in 2011 we commenced on an action to tighten the gap between the performance of our new business versus our renewals, and that meant the consequence of that was that we would see less new business. So we're being very disciplined in the amount of new business that we're taking on as (we expect) the standard commercial lines and professional liability.

Operator: Amit Kumar, Macquarie.

Amit Kumar - Macquarie: I guess two questions; the first question is on the CSI reserve release number of $55 million, is that all favorable or was there any adverse in recent years, which was more than offset by releases from prior years?

John D. Finnegan - Chairman, President and CEO: No, you know the answer is that it was primarily 2008 in prior were the positives. You'd get in 2009 to 2012 really they come out pretty flat. Accident year 2011 was slightly favorable, '09 was slightly adverse '10 and '12 were close to flat. So you take '09 to '12 as flat.

Richard G. Spiro - EVP and CFO: It's Rick. You want me to give little color on the individual lines within that $55 million?

Amit Kumar - Macquarie: Absolutely.

Richard G. Spiro - EVP and CFO: So within the $55 million in the quarter both professional liability and surety, although surety to a far lesser extent were favorable and the favorable development in professional liability was led by D&O, but also from fiduciary and E&O. There was some modest adverse development in both EPL and the crime and fidelity lines. Hope that that gives you little more color.

Amit Kumar - Macquarie: That's very helpful. I guess related to that is there have been some press reports regarding the News Corp settlement and Chubb, I am not sure. Can you address that and would that impact the Q2 numbers?

Paul J. Krump - EVP, The Chubb Corporation and President, Commercial and Specialty Lines: This is Paul. Why don't I just – first of all, I'll just make the comment that we don't – we're not going to comment on any specific matters or whether we provide insurance to any specific customer because this case though was reported in the press, and it's a significant D&O resolution to a shareholder derivative action. I guess it would be fair to make a couple of general comments as it relates to our thinking. First, the size of the reported settlement underscores the value that D&O coverage provides to the publicly traded companies and in particular, the protection that D&O insurance provides specifically to the individual directors via (Side A) coverage, who are the targets of such securities derivative actions. Second, from our underwriting perspective, it demonstrates the severity and potential volatile nature of settlement values in the D&O product line, which clearly puts a premium then on vigilant underwriting, prudent risk selection and appropriate pricing to fund for just such situations. Third, I think it really underscores and supports the significant efforts we have been taking over the last couple of years to drive increased rate along with disciplined underwriting in the D&O line. Those underwriting and pricing efforts will obviously continue in 2013.

John D. Finnegan - Chairman, President and CEO: I don't think you shouldn't. Professional liability – you shouldn't – it's complicated. You can't equate – if you take anybody who is insured in that, and I don't know who the insurer is on it, but if you look at the insurers, you can't equate the timing of the settlements to the timing of a charge to income. These things tend to be case-reserved over time as they become more likely. Companies don't wait around until the settlement occurs necessarily to take them into account in their reserve positions and things. So it will be a simplified assumption for any company to just can you hear about the settlement to think (and found out) someone who was insured to think it's going into the current quarter.

Operator: Michael Nannizzi, Goldman Sachs.

Michael Nannizzi - Goldman Sachs: Just trying to reconcile something here. So it looks like the underlying combined in CCI is about 96%, I think, if my math is right? How do we – is that right or…

John D. Finnegan - Chairman, President and CEO: 96%. What's your underlying mean by the way?

Michael Nannizzi - Goldman Sachs: Ex-development?

John D. Finnegan - Chairman, President and CEO: Ex-development underlying, all right. Well, if we look at the first quarter. I guess calendar year – if we look …

Michael Nannizzi - Goldman Sachs: 84% spot for you—sorry …

John D. Finnegan - Chairman, President and CEO: Well, accident year ex-cat was 91% or so.

Michael Nannizzi - Goldman Sachs: So your 84% combined reported and then minus you had a negative 1.7 points of cats, is that right?

John D. Finnegan - Chairman, President and CEO: Yeah.

Michael Nannizzi - Goldman Sachs: Then plus the 9 points of development? 9.5, no.

Dino E. Robusto - EVP, The Chubb Corporation and President, Personal Lines and Claims: Yeah.

John D. Finnegan - Chairman, President and CEO: Yeah. You got a double K. You got to watch when you have development in the cat area. You can tenth the double count. But our calendar year published was 81.9%, ex-cat 83.6%, accident year published 91.5%, ex-cat 90.9%.

Michael Nannizzi - Goldman Sachs: Okay, my mistake. Well, I guess I mean still I guess (indiscernible). So last year you've seen that number improve by about 5 points over last year, but you had rate – you got 8 points of rate two years in a row. How does that – where – I mean should we be seeing – like what's the order of magnitude when you have the rate gains versus the change in the combined ratio?

John D. Finnegan - Chairman, President and CEO: I think if I look at, if I look at accident year ex-cat, a year ago was 92.8%. So you're talking about a 2 point improvement from the first quarter of last year. So, if you looked at margin expansion in the first quarter. It was 2% to 3%, maybe about 3%. So you're saying that theoretical – margin expansion is just theoretical, you'd say maybe losses were a point worse than long-term loss trend lines and that's cutting it pretty precise and nothing is such scientific. So it kind of performed along the lines of margin expansion. But having said that, as Paul point out in his remarks, I mean we had an awfully good quarter in terms of large losses. So you can't just extrapolate in for the future like that. This quarter in Property and Marine was so good that when one takes into account margin expansion you also got to take into account what the base year is and whether it is indicative – it's truly indicative and you should extrapolate off. I'd say, this first quarter this year in Commercial, especially the Property and Marine line, we are little bit fortuitous in terms of large losses.

Michael Nannizzi - Goldman Sachs: And then, on the Specialty side as well, I guess I mean, is it fair to assume that the development, most of the development is coming from Professional Liability or…?

John D. Finnegan - Chairman, President and CEO: Yes, 90%.

Michael Nannizzi - Goldman Sachs: So – just maybe my math will be right here, but – we calculate that that number is about – would be like 102% which is just a couple points better than it was a year ago. I'm just trying to reconcile that versus 13 cumulative points of rate gain that you – 4 points in the first quarter last year, and 9 points this year. I would – are you setting your loss (picks) higher than where you expect to be so you're kind of building more reserves or I would just think that that underlying would be improving much more rapidly.

John D. Finnegan - Chairman, President and CEO: First of all you'd have to look at the earned rate improvement. The earned rate improvement in the – if you look at margin expansion versus the earned rate versus longer-term loss trend line, for the first quarter, you're only talking about an improvement of about 1.5 points. You're accumulating 13 points written, not taking into account earned, not taking into account overseas and not offsetting by a long-term trend line. So, really on a margin expansion basis, if I took the rate increases, diluted them by the lesser rate increases we're getting overseas, took them over time and took in account the expected loss cost trends over that time, I'd have expected about 1.5 improvement in the first quarter on accident year. Now, the answer is pretty good. We did have about a 2 point. We ran about 100 in combined ratio in our accident year. It's about 100 in professional liability this quarter. Now, our reported combined of 92.4% is significantly higher than the – so, let's compare maybe to the first quarter of last year. It's about 4 points better of which 1 point was expense, 3 points were loss. You compare it to the fourth quarter of last year, it's only about 1.3 points better over the last quarter, but prior period development have a point less, so let's call it 2 points better. But due to the significant seasonality in the quarter-over-quarter expense ratios. Our expense ratio was 4.4 points lower in the fourth quarter of last year. Now, that was also helped by the treatment of incentive compensation due to Superstorm Sandy. So, our loss ratio actually improved by 6 points from the last quarter of 2012. So, nutshell, loss ratio deteriorated over the year 2012. We have a couple of points better loss ratio first quarter to first quarter and we had a 6 point better loss ratio first quarter to fourth quarter.

Operator: Joshua Shanker, Deutsche Bank.

Joshua Shanker - Deutsche Bank: I want to talk about two items. The first one is that, John you were very pleased with the professional liability citing combined ratio from first quarter '12 of 99% going down to 92% in the first quarter of '13. I also note that it was a 87% back in the first quarter of 2011, I realize talking about different quarters, there is kind of force in this industry. But maybe we can understand how much of this pure rate, how much is loss trend. Was 2011 a particularly good year, is 2013 more normal if we make any statement of this nature.

John D. Finnegan - Chairman, President and CEO: We know that professional liability performance have deteriorated over the last year. I've talked about it at great length. 2011 a particularly good year at 87%. I don't have the data in front of me. I'd say compared to what else happened in the rest of – from 2005 to 2010, I would think it wasn't particularly good. We had some better years over that period for sure. We had substantial favorable development. If you remember we got huge rate increases in the 2003 and 2004, after the WorldCom and Enron. You have a lagged impact. We had lot of development in the later 2000s. But the net impact – what occurred is that, over a period from 2005 to 2010 or 2011 we lost 10 points in in rate. Rate went down 10 points. Cost pressure increased. You had the credit crisis. You had some sort of not directly credit crisis, but economic-related stuff in crime infidelity. So the bottom line is we've expressed happiness with where our professional liability was running. We think this is a good improvement, but this is a long tail line of business. We'll see if at all comes out this way. But we still have a long ways to go. We got to get rate and we got to keep up our calling actions. But we think this is a good step in the right direction, but no, you get to the low 90s in this business, and I mean on an accident year basis not on a reported basis to meet targeted returns, and we're not there yet. But was up in the right direction.

Joshua Shanker - Deutsche Bank: The other question was, to what extent our clients wanting to buy less coverage in the face of rising rates?

Paul J. Krump - EVP, The Chubb Corporation and President, Commercial and Specialty Lines: Josh, this is Paul. We're not seeing anything new on that horizon. I think when the financial crisis hit a couple of years ago, we saw some people asking for options around deductible; they might've been lowering their umbrella in excess limits a little bit to try to ease the squeeze there, but quite frankly that hasn't been anything that has really been impacting us much in the last couple of years.

Operator: Jay Cohen, Bank of America Merrill Lynch.

Jay Cohen - Bank of America Merrill Lynch: Just, I guess, I wanted to understand the development that you gave was the prior year development. That includes the change in the Sandy loss, correct?

John D. Finnegan - Chairman, President and CEO: Yeah.

Jay Cohen - Bank of America Merrill Lynch: So we need to adjust that number or the cat number to make sure we are not double counting?

John D. Finnegan - Chairman, President and CEO: Yeah, so to give you an example on development. If you look at CPI, they only had a half a point of the positive development, but if you took out the Sandy loss, they had 3.1. CCI going the other way, they had 9.6 sort of reported but 7.3 if you adjusted excluding the cats. That give you feel?

Jay Cohen - Bank of America Merrill Lynch: Yeah, that's helpful. I guess maybe the question is on the CCI development. Even if I take out the positive development from Sandy, it looks like a fairly robust number, and you gave us some of the details on the CSI development. I'm wondering if you can do the same for CCI.

John D. Finnegan - Chairman, President and CEO: I'm going to ask Ricky to do that. Let me point out last year, we had very little development in the first quarter in CCI. We had about 5 to 6 points in the second and third quarters, but it ran 8 in the fourth quarter. So with 7.3, excluding cats they were certainly better than we ran for the year last year, but it was down a little from the fourth quarter. Ricky, why don't talk about the…

Richard G. Spiro - EVP and CFO: Sure. So again just to level set, so the total development we saw from CCI in the quarter was $125 million and all four of the lines within CCI were favorable. It was led by the property and marine line, partly due to what we just talked about, the change in the Sandy estimate. Then that we also had favorable development in some of our other short tail lines like C&P property. Then the favorable prior period development in casualty was driven mainly by excess umbrella, and workers' comp was also slightly favorable. The one area where we had a little bit of adverse development was in the A&E area almost all due to the environmental side of it, but that hopefully gives you some idea of what was happening underneath.

Jay Cohen - Bank of America Merrill Lynch: Then accident years, I assumed some of the later years as well except for the property stuff?

John D. Finnegan - Chairman, President and CEO: I don't know. CCI I will say in general, all of our accident years were good as a business. We didn't have any adverse accident years. I'd say the short tail development came from accident years 2011 and 2012 and most of the long tail development from 2010 and prior and probably most of the development is long tail rather than short tails.

Operator: Meyer Shields, Stifel Nicolaus.

Meyer Shields - Stifel Nicolaus: Two questions if I can. One, when we focus on CSI, I think the new to loss ratio was 0.6 to 1? Is it fair to assume that after you go through about a year of that, you disproportionately lost most of the least profitable accounts and therefore that ratio should improve?

John D. Finnegan - Chairman, President and CEO: We've talked in the past that we have a very targeted effect in terms of which accounts we're looking to call directly, which accounts we're looking to perhaps call indirectly by requesting rate increases we need where there is a dramatic rate increases required. I think we've given – I don't know. Do you have updated statistics, Paul, on which areas by segment where would the (subs) come out?

Paul J. Krump - EVP, The Chubb Corporation and President, Commercial and Specialty Lines: Yeah. Sure, John. Meyer, just to think about this, our starting point really is the accident year currently at 100 and what John said just a few minutes ago is first and foremost in our mind, and that is we have to be in the low 90s on an accident year basis. So we are taking a very tough decisive action on this book of business to get there, and that means that we continue to push rate pretty much across the board. Now that said, there are obviously cohorts in accounts that are adequately priced, and there are others that need a fair amount of rate. So we take it down to a very granular level and it's a by-product and we think about it by jurisdiction, but we are certainly out there pushing for rate in that area and that will, of course, mean that we're also taking a very disciplined eye towards the new business just because we see sometimes business coming to market because the agents hearing the incumbents wants to raise the price, whatever, ex 10%, but in reality, we might price that thing up and say it needs to be closer to say, a 30% increase. Now, when John talks about the tiering, or what we used to call or sometimes I refer to as the star system, think of it like movies, five star is great, one star is not that great of a movie. So, in our five star range, we basically got a low single-digit rate increases and had nearly 90% retention. Then in our one-star accounts that were the worst quite frankly, we were pushing up close to 30% rate increases, but there we only renewed right between 65% and 70% of those account. So hopefully that gives you sense of how we're attacking the book.

Meyer Shields - Stifel Nicolaus: I guess, what I'm wondering is that after we go through one or two years of that then it should be much less business in the fewer stars category, because either it's gotten the rate, or it's gone away?

John D. Finnegan - Chairman, President and CEO: Yes, but of course if you're still at a 100, you still have a good deal – just for the lower average is you must still have a good deal of business at above the 100 and is not generating an attractive return, so you still have to get at that. You got to have a 100 average, you got to have some 110s and 120 still on your book.

Meyer Shields - Stifel Nicolaus: Second question and I think I've asked this in the past. With regard to workers' compensation, or really any line of business exposed to medical inflation, are you pricing it at long-term inflation, or is there a higher inflation rate because of the uncertainty as healthcare reform is enacted or implemented?

Paul J. Krump - EVP, The Chubb Corporation and President, Commercial and Specialty Lines: When we think about the long-term trend lines that John was talking about, say 4% for CCI, that's obviously a composite number of all the products and we think about the mix. So workers' comp has a higher number and within workers' compensation different states will have a higher number, California for example would be much higher than the typical state and we think about permanent partial disabilities and many different other factors when we think about medical inflation.

Operator: Vinay Misquith, Evercore Partners.

Vinay Misquith - Evercore Partners: Just a follow-up on the pricing question and it's admirable that you guys are going for a 90% – I mean low 90s combined on the professional lines, but just curious, given the environment and given the economy we are in, how possible is that and what's your view on that and given where the stock is trading and the trade-off versus buying back stock versus writing new business. How do you look at pricing both on the Professional Liability side, as well as on the normal Commercial line side?

John D. Finnegan - Chairman, President and CEO: Vinay, I'm glad you think it's admirable (indiscernible) for 92. It'd be more admirable if we achieved it, of course. The how possible is it? Well, I mean when you are at a 100, and you were at 102, you are coming in the right direction, but it obviously takes a lot of a work to get there. I might also point out we are at 100 in the first quarter, the expenses are seasonally high in the first quarter, if we were in the same loss ratio for the balance of the we might be at 98 in the fourth quarter, there is still a long way from 92. If you are getting 8% to 9% rate increases for a couple of years, it becomes possible, but setting targets is easy, achieving them is hard, we got a – we have ways to go, but we think we are taking a step in the right direction and this has been a line that's performed very, very well over the last 10 years. I will point out it's had a significant amount of favorable development. So you could go back to even the (healthier) years in 2005 and 2006 and where we recorded low 80s combined ratios and you would find that our accident year combined ratio was still low-to-mid 90s at a minimum. So this is kind of unusual that we have fairly high accident year combined ratios in Professional Liability. Now I think I'll turn over to Rick for the trade-off question.

Richard G. Spiro - EVP and CFO: Sure. Obviously, when we think about our excess capital position and what we want to do with it. We take into account a number of factors, including that we have opportunities to invest in our existing businesses. I think where we sit here today, we think that we have enough excess capital not only to continue with our share buyback efforts, but also to support our existing business and any growth that we see in the foreseeable future. And I guess the short answer to come back on the buyback front is that we remain committed to returning excess capital to our shareholders and we continue to believe that our shares are attractively priced. As you point out, the price of our stock has risen recently and obviously, the price to book multiple as well. On the other hand, we believe that our price to book valuation still remains attractive based on historical levels and don't forget interest rates still are very low making alternative investments somewhat less attractive. So, balancing these considerations as well as a number of factors that we take into consideration when thinking about a buyback, we still see attractive economic opportunities at repurchasing our shares at a current price. So, I think, we're going to continue to do both and we can make appropriate investments in our business as we fit.

Vinay Misquith - Evercore Partners: Just as a follow-up, how receptive are clients right now to rate increases? We've seen your retention stay pretty flat. So, it seems that there is no change in client behavior, but just curious as to how it is and how do think it's going to move in the next nine months?

John D. Finnegan - Chairman, President and CEO: Well, the people in the (one star) getting those 42% increases aren't too happy, I'm sure. I think that – I mean, nobody is happy to get an increase, no matter what the reason, right? But the market is up. I think in professional liability we've been encouraged by the fact that we think we led that market, but we think the market environment there has improved significantly. So, you have people reporting on calls that they are getting rate increases in lots of lines of business at high single-digits, and Professional Liability, I think all the indicators are that that market has firmed. So, I mean, as you say, we haven't seen – we've seen a decline in retention from – if you go back a year or two, but we weren't – we were writing business, probably we shouldn't have been writing. So hopefully most of the retention we've lost has been in the areas we wanted to lose it or we weren't able to – want to give the rate base the customer wanted. So I mean the market stats over the last three quarters have been pretty consistent in terms of rate and retention. So I guess that's the best indicator rather than having anecdotal evidence.

Operator: Josh Stirling, Sanford Bernstein.

Josh Stirling - Sanford Bernstein: So just a quick question or two actually. First, we're sort of halfway presumably into a cycle, wondering if you can give us any visibility. Are there any product areas or product lines, regions, anything, any place you operate. Where you feel like you are starting to see more competition rise or has it been sort of a stable environment over the past year?

Paul J. Krump - EVP, The Chubb Corporation and President, Commercial and Specialty Lines: This is Paul again. Again I think just what John said, we've seen the market become a little less competitive in the Professional Liability seen here in the United States. The Australian property market frankly would be an example, some place I'd say that the couple of years we were seeing significant rate increases given the severity of the weather there and that has slowed down, abated little bit. Chile after the last earthquake was very hard market, small, but it was very hard market and that's abated after a few years of very large cumulative rate increases. So, again you have to be thinking about this by line, by country, with some big countries like the United States that can boil down the geographies and sometimes even neighborhoods.

Josh Stirling - Sanford Bernstein: Outside looking in, this is sort of an odd market because there is some people that are very constructive in growth in this environment and I think you guys are sort of famously not. I am wondering how you'd help investors to think that through. Just if I sort of ask the anecdotal question, just because it is sort of (come into mind) when you made the point about 42% rate increase. I am wondering what price do you think that the market when the customer ultimately renew it to somebody else? How much of an increase they are actually taking? And I will drop off.

John D. Finnegan - Chairman, President and CEO: I don't know. The statistics that Paul gave you, about 60% to 70% of those people were retained in those rate increases we're talking about. So for a lot of them there weren't a lot of good alternatives. These were accounts that have challenges, but obviously the ones that don't come back are probably getting better rates. They don't really – can't really tell you the answer to that question.

Operator: Ian Gutterman, Adage Capital.

Ian Gutterman - Adage Capital: Just a follow-up I guess on a couple of the earlier questions, CCI. John, you said – I was a little confused when you said the accident year ex-cat improved 2 points this quarter, but then you also said the fire losses were (extremely low). If I were to guess that was maybe a 1 point or 2. It seems the sort of ex, ex, ex underlying is kind of flat. So why weren't there improvement?

John D. Finnegan - Chairman, President and CEO: Ina, there is a lot of moving parts. I mean what we said was as – inventory what we said, we said the accident year improved by 2 points. We said also we were coming off a pretty good quarter last quarter, where – the first quarter last year. It was a quarter which was benign on ex – on non-cap related weather. We did have a very favorable loss experience, lost losses this quarter, but we also had pretty good favorable experience first quarter last year on lost losses, not as good, but just doing your math, if you take a point and half in personal lines from non-cat related weather, you take a point or whatever you estimate on large losses in commercial, they kind of offset and give you the two point improvement, which is sort of in line with the margin expansion in the Company and that's not a CCI thing, the ex-cat you're talking about it is for the Company as a whole 2 points.

Ian Gutterman - Adage Capital: Then the other one is just when I was looking at the releases in CCI for the last two quarters, Q4 was – since you've been disclosing this, Q4 was a record high of releases and Q1 just beating that. I know part of that Sandy, but basically you had sort of your two best quarters of releases in CCI in this hard market. I'm just kind of wondering, I mean you obviously gave some detail on lines or sort of what's driving releases to spend new heights.

Richard G. Spiro - EVP and CFO: I mean CCI, if you look at it I think you'd agree – should look at it ex Sandy, it was 7.3. We were around 8.2 we should say, last year we were in the 5s. So it's a little bit higher but last year in the first quarter we were around 3. So property, I think the big driver this quarter that was out of the ordinary was a terrific experience in property in marine that we went the opposite way in the first quarter of last year. That was what drove it up this year. We continued to have a good underlying in casualty, but the property and marine is probably what drove it up in the first quarter of this year.

Ian Gutterman - Adage Capital: Then just my last one Ricky, this is a little bit of an issue, but the difference between your stat and GAAP expenses that basically deferrals was $41 million, which again was abnormally high, I just was just wondering anything unusual there or is it just the new DAC account that's causing the change in deferral patterns versus the past or...?

Richard G. Spiro - EVP and CFO: It's because the expense ratio was up a little bit.

Ian Gutterman - Adage Capital: The stat expense ratio or the GAAP expense ratio?

Richard G. Spiro - EVP and CFO: The GAAP.

Ian Gutterman - Adage Capital: Okay, GAAP, okay. So that was sort of one-time thing, and shouldn't expect it to repeat?

John D. Finnegan - Chairman, President and CEO: Well, in terms of GAAP expense ratios, we have no reason to believe that's going to have a significant increase in our GAAP expense ratios this year versus last. It could move a point in either direction, but it probably will be a little higher this year just simply because last year, we benefited – because we benefited from the Sandy in terms of the impact on the incentive accrual, but other than that, it shouldn't be moved too much one way or another.

Operator: At this time, we have no further questions. I'll turn things back over to management for any closing or additional comments.

John D. Finnegan - Chairman, President and CEO: Thank you very much, and have a good evening.

Operator: Once again, that concludes our conference. Thank you all for joining.