The Chubb Corporation’s board of directors announced Thursday that John D. Finnegan, Chubb’s Chairman, President and Chief Executive Officer, will remain in his current roles until the end of 2016, breaking a Chubb policy that senior executives should retire at age 65.
With Finnegan remaining as CEO over the next three years, Chubb’s board will continue its review of CEO succession planning as part of its established succession management procedures. In connection with this review, Chubb announced a realignment of responsibilities among the top members of Chubb’s management team, with Paul J. Krump, 53, who is currently president of commercial and specialty lines, becoming president of personal lines and claims, and Dino E. Robusto, 55, who is currently president of personal lines and claims, becoming president of commercial and specialty lines.
Krump will retain responsibility for the accident & health business and Robusto will retain responsibility for information technology.
In addition, Richard G. Spiro, 49, will remain chief financial officer and will assume responsibility for corporate development.
The realignment is designed to broaden the experience of the executives and further enhance their ability to contribute to the leadership of the company in the future, the announcement said.
Had the board not exercised its discretion to depart from the usual policy, Finnegan would have had to retire at the end of 2014.
“The board’s decision was based on its high level of satisfaction with Chubb’s overall performance since John Finnegan became CEO in December 2002,” said James M. Zimmerman, Chubb’s lead director in a press statement, pointing to profitability and employee satisfaction.
“Under John’s leadership, the Company has achieved consistently strong operating earnings notwithstanding unusually high catastrophe losses and, in more recent years, unprecedented low interest rates, Zimmerman said.
“In addition to Chubb’s strong financial performance with John at Chubb’s helm over the last ten-plus years,” Zimmerman noted, “Chubb also has enhanced its position as an employer of choice, has been recognized by national organizations for its sustained commitment to diversity, and has maintained its reputation for excellence in underwriting and claims service.”
Zimmerman added, “Extending this track record is the first priority for the board and we believe that it is in the best interests of our shareholders and employees that John continue as Chubb’s CEO.”
The average annual total return to Chubb’s shareholders (which includes market price appreciation and reinvested dividends) has increased significantly while Finnegan has served as Chubb’s CEO. During the period from Jan. 1, 2003 through Sept. 30, 2013, Chubb’s compound average annual total return totaled 14.8 percent.
Separately, Chubb announced third-quarter earnings on Thursday, with net income of $541 million, or $2.10 per share, and operating income per share coming in at $2.06—the second best quarterly operating result in the history according to Finnegan. Through nine months, the operating income is already $5.97 per share—a level that prompted Chubb to revise its previous full-year guidance to a range of $7.90 to $8.00, from a lower range of $7.30 to $7.50 per share provided in July.
For the quarter, Chubb’s overall net written premiums grew 4 percent to $3 billion overall, while the combined ratio improved to 85.7 in the quarter from 86.3 in last year’s third quarter.
For the first nine months, net income was $1.8 billion compared to $1.4 billion last year. Year-to-date net premiums of $9.2 billion were 2 percent higher than the first nine months of 2012 and the nine-month combined ratio improve to 86.4 from 90.1 in 2012.
Finnegan and the other executives attributed the results to higher rates, strong underwriting performance and favorable reserve development in addition to a low level of catastrophe losses, during an earnings conference call.
Krump said that Chubb Commercial secured renewal rate increases on 90 percent of the U.S. book during the quarter, adding that it was the 10th consecutive quarter of rate increases, with an average renewal rate increase of 7 percent. He also described progress on a program of “differentiated rate-taking and culling” over the past few years, accomplished through a performance ranking system.
Using the ranking system, Chubb segments customers based on estimated rate adequacy, with the company taking “aggressive culling actions” or applying the highest rates to the worst performing groups.
“The bottom line is we now have less premium volume in our lowest performing groups where rate increases were the highest, and more in better performing groups,” Krump said. As a result, needed rate increases in 2013 were lower than in 2012 and will be lower going forward, he suggested.
In personal lines, Robusto reported continued growth in policy count for auto and homeowners in the United States—up 3 percent and 1 percent, adding that U.S. policy retention was 90 percent. Noting that the personal lines retention level was down less than 1 point in the quarter compared to third-quarter 2012, Robusto said, “This is a strong result given multiple price increases [Chubb] implemented over the last three years.”
CFO Spiro reported on favorable loss development for all segments, noting to the total was $190 million—with a 6 point combined ratio impact—compared to $145 million (5 points) for third-quarter 2012. Spiro said the bulk of the favorable development came from commercial lines—$100 million, with another $70 million from specialty lines and $20 million from personal lines.
Commenting on market conditions and rate changes, Finnegan said: “During the quarter, the market tone in the United States remained firm in both standard commercial and professional liability lines where we achieved high-single-digit renewal rate increases and improved retention levels,” adding the personal lines renewal rate increases were in the mid-single-digits.
Asked about his decision to remain in Chubb’s chair and CEO for two more years by an analyst during the conference call, Finnegan replied, “I like the job and I think I contribute in the job. So there’s every reason to continue to work at it.”
Pressed further to explain why Chubb didn’t simply move to name a successor for 2014, Finnegan said, “It’s not a referendum on the capabilities of the executive committee members,” explaining that the board believed “that the continuity of the current leadership team with me as CEO was in the best interests of shareholders.”
“I don’t think you’d be asking the question if we didn’t happen to be one of the very rare companies that had a mandatory retirement age,” he said.
Before joining Chubb in December 2002, Finnegan was with General Motors Corporation, serving in his most recent prior position as president of General Motors Acceptance Corporation, chairman of the GMAC board of directors and executive vice president of GM.