Chubb to cull professional liability business

WARREN, N.J.—Chubb Corp. plans to cull its professional liability business, according to its top executive.

“We're getting rid of accounts where we can't make money,” said John D. Finnegan, Chubb president, chairman and CEO, during a call Thursday with analysts. A spokeswoman said she could not provide additional information as to which lines were being cut.

In addition, a Chubb official said during the call that he does not expect Chubb's directors and officers liability business to be significantly impacted by the Libor scandal.

Warren, N.J.-based Chubb last week reported a first-half net income of $910 million, a 1.9% drop from net income reported during 2011's first half.

Professional liability premiums decreased 4.6%, to $1.09 billion. The combined ratio for the professional liability business was 98.2% vs. 85.6% for the comparable period a year ago.

During the call, Mr. Finnegan said renewal premium retention for professional liability in the second quarter was 82% in the United States, down three points from the first quarter.

“We like the professional liability business long term, but current market conditions being what they are, this is not the time to be aggressively growing the book,” said Mr. Finnegan. “We are willing to accept the decline in retention and new business as we reprofile the book for improved profitability.”

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Mr. Finnegan said the business has had a 104% combined ratio and the insurer has “got to get rid (of) some of the accounts that are performing worse than 104,” according to a transcript of the analysts call.

Mr. Finnegan said at another point in the call that if the 104% combined ratio is the average, “you have some stuff running on 115(%). You got to get out of it or get rated. And so I'd say it's certainly an enhanced culling that's occurred in professional liability.”

Mr. Finnegan also said during the call that the insurer obtained renewal rate increases in each of its professional liability lines of business in the second quarter of 2012, with rate increases led by private- and public-company D&O insurance, “both of which experienced average renewal rate increases in the low double digits.”

These were followed by employment practices liability, crime, nonprofit D&O, errors and omissions, and fiduciary lines of business, said Mr. Finnegan.

Paul J. Krump, Chubb executive vp and president of commercial and special lines, said in response to a question that the insurer has “very little” E&O exposure to large global or money center banks, and that only 3% of its worldwide professional liability book is composed of public D&O covers for financial institutions.

“We have a very diverse book, which just doesn't include large banks,” he said.

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Mr. Krump said that with respect to potential D&O exposure for larger banks, “The vast majority would be Side A covers or high excess layers for traditional Side A and B covers. These are key points when thinking about Chubb, because Side A only covers claims brought against a director or officer if the corporation is unable or not allowed to indemnify them.

“High excess participation is important to consider because if—and it's still a big if—if D&O coverage ever was brought into play after an institution's self-insured retention—and these types of banks take very large SIRs—the primary layers will typically absorb much of the defense cost.”

Mr. Krump said the average attachment point for its excess financial institution D&O book at Chubb is in excess of $80 million. Regulatory fines and penalties typically are excluded, while company investigation costs typically are not covered, he said.

“Intentional acts and/or criminal acts exclusions may be triggered,” he said, but “while a shareholder derivative claim could get covered under certain situations—absent insolvency, which doesn't seem to be likely in this situation—” settlement amounts “are typically fairly modest.”

He said, “Traditional securities class actions could potentially develop if the implicated banks or bank experience a stock drop directly attributable to Libor issues.

“But as far as we know and as of today, that has been the case for only one of the banks that has been mentioned in the news,” said Mr. Krump, without identifying the bank.