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  • REPORT ON EXAMINATION

    OF

    CHUBB INDEMNITY INSURANCE COMPANY

    AS OF

    DECEMBER 31, 2001

    DATE OF REPORT MAY 15, 2003

    EXAMINER MARC BRUCKSTEIN, CFE

  • TABLE OF CONTENTS

    ITEM NO. PAGE NO.

    1. Scope of examination 2

    2. Description of Company 3

    A. Management 4 B. Territory and plan of operation 5 C. Reinsurance 8 D. Holding company system 11 E. Accounts and records 14 F. Significant operating ratios 15

    3. Financial statements 17

    A. Balance sheet 17 B. Underwriting and investment exhibit 19

    4. Losses and loss adjustment expenses 20

    5. Market conduct activities 20

    6. Subsequent events 21

    7. Compliance with prior report on examination 21

    8. Summary of comments and recommendations 23

  • STATE OF NEW YORK INSURANCE DEPARTMENT

    25 BEAVER STREET NEW YORK, NEW YORK 10004

    George E. Pataki Gregory V. Serio Governor Superintendent

    May 15, 2003

    Honorable Gregory Serio Superintendent of Insurance Albany, New York 12257

    Sir:

    Pursuant to the requirements of the New York Insurance Law, and in compliance with the

    instructions contained in Appointment Number 21860 dated April 26, 2002 and attached hereto, I have

    made an examination into the condition and affairs of the Chubb Indemnity Insurance Company as of

    December 31, 2001 and submit the following report thereon.

    The examination was conducted at the Company’s administrative office located at 15

    Mountainview Road, Warren, New Jersey. A visit was also made to the Company’s home office at 55

    Water Street, New York.

    Whenever the designations “Company” or “Chubb Indemnity” appear herein without

    qualification, they should be understood to indicate the Chubb Indemnity Insurance Company.

    Whenever the designation “Department” appears herein without qualification, it should be

    understood to indicate the New York Insurance Department.

  • 2

    1. SCOPE OF EXAMINATION

    The previous examination was conducted as of December 31, 1996. This examination covered the

    five year period from January 1, 1997 through December 31, 2001. Transactions occurring subsequent to

    this period were reviewed where deemed appropriate.

    The examination comprised a complete verification of assets and liabilities as of December 31,

    2001. The examination included a review of income, disbursements and Company records deemed

    necessary to accomplish such analysis or verification and utilized, to the extent considered appropriate,

    work performed by the Company’s independent certified public accountants. A review or audit was also

    made of the following items as called for in the Examiners Handbook of the National Association of

    Insurance Commissioners.

    History of the Company Management and control Corporate records Fidelity bond and other insurance Territory and plan of operation Market conduct activities Growth of the Company Business in force Reinsurance in force Loss experience Accounts and records Financial statements

    A review was also made to ascertain what action was taken by the Company regarding comments

    and recommendations in the prior report on examination.

  • 3

    This report on examination is confined to financial statements and comments on those matters

    which involve departures from laws, regulations or rules, or which are deemed to require explanation or

    description.

    2. DESCRIPTION OF COMPANY

    The Company was incorporated as the Sun Indemnity Company on November 3, 1922 and later

    changed its name to Sun Insurance Company of New York. On February 3, 1994, the Company was sold

    to Federal Insurance Company and the name was changed to Chubb Indemnity Insurance Company.

    The Company is a member of the Chubb Group of Insurance Companies (“Chubb Group”). As of

    December 31, 2001, the Chubb Group consisted of the following members:

    Company State of Domicile

    Federal Insurance Company Indiana Vigilant Insurance Company New York Pacific Indemnity Company Wisconsin Great Northern Insurance Company Minnesota Chubb Custom Insurance Company Delaware Chubb Indemnity Insurance Company New York Chubb National Insurance Company Indiana Executive Risk Indemnity Inc. Delaware Executive Risk Specialty Connecticut Quadrant Insurance Company Connecticut Texas Pacific Indemnity Company Texas Northwestern Pacific Indemnity Company Oregon Chubb Insurance of New Jersey New Jersey Chubb Lloyds Insurance Company of Texas Texas

    Capital paid in is $3,500,000 consisting of 20,000 shares of common stock at $175.00 par value

    per share. Gross paid and contributed surplus is $7,032,725.

  • 4

    A. Management

    Pursuant to the Company’s charter and by-laws, management of the Company is vested in a board

    of directors consisting of not less than thirteen members nor more than twenty-five members. At

    December 31, 2001, the board of directors was comprised of the following thirteen members.

    Name and Residence Principal Business Affiliation

    Jon Corey Bidwell Senior Vice President, Pelham, NY Chubb & Son, a Division of Federal Insurance Company

    Joanne Leslie Bober Senior Vice President and General Counsel, New York, NY The Chubb Corporation

    George Ronald Fay Executive Vice President, Randolph, NJ Chubb & Son, a division of Federal Insurance Company

    David Seeton Fowler Senior Vice President, Rumson, NJ The Chubb Corporation

    Henry Gregory Gulick Vice President and Secretary, Middletown, NJ The Chubb Corporation

    David Gardiner Hartman Senior Vice President & Chief Actuary, New Providence, NJ Chubb & Son, a division of Federal Insurance Company

    Gary Louis Heard Vice President, New York, NY Chubb & Son, a division of Federal Insurance Company

    Charles Morton Luchs Executive Vice President, Mendham, NJ Chubb & Son, a division of Federal Insurance Company

    George Francis Marts Senior Vice President, Laurel Hollow, NY Chubb & Son, a division of Federal Insurance Company

    Thomas Firouz Motamed Executive Vice President, Ho-Ho-Kus, NJ The Chubb Corporation

    Dean Raymond O’Hare Chairman and Chief Executive Officer, Far Hills, NJ The Chubb Corporation

    Michael O’Reilly Executive Vice President, Franklin Lakes, NJ The Chubb Corporation

  • 5

    Name and Residence Principal Business Affiliation

    Philip John Sempier Vice President and Treasurer, Little Egg Harbor, NJ The Chubb Corporation

    The board of directors met four times during each of the calendar years under examination. A

    review of the minutes of the board of directors’ meetings held during the examination period indicated

    that the meetings were generally well attended and each board member had an acceptable record of

    attendance.

    As of December 31, 2001, the principal officers of the Company were as follows:

    Name Title

    Dean R. O’Hare Chairman and President David G. Hartman Senior Vice President and Actuary Henry G. Gulick Vice President and Secretary Philip J. Sempier Vice President and Treasurer Malcolm B. Burton Vice President Charles M. Luchs Vice President Amelia C. Lynch Vice President Robert A Marzocchi Vice President Michael O’Reilly Vice President

    B. Territory and Plan of Operation

    As of December 31, 2001, the Company was licensed to transact business in all the fifty states,

    District of Columbia, Puerto Rico and U.S. Virgin Islands.

    As of the examination date, the Company was authorized to transact the kinds of insurance and

    reinsurance as defined in the following numbered paragraphs of Section 1113(a) of the New York

    Insurance Law:

  • 6

    Paragraph Line of Business

    4 Fire 5 Miscellaneous property 6 Water damage 7 Burglary and theft 8 Glass 9 Boiler and machinery

    10 Elevator 11 Animal 12 Collision 13 Personal injury liability 14 Property damage liability 15 Workers’ compensation and employers’ liability 16 Fidelity and surety 19 Motor vehicle and aircraft physical damage 20 Marine and inland marine 21 Marine protection and indemnity 22 Residual value insurance (lease or contract)

    26(A)(B)(C)(D) Gap insurance 27 Prize indemnification 29 Legal services insurance

    The Company is also empowered to transact such workers’ compensation insurance as may be

    incident to coverages contemplated under paragraphs 20 and 21 of Section 1113(a) of the New York

    Insurance Law, including insurances described in the Longshoreman’s and Harbor Workers’

    Compensation Act (Public Law No. 803, 69 Congress as amended; 33 USC Section 901 et seq. as

    amended).

    Based upon the lines of business for which the Company is licensed, and pursuant to the

    requirements of Articles 13 and 41 of the New York Insurance Law, the Company is required to maintain

    a minimum surplus to policyholders of $8,100,000.

  • 7

    During the period of examination the Company assumed accident and health and credit insurance

    business. The Company was not licensed to write these lines of business according to Section 1113(a)

    paragraph 3 and 17 of the New York Insurance Law. It is recommended that the Company comply with

    Section 1113(a) paragraphs 3 and 17 of the New York Insurance Law. Subsequent to the examination

    date the Company chang

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