CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM, On Behalf  of Itself and All Others Similarly Situated,                         Plaintiff,     vs. THE CHUBB CORPORATION, DEAN R. O'HARE, DAVID B. KELSO, HENRY B. SCHRAM, EXECUTIVE  RISK INC., STEPHEN J. SILLS,  ROBERT H. KULLAS and ROBERT V. DEUTSCH,                         Defendants. ___________________________________

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No.  CLASS ACTION COMPLAINT FOR VIOLATION  OF §§10(b) (AND RULE 10b-5),  14 AND 20(a) OF THE SECURITIES EXCHANGE ACT  OF 1934 AND §§11 AND 15 OF THE SECURITIES ACT OF 1933           DEMAND FOR JURY TRIAL

 

1. This is a class action on behalf of all purchasers of the common stock of The Chubb Corporation ("Chubb" or the "Company") between 4/27/99 and 10/15/99 (the "Class Period"), including the former shareholders of Executive Risk Inc. ("Executive Risk") who exchanged their Executive Risk shares for shares of Chubb stock in the merger in 7/99. Chubb sells personal, standard commercial and specialty commercial insurance and is one of the largest U.S. underwriters of directors' and officers' liability insurance. This action arises out of a scheme to make it appear that serious problems and increasingly large losses in Chubb's standard commercial insurance business, which had badly hurt Chubb's results in 97-98, were being overcome by a combination of rate increases and non-renewal of unprofitable standard commercial insurance business (the "rate increase/policy non-renewal initiative"), which enabled Chubb to report better-than-expected 1stQ 99 earnings per share ("EPS"), indicating Chubb's business was turning around faster than expected and that Chubb would therefore achieve stronger EPS growth in 99 and 00 than earlier forecast, thus artificially inflating Chubb's stock to $76-3/8 per share in mid-99. This enabled Chubb to successfully complete its extremely important acquisition of Executive Risk - a highly profitable underwriter of directors' and officers' liability insurance - in exchange for 1.235 shares of Chubb stock for each share of Executive Risk stock - a total of 14.8 million shares plus 1.8 million shares reserved for Executive Risk's executives' options - via a 6/17/99 Registration Statement ("Registration Statement") and a 6/17/99 Merger Proxy ("Merger Proxy") and other false and misleading public statements. The inflation of Chubb's stock price reduced the number of shares Chubb had to issue to acquire Executive Risk, saving Chubb at least $300-$400 million, while enabling the top three insiders of Executive Risk to receive millions in special benefits and payments upon the sale of Executive Risk to Chubb. However, just eight days after Chubb's acquisition of Executive Risk, Chubb shocked the markets by revealing much worse-than-expected 2ndQ 99 EPS due to increasing losses in its standard commercial insurance business, later revealing that its "rate increase/policy non-renewal initiative," which prior to the merger defendants had consistently represented was beneficial and would continue to benefit Chubb's 99 EPS, would have no positive impact on Chubb's results until mid-2000 at the earliest! Chubb's stock immediately declined and continued to fall, to as low as $44 in mid-10/99, as Chubb continued to report worsening results for its standard commercial insurance business, which caused Chubb's 99 EPS to decline sharply from its 98 EPS.

2. Dean O'Hare became Chairman/CEO of Chubb in 96. During 95-97, Chubb reported erratic and poor operating results, due mainly to problems with and losses in Chubb's standard commercial insurance operations, and Chubb's stock significantly under-performed the stocks of other property and casualty carriers. During 98, O'Hare was seeking to have Chubb make a major acquisition of a highly profitable specialty insurer to help boost its financial results. By 8/98-9/98, O'Hare had identified Executive Risk as Chubb's acquisition target. However, just as Chubb was approaching Executive Risk about acquiring it, Chubb's stock suffered a huge decline (its worst in over 10 years), collapsing from $88-13/16 in mid-7/98 to just $57-1/2 in 10/98 - a 40% decline in just 90 days - wiping out $5 billion in Chubb shareholder value. This huge decline was due to continued terrible results - and increasing operating losses - in Chubb's standard commercial insurance business, i.e., multiple peril, casualty and workers' compensation insurance.

3. As Chubb's secret merger negotiations with Executive Risk continued during 10/98-1/99, Chubb publicly revealed it would suffer very poor 4thQ 98 and 98 results due to worsening results and increasing losses in its standard commercial insurance operations. As a result, Chubb's stock continued to perform very poorly, trading as low as $57-7/8 on 2/2/99, when Chubb reported very poor 4thQ 98 and 98 results, which both showed declines from the comparable 97 periods. On 2/6/99, Chubb's and Executive Risk's top executives announced a merger agreement whereby Chubb would acquire Executive Risk in exchange for 1.235 shares of Chubb stock for each share of Executive Risk stock if Executive Risk's public shareholders approved the proposed acquisition in a vote to be held in mid-99. All of Executive Risk's officers and directors agreed to vote their shares in favor of the merger and to recommend to Executive Risk's public shareholders that voting in favor of the sale of their company to Chubb in exchange for Chubb stock was in their "best interests" and "fair." Based on Chubb's 2/5/99 closing stock price of $58-1/16, the proposed acquisition was only worth $71.70 per share to Executive Risk shareholders - below Executive Risk's 98 high stock price of $75-5/8 per share - $839 million in the aggregate. After the proposed merger was announced, Chubb's stock fell to $54, further endangering the approval of the acquisition by Executive Risk's public shareholders. As a result, defendants were concerned that, given the increasing losses in Chubb's standard commercial insurance business and the very poor performance of Chubb's stock, Executive Risk's public shareholders might not approve this important acquisition. Chubb desperately needed the acquisition of Executive Risk to boost its profitability. Executive Risk's top insiders wanted to bring about the sale of Executive Risk to Chubb because it would provide them with millions in special benefits and payments not available to Executive Risk's other shareholders, including Executive Risk's CEO (Stephen Sills) becoming the Chairman and CEO of Chubb's expanded directors' and officers' liability unit (at a large salary and guaranteed bonus), the headquarters of which would be relocated from Chubb's New Jersey headquarters to Simsbury, Connecticut where Sills lived.

4. Thus, defendants knew that in order to boost Chubb's stock price and increase the likelihood that Executive Risk's public shareholders would vote to sell their company to Chubb in return for 1.235 shares of Chubb stock, it was important that it appear that Chubb's standard commercial insurance business was turning around due to the "aggressive steps" Chubb's management said it was taking to raise rates upon policy renewals, while walking away from customers who were unwilling to accept rate increases - Chubb's so-called "rate increase/policy non-renewal initiative." Defendants hoped this would persuade investors that Chubb was going to achieve strong EPS growth in 99 and 00 and boost the market price of Chubb's stock before Executive Risk shareholders voted on the proposed sale of their company to Chubb in exchange for Chubb stock - thus increasing the value of the consideration being offered to them and making Chubb stock look more attractive to Executive Risk shareholders as an ongoing investment.

5. During 3/99-4/99, the defendants were preparing the SEC filings necessary to register the Chubb shares to be issued (sold) to complete the acquisition and seek the vote of Executive Risk's public shareholders approving the sale of Executive Risk to Chubb. They knew that Chubb's results for the 1stQ 99 ended 3/31/99 (to be reported in late 4/99) would be included in these filings. They also knew Chubb's 1stQ 99 results would be extremely important to both analysts and investors (including Executive Risk's shareholders) in determining whether or not Chubb management's "aggressive steps" to fix Chubb's standard commercial insurance business were, in fact, succeeding and whether or not Chubb's 98 EPS decline was being reversed, and would also have an important impact on how Chubb's stock price would perform in advance of the critical Executive Risk shareholder vote on the merger in mid-99. On 4/26/99, Chubb stock sold for just $57. When Chubb reported its 1stQ 99 results on 4/27/99, they were much better than forecasted. Chubb attributed these better than forecasted results to a more successful and faster turnaround of Chubb's standard commercial insurance operations than anticipated, which would lead to stronger than earlier forecast 99-00 EPS growth for Chubb. As a result of Chubb's very favorable 1stQ 99 results and increased EPS forecasts, Chubb's stock soared higher from $57 on 4/26/99 to $70-5/16 on 5/7/99 and on to its Class Period high of $76-3/8 on 5/24/99, just as defendants were preparing to have the Chubb and Executive Risk Registration Statement and Merger Proxy declared effective by the SEC and then mail those materials to Executive Risk's public shareholders seeking their approval of the sale of their company to Chubb in return for Chubb stock.

6. The Merger Proxy (which included Chubb's 1stQ 99 results) was mailed to Executive Risk shareholders on 6/18/99, seeking an Executive Risk shareholder vote approving the merger at a meeting to be held on 7/19/99. During 6/18/99-7/19/99, while Executive Risk's public shareholders were considering how to vote on the proposed exchange of their Executive Risk shares for Chubb shares, Chubb stock traded between $67-13/16 and $74-1/8 per share, making the offer worth $84-$91 per share to Executive Risk shareholders - $982 million to $1.071 billion in the aggregate - much higher amounts than when the acquisition was first announced in early 2/99 and Chubb stock traded at as low as $54 per share. On 7/19/99, Executive Risk shareholders voted to approve the sale of their company to Chubb. Just eight days later - on 7/27/99 - Chubb reported worse-than-expected 2ndQ 99 results due to increasingly large losses in its standard commercial insurance operations - what one analyst termed a "shocking disappointment." Chubb's Chairman/CEO admitted he had been too "optimistic" or "euphoric" in earlier representing that the turnaround of Chubb's standard commercial insurance operations was succeeding better than expected. O'Hare now also admitted that Chubb's standard commercial insurance operations would adversely impact Chubb's financial results until at least the second half of 00. Chubb's stock nosedived to $58-5/8 on 7/30/99. Then on 10/15/99, when Chubb revealed very poor 3rdQ 99 results - due, in large part, to continued deterioration of its standard commercial insurance business - Chubb's stock fell to $44 - its lowest price in years!

7. As a result of the continued horrible performance of Chubb's standard commercial insurance operations throughout 99, Chubb reported a substantial earnings decline in 99 from 98. While purchasers of Chubb stock during the Class Period, including Executive Risk's public shareholders who exchanged (sold) their Executive Risk shares for Chubb stock, have suffered hundreds of millions in damages due to defendants' fraudulent scheme, Chubb has successfully acquired Executive Risk's highly profitable directors' and officers' liability insurance business on very favorable terms⁽¹⁾ and Executive Risk's top three executives have received millions in special benefits and payments not available to Executive Risk's other shareholders. Purchasers of Chubb stock during the Class Period, including Executive Risk's former shareholders, have lost hundreds of millions of dollars.

8. After O'Hare became Chairman/CEO of Chubb in 96, Chubb's financial performance was poor and Chubb's EPS actually declined in 96 from 95 and in 98 from 97. This poor performance was due in large part to losses in Chubb's standard commercial insurance operations resulting mainly from inadequate premiums. In explaining Chubb's poor results O'Hare stated, "the real culprit was the abysmal market in standard commercial lines." Chubb's standard commercial insurance lines were more of a challenge for Chubb, as the customers who purchased these types of policies had many choices and the pricing on these policies was much more competitive. Consequently, Chubb was obligated under many unprofitable contracts in its standard commercial insurance business, which adversely affected the Company's earnings. As a result of these disappointing results, while Chubb's stock increased in price due to the strong overall bull market, its performance was much worse than that of similar diversified property/casualty companies, as the chart below shows:

The poor financial performance of Chubb's business and the significant relative under-performance of Chubb's stock resulted in criticism of O'Hare's stewardship of Chubb from large Chubb shareholders and analysts who followed the Company, which put pressure on him to dramatically improve the performance of Chubb's standard commercial insurance operations, Chubb's overall profitability and EPS growth and the performance of Chubb's stock. The poor performance of Chubb's stock also made Chubb vulnerable to a takeover which would have resulted in O'Hare and his executive team being ousted from their positions of power, prestige and profit at Chubb. As an important part of solving these problems, O'Hare caused Chubb to seek out the acquisition of a very profitable specialty insurance company not in the standard commercial insurance business that would help boost Chubb's profitability and EPS growth, while at the same time attempting to turn around Chubb's standard commercial insurance operations by raising rates significantly and refusing to renew businesses where policyholders would not accept the price increases, i.e., the "rate increase/policy non-renewal initiative."

9. In mid-98, Chubb stock was selling at $75-$80, reaching a high of $88-13/16 in mid-7/98. By mid-98, Chubb had identified Executive Risk - a carrier specializing in directors' and officers' insurance which had consistently reported growing EPS over the past several years - as its acquisition target. The Executive Risk acquisition was to be made with Chubb stock. However, during 8/98-10/98, Chubb's stock suffered a huge decline, falling to as low as $55-3/8 on 10/8/98 - a decline of almost 40% in just three months, wiping out $5 billion of Chubb shareholder value - just as Chubb was approaching Executive Risk about the acquisition.

10. The reason for the sharp decline in Chubb's stock was the continued terrible performance of Chubb's standard commercial insurance business which was suffering an increasing combined ratio,⁽²⁾ resulting in increasingly large underwriting losses and very poor EPS for Chubb. The problems with Chubb's standard commercial insurance business resulted in Chubb reporting much worse-than-expected EPS in its 2ndQ, 3rdQ and 4thQ 98 and Chubb suffering a decline in 98 net income to $707 million from $769.5 million in 97. This very poor performance in Chubb's business and the substantial decline in Chubb's stock posed a major danger to Chubb successfully acquiring Executive Risk, as it made Chubb's stock much less valuable and desirable, meaning it would be more difficult to get Executive Risk's shareholders to approve the sale of their company in exchange for Chubb stock. The 8/98-10/98 decline in Chubb's stock also created a major embarrassment for Chubb's high-profile and domineering Chairman/CEO, Dean O'Hare, as it exacerbated the upset among Chubb's large and institutional shareholders over Chubb's recent poor financial performance and relative stock under-performance since 95. The sharp stock price decline in 8/98-10/98 also made Chubb even more vulnerable to a takeover, which would result in O'Hare and Chubb's other top executives losing their positions at Chubb - something O'Hare very much wanted to prevent. To prevent a hostile takeover, O'Hare took steps to have Chubb's Board adopt a strengthened "poison pill" provision without a shareholder vote. To try to improve Chubb's profitability and EPS growth, O'Hare was determined to have Chubb acquire Executive Risk.

11. On 10/19/98, O'Hare met with Sills to discuss the acquisition of Executive Risk in exchange for Chubb stock. Sills indicated that he, Executive Risk's Chairman Robert Kullas, and Executive Risk's Executive Vice President and Chief Financial Officer Robert Deutsch, were interested in arranging such a transaction if they personally got what they wanted - a personal accommodation O'Hare was very willing to provide. This meant that a Chubb acquisition of Executive Risk - which O'Hare very much wanted to bring about and which would result in Sills, Kullas and Deutsch getting millions in special payments and benefits and Sills becoming the Chairman/CEO of Chubb's newly expanded directors' and officers' liability operation called Chubb/ Executive Risk, the headquarters of which O'Hare agreed to relocate to Simsbury, Connecticut, where Sills lived - was a distinct possibility. However, despite the wishes of O'Hare, Sills, Kullas and Deutsch, the acquisition faced a very substantial hurdle - Chubb's huge operating losses in its standard commercial insurance lines and the poor performance of its stock. Unfortunately, Chubb's stock continued to perform terribly - trading at as low as $58 on 10/29/98 - the day before Chubb was to report its 3rdQ 98 results.

12. To make matters worse, on 10/29/98, when Chubb reported its 3rdQ 98 results - EPS of $.90 (a decline from $1.00 in the 3rdQ 97) - they were very poor and worse than expected. According to O'Hare, the poor results were due to "our underwriting results in standard commercial lines where competitive pressures are driving prices to increasingly unprofitable levels. Rate increases are an absolute necessity if we are to attain underwriting profitability.... We must put profitability ahead of growth and not renew underpriced business." Then on 1/18/99, Chubb revealed that its 4thQ 98 results would also be far below forecasted levels - yet another serious earnings shortfall for Chubb - again due to very poor results from Chubb's standard commercial insurance lines. However, O'Hare again assured investors that Chubb was taking "aggressive steps" to improve the standard commercial insurance business, including raising premiums and declining to renew unprofitable policies.

13. On 2/2/99, Chubb formally reported its disappointing 4thQ 98 and 98 results, EPS of $.90 and $3.80, respectively - a decline from $1.01 and $4.00 for the respective 97 periods. Again, O'Hare assured investors: "We are taking aggressive steps to achieve adequate prices for this business, and we expect to see the impact of these actions later in the year as we move through the renewal cycle.... [W]e know where the problems are and we are moving as swiftly as possible to get adequate price increases or to get unprofitable business off our books." However, O'Hare's promises of "aggressive steps" did little to help Chubb's stock, which traded as low as $57-7/8 on 2/2/99, as analysts who followed Chubb expressed their upset over its terrible 98 performance:

• C.S. First Boston noted:

The Chubb stock has fallen 37% from its 52-week high .... Clearly, the Chubb stock has recently been a disappointment.

• Deutsche Bank Securities noted:

The stock of Chubb ... has been horrific over the past 12 months.

• ING Baring Furman Selz noted:

1998 will likely be remembered as a year Chubb investors would rather forget.

In short, investors refused to support Chubb's stock until they saw concrete evidence of success in the efforts to overcome the problems in Chubb's standard commercial insurance business, i.e., that a turnaround was actually taking place.

14. On 2/6/99, O'Hare and Sills announced a definitive merger agreement whereby Chubb would acquire Executive Risk for 1.235 shares of Chubb stock for each Executive Risk share if Executive Risk's shareholders voted to approve the sale of their company at an Executive Risk shareholder meeting to be held in mid-99. Based on Chubb's 2/5/99 closing stock price of $58-1/16, the acquisition was worth $839 million in the aggregate - just $71.70 per Executive Risk share - below Executive Risk's 98 stock price high of $75-5/8! Because Chubb was paying for the Executive Risk acquisition with its stock after the stock had fallen to prices far below its 98 highs and the acquisition was going to dilute Chubb's 99 EPS, some Chubb shareholders and analysts were critical of the acquisition. Chubb's stock fell from its high of $60-1/8 on 2/5/99, the day before the proposed acquisition was announced, to $54 on 2/8/99, the next trading day, reflecting investor concern over the proposed acquisition. This decline in Chubb's stock exacerbated the serious problems already facing the defendants in securing Executive Risk's public shareholders' approval of the sale of their company to Chubb for just 1.235 shares of Chubb's stock for each of their Executive Risk shares, as Executive Risk - unlike Chubb - had a clear track record of substantial net income and EPS growth over the past several years, as shown below:
 

15. The more serious Chubb's business problems seemed to be, the less desirable its stock was compared to Executive Risk's stock, since Executive Risk, unlike Chubb, had reported consistent earnings growth in recent years and was a highly profitable specialty insurance company without troubled standard commercial insurance lines of business. In addition, because the acquisition consideration was fixed, i.e., 1.235 shares of Chubb stock for each share of Executive Risk stock, if Chubb's stock price declined further, the consideration they were to receive would also decline. Thus, the defendants were under pressure to make it appear that Chubb was solving its standard commercial insurance business problems to halt the decline in Chubb's stock and so Chubb's stock would move higher - much higher - in the following months, so that when the Executive Risk public shareholders actually considered whether or not to vote to approve the sale of their company to Chubb - and exchange their Executive Risk shares for Chubb shares - Chubb's business (especially its standard commercial insurance business) would look stronger and Chubb's prospects for EPS growth would appear to have improved and the consideration offered to the Executive Risk public shareholders would be much more valuable.

16. During Chubb's 1stQ 99, after the announcement of the merger agreement on 2/6/99, Chubb and Executive Risk were working together to prepare the Registration Statement and Merger Proxy to register with the SEC the Chubb shares to be issued (sold) to the Executive Risk shareholders in exchange for their Executive Risk shares to effectuate the acquisition and to secure the approval of Executive Risk's shareholders of the sale of their company to Chubb. Defendants knew that Chubb's 1stQ 99 results would be crucial to the performance of Chubb's stock and to show whether the "aggressive steps" described by O'Hare as being undertaken to fix Chubb's standard commercial insurance business were, in fact, working - "stabilizing" that business, enabling it to "turn[] the corner" and "return to profitability" - and that Chubb was, in fact, on target to achieve EPS growth in 99 to $4.00+ and in 00 to $4.50+, as O'Hare had been telling analysts. They also knew that reporting real progress with respect to this critical area of Chubb's business was indispensable to boosting Chubb's stock price, making the proposed acquisition of Executive Risk more attractive to Executive Risk's public shareholders and thus assuring Executive Risk shareholder approval of the proposed sale of their company to Chubb in exchange for Chubb stock.

17. On 4/27/99, Chubb reported much better-than-forecasted 1stQ 99 results - EPS of $1.14, compared to $1.12 in 98. Chubb told investors that its "favorable first quarter results reflect positive trends in all three major segments" of Chubb's business, and that Chubb had successfully "stabilized" its standard commercial insurance business, which now had positive "momentum" due to Chubb management's "aggressive" steps to increase standard commercial insurance premiums whereby "renewal rate increases were sticking." Chubb also represented it now expected standard commercial insurance premium growth to "rather rapidly" reach 5-1/2%-6%, compared to the flat premium growth earlier forecast, which would enable Chubb's standard commercial insurance business to achieve a 5% underwriting profit leading to 99 EPS of $4.10+ and 00 EPS of $4.55+ - higher results than earlier forecast. During Chubb's 4/27/99 conference call with analysts, when certain analysts expressed skepticism as to how Chubb's business could have improved so significantly so quickly, an irate O'Hare exclaimed: "You guys are so bloody negative it's disgusting. We're trying to send a strong signal to you that things are getting better. I don't know how else to say it .... This god dam ship has turned faster than I thought it was going to ...." O'Hare also said Chubb's pricing strategy in standard commercial insurance was achieving its intended results, O'Hare was "totally confident" the rate increase/policy non-renewal strategy was working and that while Chubb might lose $250-$300 million in standard commercial insurance business in 99 due to its refusal to renew unprofitable businesses, this would leave Chubb's standard commercial insurance business "a lot more profitable," as the other companies which would pick up the business Chubb declined were "assholes." Chubb's stock, which traded at as low as $57 on 4/26/99, jumped to $60-7/8 on 4/27/99, $62-1/16 on 4/28/99, and $70-5/16 on 5/7/99 - a major upward move for a large cap insurance stock.

18. As work continued to finalize the documents to register the Chubb stock to be issued in the Executive Risk acquisition and to seek a vote of Executive Risk's public shareholders approving the sale of their company in return for Chubb stock, during 5/99-early 6/99 O'Hare and other Chubb spokespersons had frequent discussions with analysts. During those discussions they told analysts that Chubb's stock was "undervalued" and there may be "more good news ahead," that Chubb's standard commercial insurance business' "favorable" pricing momentum "continues to build" and the turnaround of this business was "exceeding management's expectations." They also reported that the new standard commercial insurance policies being accepted by Chubb had been "intensely audited," Chubb was now "very comfortable with the pricing" of these lines of business and, as a result, Chubb's standard commercial insurance combined ratio (excluding catastrophes) would improve steadily in 99-00 due to Chubb's rate increase/policy non-renewal initiative. Thus, O'Hare stated he was "more optimistic than usual," Chubb was forecasting 99 EPS of $4.10+ and 00 EPS of $4.55+, and Chubb's own financial models - reflecting these more favorable trends - now showed Chubb's stock was worth $102-$140 per share and a $128 price was "realistic in today's market." Based on Chubb's extremely strong 1stQ 99 results and the positive information put out by Chubb, Chubb's stock continued to move higher, reaching its Class Period high of $76-3/8 on 5/24/99, just as the defendants were completing the final version of the Merger Proxy and preparing to mail it to the Executive Risk shareholders.

19. On 6/15/99, Chubb's stock closed at $70-9/16. On 6/17/99 the Merger Proxy became effective with the SEC. The Merger Proxy, which was mailed to Executive Risk's shareholders on 6/18/99, sought the approval of Executive Risk's shareholders of the proposed sale of their company to Chubb for 1.235 shares of Chubb stock for each share of Executive Risk stock. The solicitation of proxies was vital to get approval of the transaction as, as of 3/1/99, Executive Risk's top officers and directors owned only a total of 1.1 million shares of Executive Risk stock - just 10.6% of its outstanding shares. Therefore, the affirmative vote of a majority of Executive Risk's public shareholders was needed for the transaction to be approved. Between 6/16/99 and 7/19/99, Chubb's stock traded between $67-13/16 and $74-1/8, giving the acquisition of Executive Risk a per share value of $84-$91 and an aggregate value of $982 million to $1.071 billion. On 7/19/99, Executive Risk's shareholders voted to approve the sale of Executive Risk to Chubb. On 7/20/99, Chubb completed the merger.

20. The statements made between 4/27/99 and 7/20/99 were false or misleading. The true facts which were known to the defendants but concealed by them were:

(a) Chubb's aggressive actions to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines was not working, let alone exceeding management's expectations, because the rate increases were not sticking and Chubb's standard commercial insurance underwriting losses were increasing;

(b) The rate increases that were, in fact, being obtained on new and renewal standard commercial insurance policies were very small and well below the levels necessary to have any materially favorable impact on Chubb's 99 results, or even to lessen the growing underwriting losses in Chubb's standard commercial insurance business;

(c) Chubb was, in fact, not using a disciplined approach to standard commercial insurance renewals and was renewing hundreds of millions of dollars of standard commercial insurance policies at premium levels Chubb knew were unprofitable and thus would adversely impact Chubb's results going forward;

(d) Chubb's aggressive action to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines, even if successful, would not have any significant positive impact on Chubb's financial results during 99 and, in fact, Chubb's standard commercial insurance problems would continue to very adversely impact Chubb's results throughout most of 99;

(e) Chubb's reserves for its property and marine insurance line had been manipulated by reserve reductions which were not justified as detailed in ¶¶114-133;

(f) Chubb's standard commercial insurance business had not stabilized as, due to weak premium growth and increasing losses, the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), leading to larger than ever losses in these lines of business;

(g) Chubb's standard commercial insurance business was not encountering strong positive momentum or positive trends. Due to weak premium growth and increasing losses, the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), leading to larger than ever losses in these lines of business;

(h) Chubb's strategy of renewing only at good prices would not have any significant impact on Chubb's results until at least mid-2000, as it would take "at least two annual renewal cycles" for Chubb to reprice the standard commercial lines premiums and after the premiums were repriced it would take another year for the higher premiums to be earned into income. Chubb concealed this key fact from its public disclosures until after the merger closed;

(i) Chubb's better-than-expected 1stQ 99 results were not the result of favorable developments or trends in Chubb's standard commercial insurance business as represented; in fact, Chubb's 1stQ 99 results had been deliberately falsified as detailed in ¶¶114-133 in order to artificially and improperly boost Chubb's reported EPS to conceal the continued serious deterioration in its standard commercial insurance business;

(j) As a result of the foregoing negative conditions which were adversely impacting Chubb's business, defendants knew that Chubb's forecasts of 5-1/2%-6% premium growth for its standard commercial insurance business during 99 and a falling combined ratio for its standard commercial insurance business were false and could not be obtained; and

(k) As a result of the foregoing negative factors which were adversely impacting Chubb's business, defendants knew Chubb's forecasts of 99 EPS of $4.00+ and 00 EPS of $4.55+ were false when made and could not and would not be achieved, even if Chubb suffered no catastrophe losses and even if Chubb achieved its repricing objectives in standard commercial insurance.

21. Immediately after the approval of the Executive Risk acquisition, Chubb's stock began to fall - from $70-1/2 on 7/19/99 to as low as $64-1/2 on 7/26/99 - on concerns that Chubb's 2ndQ 99 results, to be announced in late 7/99, would be worse than forecast. On 7/27/99, eight days after the Executive Risk merger was approved, Chubb reported 2ndQ 99 operating income - well below expected results! Chubb's release stated:

Standard commercial lines premiums in the second quarter declined 9% to $455.4 million and had a combined ratio of 120.8%....

"Given the moderate magnitude of rate increases in the early stages of the repricing program," said Mr. O'Hare, "it will take at least two renewal cycles to adequately reprice the entire standard commercial book, and during that time we will continue to have losses from non-renewed policies. Thus ... it will be mid-2000 before the benefits of these actions significantly flow to the bottom line."

* In what was perceived as a shocking disappointment, Chubb reported flat premiums for the second quarter with earnings of $1.00, short of the Street consensus of $1.04....

* Management dampened its earlier enthusiasm for improving market conditions, which had ratcheted up expectations early in the second quarter.

* * *

The bad news: Total standard commercial business shrank 9.0%, more than expected. The combined ratio remained unacceptably high at 120.8%. Commercial multiperil results were terrible.... Premiums in total were flat rather than up about 5% as expected.

A month ago Chairman and CEO Dean O'Hare was enthusiastically optimistic that the turnaround in the standard commercial book might occur ahead of schedule based on trends seen mid-quarter.

HOWEVER, on yesterday's conference call he stated that he had been overly optimistic and returned to expect CB's original targets.

O'Hare admitted: "I might have actually gotten a little bit euphoric that we could do this turnaround of standard commercial lines without any real disturbance of the premium pattern.... [W]e are losing more business than we did in the first quarter and we're writing less new business than we did in the first quarter."

23. During 8/2/99-9/22/99, Chubb's stock traded between $56 and $62-5/16 and traded as high as $56-5/8 on 9/21/99. However, in late 9/99, Chubb's stock fell to $49-$50 on concerns that Chubb's 3rdQ 99 results, to be released in mid-10/99, would be much worse than forecast! On 10/14/99, Chubb stock traded as high as $49-3/8. On 10/15/99, Chubb revealed much lower-than-forecast 3rdQ 99 results of only about $.40-$.45, compared to $1.04 in the 3rdQ 98, due, in part, to catastrophe losses from Hurricane Floyd. However, Chubb admitted: "In addition, underwriting losses from its standard commercial business continued to have an adverse effect on earnings." Chubb's stock fell to $44 - its lowest level in years! On 10/18/99, C.S. First Boston wrote:

The Chubb stock now sells for about half the price it sold at in July 1998. While in retrospect at that point the stock was over priced now it has come back to earth.

* * *

Chubb's standard commercial lines insurance operations remain a severe disappointment.

Standard commercial insurance performed poorly in the third quarter, recording a combined ratio of 130.4%, which included 10.1 percentage points of catastrophe losses....

... "[I]t will take time for the benefits of the pricing initiative to reverse the losses from underpriced business written in the extremely competitive market of the past few years," [said O'Hare].

PROPERTY AND CASUALTY INSURANCE

Property and casualty income before taxes was $626 million in 1999 compared with $685 million in 1998 and $828 million in 1997. The decrease in earnings in 1999 was due to deterioration in underwriting results caused in large part by the continued weakness in the standard commercial classes, which include multiple peril, casualty and workers' compensation, and to a lesser extent, higher catastrophe losses.

* * *

STANDARD COMMERCIAL INSURANCE

Reported net premiums from standard commercial insurance decreased 8% in 1999 compared with a 1% decrease in 1998....

Our standard commercial insurance business produced substantial under- writing losses in each of the past three years, with results becoming increasingly unprofitable each year. The combined loss and expense ratio was 123.6% in 1999 compared with 118.0% in 1998 and 114.5% in 1997.

It will take at least two annual renewal cycles to adequately reprice the entire standard commercial book, and during that time we will continue to have losses from underpriced business. Thus, it will be the latter part of 2000 before our pricing initiative is expected to have a noticeable effect on our standard commercial results.

Multiple peril results were unprofitable in each of the past three years due, in large part, to inadequate prices. Such results were progressively more unprofitable each year. In the liability component of this class, results deteriorated in 1998 and again in 1999 due to increases in the severity of losses.

* * *

Results for our casualty business were unprofitable in each of the past three years. Results deteriorated in 1999, primarily in the automobile and primary liability components.... Results for the primary liability component were unprofit-able in each of the past three years, but more so in 1999 ... due to a higher frequency of large losses in those years. Results in the automobile component were increasingly unprofitable in each of the past three years due to an increase in the frequency of losses. Our commercial automobile book of business has been inadequately priced, a consequence of the prolonged soft market.

Workers' compensation results were unprofitable in each of the past three years, reflecting the cumulative effect of price reductions over the past several years. Results were also adversely affected in 1999 ....

26. Chubb's very poor 98-99 financial performance - showing declines from 97 - is shown below:
 

27. The claims asserted arise under §§10(b), 14 and 20(a) of the Securities Exchange Act of 1934 ("1934 Act") and Rule 10b-5, and §§11 and 15 of the Securities Act of 1933 ("1933 Act"). Jurisdiction is conferred by §27 of the 1934 Act and §22 of the 1933 Act. Venue is proper as Chubb is headquartered here, false statements were made here, O'Hare, Kelso and Schram live here and acts giving rise to the violations complained of occurred here.

28. Plaintiff California Public Employees' Retirement System ("CalPERS") is the largest public employee retirement system in the United States with assets of $175 billion and beneficiaries of nearly 1.1 million active and retired public employees. CalPERS purchased shares of Chubb common stock during the Class Period and was damaged thereby.

29. (a) Defendant The Chubb Corporation ("Chubb") is headquartered in Warren, New Jersey. Chubb's common stock trades in an efficient market on the NYSE.

(b) Defendant Executive Risk Inc. ("Executive Risk") was an independent public company until 7/19/99, when it was acquired by Chubb and became a wholly owned subsidiary of Chubb.

30. (a) Defendant Dean R. O'Hare ("O'Hare") is Chairman and Chief Executive Officer of Chubb, positions he assumed in 96. O'Hare, by reason of his positions with Chubb, was a controlling person of Chubb and is liable under §20(a) of the 1934 Act and §15 of the 1933 Act. O'Hare controlled Chubb.

(b) Defendant Henry B. Schram ("Schram") is Chubb's Senior Vice President and Chief Accounting Officer and was responsible for the creation of Chubb's publicly disseminated financial statements.

(c) Defendant David B. Kelso ("Kelso") is Chubb's Executive Vice President and Chief Financial Officer and was responsible for the creation of Chubb's publicly disseminated financial statements.

(d) Defendant Stephen J. Sills ("Sills") was, until 7/99, President and CEO of Executive Risk. After 7/99, he was Chairman and CEO of Chubb's new and expanded directors' and officers' liability insurance operation, known as Chubb/Executive Risk. Sills, by reason of his positions with Executive Risk, was a controlling person of Executive Risk and is liable under §20(a) of the 1934 Act and §15 of the 1933 Act. As a result of Executive Risk's public shareholders' approval of the sale of Executive Risk to Chubb, Sills got millions of dollars of special payments and benefits via accelerated stock options and bonus performance units. Sills also became Chairman and CEO of Chubb's newly formed and expanded directors' and officers' business unit, i.e., Chubb/Executive Risk (at a large salary increase and guaranteed annual bonus), the headquarters of which were relocated from New Jersey where Chubb was headquartered to Connecticut where Sills lived.

(e) Defendant Robert H. Kullas ("Kullas") was, until 7/99, Chairman of Executive Risk. Kullas, by reason of his position with Executive Risk, was a controlling person of Executive Risk and is liable under §20(a) of the 1934 Act and §15 of the 1933 Act. As a result of Executive Risk's public shareholders' approval of the sale of Executive Risk to Chubb, Kullas got millions of dollars of special payments and benefits via accelerated stock options and bonus performance units, plus a very lucrative "retirement" package.

(f) Defendant Robert V. Deutsch ("Deutsch") was, until 7/99, Executive Vice President and Chief Financial Officer of Executive Risk. As a result of Executive Risk's public shareholders' approval of the sale of Executive Risk to Chubb, Deutsch got millions of dollars of special payments and benefits via accelerated stock options and bonus performance units, plus a very lucrative "retirement" package.

(g) Defendants O'Hare, Schram and Kelso each signed the Registration Statement and were identified in and associated with the Merger Proxy. Defendants Sills, Kullas and Deutsch each prepared and were identified in and associated with the Merger Proxy.

Defendants' Scheme

31. Each defendant is liable for making false statements or for failing to disclose adverse facts while selling or purchasing Executive Risk or Chubb stock or for participating in a fraudulent scheme which permitted O'Hare, Kelso and Schram to have Chubb acquire Executive Risk on terms very favorable to Chubb, which could not have occurred had the truth about Chubb's standard commercial insurance business and its actual 99-00 prospects been disclosed, and allowed Executive Risk's top insiders (Sills, Kullas and Deutsch) to obtain millions in special benefits and payments not available to Executive Risk's public shareholders.

32. After O'Hare became Chubb's Chairman/CEO in 96, Chubb's financial performance was erratic at best and its EPS actually declined in 96 from 95 and in 98 from 97. This poor performance was due in large part to losses in Chubb's standard commercial insurance operations resulting mainly from inadequate premiums. In explaining Chubb's poor results, O'Hare admitted "the real culprit was the abysmal market in standard commercial lines." As a result of these disappointing results, while Chubb's stock increased in price due to the strong overall bull market, its performance was much worse than that of similar diversified property/casualty companies, as the chart below shows:

33. The erratic financial performance of Chubb's business and the significant under-performance of its stock resulted in criticism of O'Hare's leadership of Chubb from large Chubb shareholders and analysts who followed the Company. This put pressure on O'Hare to dramatically improve the performance of Chubb's standard commercial insurance operations and Chubb's overall profitability and EPS growth and improve the performance of Chubb's stock. This situation also made Chubb vulnerable to a takeover which would result in O'Hare, Kelso and Schram being ousted from their positions of power, prestige and profit at Chubb. To prevent a hostile takeover, O'Hare had Chubb's Board adopt a strengthened "poison pill" provision without a shareholder vote. In order to try to boost Chubb's profits and EPS growth, O'Hare caused Chubb to accomplish a major acquisition of a profitable specialty insurance carrier (not in the standard commercial insurance business) that would help boost Chubb's profitability and its EPS growth, while attempting an aggressive turnaround of Chubb's standard commercial insurance operations by raising premiums significantly and refusing to write or renew standard commercial insurance business where policyholders would not accept price increases. Thus, O'Hare was determined to have Chubb acquire Executive Risk.

34. In mid-98, Chubb stock was selling at $75-$80 per share, reaching $88-13/16 in mid-7/98. By mid-98, Chubb had identified Executive Risk - an insurance carrier specializing in directors' and officers' liability insurance which had reported growing EPS for several years - as its acquisition target. Because of the large size (cost) of the Executive Risk acquisition, the acquisition could only be made with Chubb stock. However, during 8/98-10/98, Chubb stock suffered a huge decline, falling to as low as $55-3/8 on 10/8/98 - a decline of almost 40% in just three months, wiping out $5 billion of Chubb shareholder value - just as Chubb was approaching Executive Risk about a possible acquisition. The reason for the decline in Chubb's stock was the continued terrible performance of Chubb's standard commercial insurance business which was suffering an increasingly large combined ratio, producing increasingly large underwriting losses, resulting in very poor EPS for Chubb. The continued deterioration in Chubb's standard commercial insurance business resulted in Chubb reporting much worse-than-expected EPS in its 2ndQ, 3rdQ and 4thQ 98 and Chubb suffering a decline in 98 EPS to $4.19 from $4.39 in 97 and a decline in net income to $707 million from $769.5 million. This very poor performance in Chubb's business and the substantial decline in Chubb's stock posed a major danger to Chubb successfully acquiring Executive Risk, as it made Chubb's stock much less valuable and desirable, meaning it would be more difficult to get Executive Risk's shareholders to approve the merger. The large decline in Chubb's stock also created a major embarrassment for Chubb's high-profile Chairman/CEO, O'Hare, as this awful performance of the stock exacerbated the upset among Chubb's large and institutional shareholders over Chubb's recent poor financial performance and relative stock under-performance since 95. It also made Chubb even more vulnerable to a takeover by another company, which would result in O'Hare and Chubb's other top executives losing their jobs at Chubb - something O'Hare very much wanted to prevent. As the chart below shows, this was the most substantial decline in Chubb's stock in over 10 years - a decline that wiped out $5 billion in Chubb shareholder value in three months:

35. On 10/19/98, O'Hare met with Sills to discuss a possible acquisition of Executive Risk by Chubb for Chubb stock. Sills indicated he, Kullas and Deutsch were interested in such a transaction, meaning that a Chubb acquisition of Executive Risk was a distinct possibility. However, Chubb's stock continued to perform poorly - trading at as low as $58 on 10/29/98 - the day Chubb was to report its 3rdQ 98 results. As a result, O'Hare knew he had to do something to support Chubb's stock price - and halt its decline - to help Chubb avoid a takeover, which would cost O'Hare and Chubb's other top executives their jobs, and help Chubb secure the approval of Executive Risk's shareholders of an acquisition by Chubb and enable Chubb to make the acquisition for millions fewer shares, making the acquisition less expensive for Chubb and less dilutive to Chubb's earnings.

36. Unfortunately, Chubb's stock continued to perform terribly - trading as low as $58 on 10/29/98 - the day Chubb was to report its 3rdQ 98 results. To make matters worse, on 10/29/98, when Chubb reported its 3rdQ 98 results - EPS of $1.04, a decline from $1.10 in the 3rdQ 97 - they were very poor and worse than expected. According to O'Hare, the poor results were due to "our underwriting results in standard commercial lines where competitive pressures are driving prices to increasingly unprofitable levels. Rate increases are an absolute necessity if we are to attain underwriting profitability.... We must put profitability ahead of growth and not renew underpriced business."

37. After releasing Chubb's 3rdQ 98 results, O'Hare and Schram spoke with analysts about the problems with Chubb's standard commercial insurance operations, and what Chubb was going to do about it. Analysts then issued reports reflecting that information:

• On 10/29/98, Merrill Lynch issued a report on Chubb, stating:

On a conference call this morning, Chubb's management took a more aggressive posture toward its poorly performing standard commercial lines business, stating that it would raise prices and/or nonrenew premiums in order to bring down the combined ratio.

• On 10/29/98, DLJ Securities issued a report on Chubb, stating:

Management is accelerating actions to improve the performance of standard commercial business by raising rates and "walking away" from inadequately priced business.

• On 10/29/98, Bear Stearns issued a report on Chubb, stating:

Chubb disappointed investors with third quarter earnings that were well below consensus expectations.... [D]uring its conference call with analysts following the release ... Dean O'Hare, Chubb's CEO, declared forcefully that the company has embarked on corrective action, vowing to raise prices 5%-20% or walk away from business if the price increases do not stick.

• On 10/30/98, PaineWebber issued a report on Chubb, stating:

Chubb's CEO Dean O'Hare took no prisoners on the third quarter conference call, spelling out even more bluntly than usual the impact of market conditions on the standard commercial lines and how the company plans to address the situation.... [C]onsequently, Chubb is accelerating its plan to reprice unprofitable business on a case by case basis.

* * *

[P]ricing initiatives are being accelerated to achieve average rate increases "even if this aggressiveness results in lost business." "I have asked the underwriting managers in all standard commercial lines to implement plans to return their books to profitability through" price increases, nonrenewals, and culling of the book.... Irrespective of the consequences we are going to push very hard to make the price increases stick. Underwriting profitability is and always will be our number one goal."

We attended a small luncheon hosted by Chubb's CEO Dean O'Hare on Wednesday.... Mr. O'Hare remains confident that Chubb can meet is objectives in the year ahead.

40. On 1/18/99, Chubb revealed that its 4thQ 98 results would also be far below forecasted levels - yet another serious earnings shortfall for Chubb - again due to very poor results from Chubb's standard commercial insurance lines. However, O'Hare assured investors that Chubb was taking "aggressive steps" to improve the standard commercial insurance business, including raising rates and declining to renew unprofitable policies.

41. On 1/25/99, Executive Risk's Board reviewed the status of its due diligence investigation of Chubb. On 1/28/99, O'Hare and Sills agreed to the exchange ratio of 1.235 shares of Chubb stock for each share of Executive Risk stock and finalized the other key terms of the merger, including the special benefits and payments to be received by Sills, Kullas and Deutsch and Executive Risk's other Board members and top executives in return for endorsing the transaction and urging Executive Risk's public shareholders to vote for the sale of their company to Chubb.

42. On 2/2/99, Chubb formally reported its very disappointing 4thQ 98 and 98 results, EPS of $.95 and $4.19, respectively - a decline from $1.13 and $4.39 for the respective 97 periods - stating:

"Excellent results in personal and specialty commercial lines unfortunately were offset by poor results in our standard commercial book," said Dean R. O'Hare, chairman and chief executive officer. "The market in standard commercial lines continues to deteriorate and undermine our profitability. We are taking aggressive steps to achieve adequate prices for this business, and we expect to see the impact of these actions later in the year as we move through the renewal cycle."

* * *

"[W]e know where the problems are and we are moving as swiftly as possible to get adequate price increases or to get unprofitable business off our books," said Mr. O'Hare.

• On 2/2/99, Bear Stearns issued a report on Chubb, forecasting 99 EPS of $4.50 and stating:

The big issue ... involved the difficulties in Chubb's $1.6 billion book of standard commercial lines of business. Amounting to about 30% of total premiums, Chubb is aggressively re-underwriting and re-pricing this book, and repeated earlier estimates that as much as $300 million of business may be non-renewed.

• On 2/2/99, Warburg Dillon Read published a report on Chubb, forecasting 99 EPS of $4.25 and stating:

Management implemented accelerated rate action through price increases and nonrenewals to improve standard commercial line results and is willing to lose $250 million-$300 million of this $1.6 billion book to improve profitability. Actions involve segmenting this book into 4 tiers and implementing price increases of from 5%-20%. Too soon to analyze results, although company's renewal price monitor indicates a slight uptick in pricing as well as a decline in its renewal retention rate on existing business on its book and the "hit" ratio on new business.

• On 2/3/99, Prudential Securities issued a report on Chubb, forecasting 99 EPS of $4.45 and stating:

During the third quarter conference call Chubb discussed initiatives designed to raise premium rates in the standard commercial lines, and get underpriced business off the books. About $1.6 billion of premiums (40% of the commercial book fall under the new pricing guidelines). Today we heard further details.... Management made two interesting statements: 1) Their renewal index showed that priced turned up in December, but that the feedback from the field is too fragmented and inconsistent to know definitively whether or not these increases will stick. 2) they also said that for their internal budget, they expect to lose between 15% and 20% of this business.

• On 2/3/99, PaineWebber issued a report on Chubb, forecasting 99 EPS of $4.45 and stating:

CEO Dean O'Hare indicated he is using more conservative assumptions and that while the "scattered anecdotal reports" continue, "they are still too fragmented and inconsistent to draw any firm conclusion, but I am modestly encouraged."

Chubb recently announced its third straight quarter of disappointing profits, blaming what its chairman, Dean O'Hare, calls "some of the most difficult conditions that I've experienced in 35 years in the business."...

In a stock market where profit growth is prized more than ever, Chubb's stock has been bashed. Recently, it traded at 59, down from a peak of 88 last summer.

* * *

"We're losing our shirt in some of our standard commercial lines, and we're going to take aggressive action steps to correct this," [O'Hare] says. "We are not going to renew business if we can't get an adequate price."

• C.S. First Boston noted:

The Chubb stock has fallen 37% from its 52-week high .... Clearly, the Chubb stock has recently been a disappointment....

• Deutsche Bank Securities noted:

The stock of Chubb ... has been horrific over the past 12 months. Frankly, it is too late to sell ....

• ING Baring Furman Selz noted:

1998 will likely be remembered as a year Chubb investors would rather forget.

46. On 2/5-6/99, the Chubb and Executive Risk Boards received updates regarding the transaction and approved the merger and related transactions. On 2/6/99, Chubb and Executive Risk executed the merger agreement. On 2/6/99, O'Hare and Sills announced the merger agreement whereby Chubb would acquire Executive Risk for 1.235 shares of Chubb stock for each Executive Risk share if Executive Risk's shareholders voted to approve the sale of their company. Based on Chubb's 2/5/99 closing price of $58-1/16, the acquisition was worth $839 million in the aggregate - or $71.70 per Executive Risk share - below Executive Risk's 98 high of $75-5/8. Because Chubb was paying for the Executive Risk acquisition with its stock after the stock had fallen far below its 98 high and the acquisition was going to dilute Chubb's 99 EPS, many Chubb shareholders and analysts were critical of the acquisition. Chubb's stock fell from its high of $60-1/8 on 2/5/99, the day before the proposed acquisition was announced, to $54 on 2/8/99 - the next trading day. This decline in Chubb's stock exacerbated the serious problems defendants already faced in securing Executive Risk's public shareholders' approval of the sale of their company to Chubb in exchange for just 1.235 shares of Chubb stock for each of their Executive Risk shares, due, in part, to Executive Risk's consistent net income and EPS growth as shown below, unlike Chubb's erratic performance in recent years:
 

47. The more serious Chubb's business problems seemed to be, the less desirable its stock was compared to Executive Risk's stock, since Executive Risk, unlike Chubb, had reported consistent earnings growth in recent years and was a specialty insurance company without troubled standard commercial insurance lines of business. In addition, because the acquisition consideration was fixed, i.e., 1.235 shares of Chubb stock for each share of Executive Risk stock, if Chubb's stock price declined, the consideration Executive Risk's shareholders were to receive would also decline. Thus, the defendants were under pressure to make Chubb appear to be solving its standard commercial insurance business problems to push Chubb's stock higher - much higher - in the following months, so that when the Executive Risk public shareholders actually considered whether or not to vote to approve the sale of their company to Chubb - and exchange their Executive Risk shares for Chubb shares - Chubb's business (especially its standard commercial insurance business) would look stronger and Chubb's prospects for EPS growth would appear to have improved, and thus its stock would look like an attractive investment and its stock price would be much higher so that the consideration offered to Executive Risk's public shareholders would be much more valuable.

48. Because the merger/acquisition consideration was fixed, i.e., 1.235 shares of Chubb stock for each share of Executive Risk stock, defendants faced a risk that if Chubb's stock price declined, the consideration Executive Risk shareholders were to receive would also decline. In fact, as the Merger Proxy stated:

If the price of the Chubb common stock decreases, then the value of Chubb common shares that Executive Risk stockholders will receive in the merger will decrease.

... [B]ecause the market price of Chubb shares fluctuates, the value at the time of the merger of the consideration to be received by Executive Risk stockholders will depend on the market price of Chubb shares at that time.

49. In early 3/99, O'Hare made a speech at the annual Association of Insurance and Financial Analysts Conference in Arizona, during which speech and in one-on-one conversations with the analysts present he stated that Chubb had "turned the corner (in the standard commercial lines pricing)" and was "starting to see rates increase."

50. On or about 3/12/99, Chubb issued its 98 Annual Report to Shareholders, which included a letter signed by O'Hare stating:

Chubb made progress on many fronts in the last year....

Our progress, however, was partially obscured by disappointing financial results. We fell short of making an underwriting profit and earnings declined from 1997's levels.... [T]he real culprit was the abysmal market in standard commercial lines. We are taking aggressive steps to correct pricing problems in this business, and we expect to see their impact on our financial results later this year.

* * *

Fixing the pricing problems we face in standard commercial lines is our number one priority in 1999.

* * * Addressing Standard Commercial Pricing

The most significant challenge we face is in standard commercial lines, which represent about 35% of our total book, where the market has been virtually in a free fall. Pricing has sunk to levels where we have no choice but to walk away from business that is certain to lose money. Premiums in our standard commercial book, including commercial multiple peril, casualty and workers' compensation, were essentially flat for the year, and the combined ratio was well above 100%.

This performance is clearly not acceptable, and we are taking aggressive steps to address it. Simply put, we are seeking price increases .... In cases where we are not receiving significant premium for the risks we are taking on, we are prepared to walk away from the business rather than renew an unprofitable account. Irrespective of the consequences, we are going to push very hard to make price increases stick.

... Given that standard commercial lines represent a much smaller portion of our book than other insurers, we are better positioned than most to absorb the business losses we will experience in the process of achieving profitable results.

[A]t the annual Association of Insurance and Financial Analysts Conference in Arizona three weeks ago, we heard a speech by Chubb's chairman and CEO, Dean O'Hare, in which he reported that "we have turned the corner (in standard commercial lines pricing) and are starting to see rates increase."

Restructuring, Turnaround, and Growth

We had lunch today with Chubb Chairman and CEO Dean O'Hare.

* * *

[T]he turnaround, is already in place. The turnaround part of the Chubb story is in the standard commercial lines which in 1998 totaled $2.0 billion and represented 36% of total. Chubb's standard commercial lines have experienced terrible results in the last 12 months. The biggest challenge facing the Chubb organization at this time is fixing the underpriced business that has been dragging down the results of the overall book. Chubb has developed an aggressive strategy to reprice the business or non-renew accounts to get this business off the books.

Update on the turnaround: Management has taken a poor performing book of business that was getting worse and stabilized it. They now have momentum in terms of getting price increases. The goal now is to keep the momentum going.

54. By the end of Chubb's 1stQ 99 the "aggressive actions" to fix Chubb's standard commercial insurance business had been in place for six months. As a result of their actual experience with the "rate increase/policy non-renewal initiative," by 3/99 O'Hare, Kelso and Schram actually knew the rate increase/policy non-renewal initiative was not working as hoped. The amounts of rate increases that were in fact "sticking" were very small and were far below the levels necessary for the rate increases to have any positive impact on Chubb's 99 or 00 results, especially since the amount of non-renewals of standard commercial insurance policies was much higher than expected. Thus, contrary to O'Hare's representation that "no matter what the consequences" Chubb would enforce its rate increase policy, Chubb was relenting on its preferred premium increases and renewing business at rates that O'Hare, Kelso and Schram knew were at best break-even and more likely unprofitable levels. Also, Chubb's efforts to reduce its losses in its standard commercial insurance operations had failed and policy losses were running at pre-existing levels. As a result of these very negative factors, O'Hare, Kelso and Schram - Chubb's three highest executive officers concerned with the impact of the standard commercial insurance rate increase/policy non-renewal strategy on Chubb's financial results - actually knew by 3/99 that the strategy was a failure, that the results of Chubb's standard commercial insurance business were actually getting worse not better, that Chubb would not obtain premium growth in its standard commercial insurance business during 99 and would suffer increasing underwriting losses, and thus this business unit would adversely impact Chubb's results during 99 and most, if not all, of 00. However, O'Hare, Kelso and Schram knew that if Chubb revealed these adverse facts it would have a very negative impact on Chubb's stock price and would make it much more difficult if not impossible to get Executive Risk's public shareholders to vote to approve the sale of their company to Chubb in exchange for Chubb stock. Therefore, to cover up the failure of the standard commercial insurance rate increase/policy non-renewal initiative, and to deceive investors and the markets into thinking that the initiative was working - and thus push Chubb's stock higher - O'Hare, Kelso and Schram deliberately falsified Chubb's 1stQ 99 results as detailed in ¶¶114-133, thus enabling Chubb to report much better than expected or forecast 1stQ 99 EPS on 4/27/99 and to lie to investors and the markets about the better than expected success of the standard commercial insurance rate increase/policy non-renewal initiative and Chubb's faster than expected turnaround.

55. Sills, Kullas and Deutsch were the top three officers of Executive Risk and each of them were very experienced in and knowledgeable about the property and casualty insurance industry. In connection with the proposed acquisition of Executive Risk by Chubb, Executive Risk's top management employees, accountants and financial advisors conducted due diligence investigations into Chubb's business under Sills', Kullas' and Deutsch's supervision. Executive Risk's due diligence investigation of Chubb focused on how Chubb's standard commercial insurance rate increase/policy non-renewal initiative was working out six months after it was started, as Sills, Kullas and Deutsch knew the performance of this part of Chubb's business was critical to Chubb's future results.

56. As a result, Sills, Kullas and Deutsch knew or recklessly disregarded that the rate increase/policy non-renewal initiative was not working as planned or forecast. The amounts of rate increases that were in fact "sticking" were far below the levels necessary for the rate increases to have any positive impact on Chubb's 99 or 00 results, especially since the amount of non-renewals of standard commercial insurance policies was much higher than expected. Thus, contrary to O'Hare's representation that "no matter what the consequences" Chubb would enforce its premium increase policy, Chubb was relenting on its premium increases and renewing business at rates that Sills, Kullas and Deutsch knew were at best break-even and more likely unprofitable levels. Also, Chubb's efforts to reduce its losses in its standard commercial insurance operations had failed and policy losses were running at pre-existing levels. As a result of these very negative factors, Sills, Kullas and Deutsch - Executive Risk's three highest executive officers concerned with the impact of the standard commercial insurance rate increase/policy non-renewal strategy - knew or recklessly disregarded by 3/99 that the strategy was a failure, that the results for Chubb's standard commercial insurance business were actually getting worse not better, that Chubb would not obtain premium growth in its standard commercial insurance business during 99 and would suffer increasing underwriting losses, and thus this business unit would actually adversely impact Chubb's results during 99 and most, if not all, of 00. They knew that if Chubb revealed these adverse facts, it would have a very negative impact on Chubb's stock price and would make it much more difficult if not impossible to get Executive Risk's public shareholders to vote to approve the sale of their company to Chubb in exchange for Chubb stock, and Sills, Kullas and Deutsch would not get the special benefits and payments they had been promised by Chubb in return for helping to bring about the sale of Executive Risk to Chubb, in part by recommending to Executive Risk's shareholders that they vote in favor of the sale.

57. Sills, Kullas and Deutsch went ahead with the merger and recommended that Executive Risk's public shareholders vote in favor of the merger because it was "in their best interests" and the consideration being offered to them was "fair," despite their knowledge or reckless disregard of the failure of Chubb's standard commercial insurance rate increase/policy non-renewal initiative and the adverse consequences that failure would have on Chubb's stock (and thus Executive Risk's public shareholders who exchanged their Executive Risk stock for Chubb stock) because they had interests that conflicted with the interests of Executive Risk's public shareholders and had positioned themselves to personally profit by millions of dollars due to special benefits and payments provided them in the merger which were not available to Executive Risk's public shareholders. The special benefits and payments assured that these top Executive Risk insiders would profit from the merger even if Chubb's standard commercial insurance operations continued to perform poorly and Chubb's stock price fell back to the levels it was trading at before the false claims of better than expected success with the turnaround of Chubb's standard commercial insurance lines were first made on 4/27-28/99, i.e., $57-$58. The Merger Proxy admitted:

[T]he directors and executive officers of Executive Risk may be deemed to have interests in the proposed merger that are different from or in addition to their interests as Executive Risk stockholders generally.

• Chubb established a new operation, Chubb/Executive Risk, to manage the combined company's executive protection business following completion of the merger. Sills, President and Chief Executive Officer of Executive Risk, became Chairman and Chief Executive Officer of this new operation at a large salary increase and guaranteed annual bonus and the headquarters of this huge operation was moved from Chubb's New Jersey headquarters to Simsbury, Connecticut, where Sills lived.

• Sills', Kullas' and Deutsch's Executive Risk stock options were all accelerated and made exercisable for Chubb common shares at the closing of the merger. These stock options were changed so that they all became vested and exercisable upon the closing of the merger. In addition, these stock options would now remain exercisable until five years after the termination of employment or the original expiration date of the option.

• Executive Risk's Performance Share Plan provided for the issuance of Performance Share Units and entitled Sills, Kullas and Deutsch to a distribution of shares of Executive Risk stock or cash based upon Executive Risk's achievement of corporate performance objectives specified in the plan. Under the plan, the level of achievement with respect to these performance objectives was required to be measured on the basis of Executive Risk's audited financial statements and the publicly announced financial results of peer group companies. This plan was changed to allow the Executive Risk Compensation Committee to measure performance with respect to this objective for the three-year performance period ended 12/31/98 on the basis of Executive Risk's unaudited 98 financial statements and estimates of peer group company results, rather than waiting until audited financial statements and reported peer group results were available. The Committee then made this measurement and distributions of cash and shares were made to Sills, Kullas and Deutsch and all outstanding Performance Share Units for the three-year performance period ending 12/31/99 became accelerated and fully vested upon the closing of the merger.

• On 5/7/99, Executive Risk entered into an agreement with Kullas that provided that Kullas would resign as an officer and director of Executive Risk on the merger, by which Kullas was entitled to continuation of his base salary through 12/31/99 - a minimum of $122,000 for this period. The agreement provided that Kullas' resignation be treated as a retirement, meaning that Kullas had three years, rather than three months, to exercise his stock options and was entitled to receive incentive compensation with respect to Executive Risk's performance during 99 and prior years.

• On 5/7/99, Executive Risk entered into an agreement with Deutsch that provided that if Deutsch's employment with Executive Risk was terminated following the merger, it would be treated as a retirement, meaning Deutsch would have three years, rather than three months, following termination of employment in which to exercise his stock options. In addition, Deutsch became entitled to receive incentive compensation with respect to Executive Risk's performance during 99 and prior years.

• Chubb also agreed to indemnify Sills, Kullas and Deutsch for all conduct prior to the merger, including the merger, and to provide directors' and officers' insurance, chosen by Executive Risk prior to the closing of the merger, to protect Sills, Kullas and Deutsch for six years after the merger.

Thus, Sills', Kullas' and Deutsch's interests as shareholders of Executive Risk were outweighed by the special benefits and promises made to them by Chubb in connection with the merger.

60. Under Executive Risk's executive stock option plans, Sills, Kullas and Deutsch, as Executive Risk's top executives, stood to personally profit by millions of dollars even if after the merger Chubb's stock declined and its business continued to perform poorly as it had done in 97-98. This was, in part, because the stock options of the Executive Risk executives to purchase Executive Risk stock would be accelerated, become fully vested and converted into options to purchase Chubb stock at a price computed by dividing the old exercise price by 1.235. As of 12/31/98 the Executive Risk executive stock option situation was as follows:
 

61. The following table summarizes information about Executive Risk's employee stock options outstanding at 12/31/98:
 

	OPTIONS OUTSTANDING			OPTIONS EXERCISABLE
RANGE OF EXERCISE PRICES	NUMBER OF OPTIONS	WEIGHTED AVERAGE PRICE	AVERAGE REMAINING CONTRACTUAL LIFE (YEARS)	NUMBER  OF OPTIONS	WEIGHTED AVERAGE PRICE
$ 4.88-$12.91	111,875	$11.36	4.3	111,875	$11.36
$13.77-$17.63	486,025	$14.05	3.5	482,925	$14.02
$26.00-$37.50	307,600	$33.62	7.6	61,623	$27.97
$40.25-$54.00	194,086	$43.24	4.5	3,750	$40.25
$57.81-$72.81	599,700	$61.72	7.9	57,659	$59.47
$ 4.88-$72.81	1,699,286	$37.57	5.9	717,832	$18.59

62. The following tables summarize information about Executive Risk's directors' stock options outstanding at 12/31/98:
 

Thus, all of these options, which had remaining lives of 5.8-5.9 years, became 100% accelerated, vested and exercisable Chubb stock options to purchase a number of Chubb common shares equal to the number of previously held Executive Risk stock options multiplied by 1.235, or 1,800,000 "new" Chubb stock options at exercise prices equal to the original Executive Risk stock options' exercise prices of $30.33-$37.57 divided by 1.235, or $24.55-$30.42. Sills, Kullas and Deutsch were the largest beneficiaries of these options. Because of these low option exercise prices, Sills, Kullas and Deutsch were assured to profit from the merger even if the truth about the continued problems with - and worsening revelations of - Chubb's standard commercial insurance business became public after the merger was completed and Chubb's stock suffered a substantial decline.

63. Thus, Sills, Kullas and Deutsch were uniquely positioned to personally profit from the sale of Executive Risk to Chubb and, in fact, each of them received special benefits and payments in return for engineering the sale of Executive Risk to Chubb and for recommending to Executive Risk's public shareholders that they vote to approve the sale of their Company to Chubb because that sale was purportedly in their best interests.
 

SILLS	KULLAS	DEUTSCH
Chairman/CEO of new and expanded D&O operation.	N/A	Continues as Chubb officer.
100% of options become vested & exercisable upon merger.	100% of options become vested and exercisable upon merger.	100% of options become vested and exercisable upon merger.
Performance share units - accelerated for 12/31/99 to 12/31/98 and used unaudited figures - plus all units accelerated and paid upon merger.	Performance share units - accelerated for 12/31/99 to 12/31/98 and used unaudited figures - plus all units accelerated and paid upon merger.	Performance share units - accelerated for 12/31/99 to 12/31/98 and used unaudited figures - plus all units accelerated and paid upon merger.
N/A	Resignation/Retirement Agreement. Paid through 12/31/99 ($122,000). Treated as retirement. Gets 3 years vs. 3 months to exercise options. Gets incentive compensation based on Executive Risk's 99 performance.	Resignation/Retirement Agreement. If terminated by Chubb, treated as retirement. Gets 3 years vs. 3 months to exercise options. Gets incentive compensation based on Executive Risk's 99 performance.
Indemnified vs. liability for acts prior to merger. Gets special D&O insurance policy protection.	Indemnified vs. liability for acts prior to merger. Gets special D&O insurance  policy protection.	Indemnified vs. liability for acts prior to merger. Gets special D&O insurance policy protection.

64. During Chubb's 1stQ 99, after the announcement of the merger agreement on 2/6/99, Chubb and Executive Risk were working together to prepare the Registration Statement and Merger Proxy to register with the SEC the Chubb shares to be sold to the Executive Risk shareholders in exchange for their Executive Risk shares to effectuate the acquisition and to secure the approval of Executive Risk's shareholders of the proposed sale of their company to Chubb for 1.235 shares of Chubb stock for each of their Executive Risk shares. The drafts of these documents were first filed with the SEC in mid-4/99, just before Chubb reported its 1stQ 99 results.

65. The defendants knew that Chubb's 1stQ 99 results would be crucial to the performance of Chubb's stock and to show whether the "aggressive steps" described by O'Hare as being undertaken to fix Chubb's standard commercial insurance business were, in fact, working - "stabilizing" that business and enabling it to "return to profitability" - and that Chubb was, in fact, on target to achieve EPS growth in 99 to $4.25-$4.50 and in 00 to $5.00+, as O'Hare had been telling analysts during 2/99-4/99. They also knew that reporting real progress with respect to this critical area of Chubb's business was indispensable to boosting Chubb's stock price, making the proposed acquisition of Executive Risk more attractive to Executive Risk's public shareholders and thus assuring Executive Risk's shareholders' approval of the proposed sale of their company to Chubb in exchange for Chubb stock. On 4/16/99, the defendants filed the draft Registration Statement/Merger Proxy with the SEC anticipating that the Executive Risk shareholder vote on the merger would occur in mid-7/99.

66. On 4/27/99, Chubb reported much better-than-forecast 1stQ 99 results via a release which stated:

"Our favorable first quarter results reflect positive trends in all three major segments of our business," said Dean R. O'Hare, chairman and chief executive officer....

"Even more significantly for the future, our pricing strategy in standard commercial lines has begun to show the impact we are looking for in our renewal business. Month by month, renewal rate increases are building momentum, and we expect this trend to continue. Moreover, we have been successful in retaining business we want to keep at higher rates, while at the same time we are walking away from business where we can't obtain adequate pricing. By maintaining this profit-oriented discipline, standard commercial lines will likely show a decline in premiums throughout the year and produce improved combined ratios. This decline in premiums should be offset by continued premium growth in personal and specialty commercial lines and by the benefits of a series of growth initiatives begun late last year."

• Management's actions to turn around Chubb's standard commercial insurance operations by raising prices and not renewing unprofitable policies were not only working, in fact, they were exceeding management's expectations, and this accounted in large part for Chubb's better-than-expected 1stQ 99 results.

• Due to the successful turnaround of Chubb's standard commercial insurance operations, that part of Chubb's business would show 5-1/2%-6% premium growth throughout 99, as Chubb's rate increases for new or renewal standard commercial insurance policies were sticking.

• The momentum of rate increases in Chubb's standard commercial insurance operations was growing month by month.

• Chubb was successful at retaining the higher priced standard commercial insurance rate which it desired and was profitable.

• Chubb was not losing as much of its standard commercial insurance business due to rate increases as it had feared. However, Chubb was prepared to lose $250-$300 million in standard commercial insurance business, as this would make Chubb's standard commercial insurance business "a lot more profitable." The insurance companies who would pick up this business Chubb walked away from were "assholes."

• The combined ratio of Chubb's standard commercial insurance business would decline throughout 99, to about 110% by year-end from 119.5% at year-end 98.

• The improvements in Chubb's standard commercial insurance business would produce an underwriting profit by 2000.

• O'Hare was "totally confident" in the success of Chubb's new pricing of its standard commercial insurance lines.

• O'Hare was optimistic over the future performance of Chubb's business, in part due to the turnaround of its standard commercial insurance business.

• O'Hare stated: "You guys are so bloody negative it's disgusting. We're trying to send a strong signal to you that things are getting better. I don't know how else to say it .... This god dam ship has turned faster than I thought it was going to ...."

• As a result of the better-than-expected pace of the turnaround of Chubb's standard commercial insurance business, Chubb was increasing its forecasted 99 EPS to $4.10+ and its 00 EPS to $4.50+.

70. On 4/27/99, Best's Insurance News reported on Chubb's Annual Shareholders' meeting:

Speaking at the company's annual meeting of shareholders, held Tuesday in Warren, N.J., Chubb Chairman Dean R. O'Hare said the company has focused on improving its underwriting results and expense ratios.

* * *

At the meeting, several shareholder-representatives complained that Chubb's stock price has lagged behind several market and industry indexes in recent years. Based on improving commercial rates and strong results in personal lines, O'Hare said he expects the company to prove a long-term stock winner. "I'm a happy camper," he said.

Hampton: Reporting from Bloomberg News New York Time Ted Hampton. Today I'm speaking with Dean O'Hare the chairman and chief executive of Chubb Corporation in Warren, New Jersey, which today reported first quarter earnings. Mr. O'Hare, thanks very much for joining me and congratulations on your quarter [you] beat estimates [and your] stock is up 1-5/8 as we speak. Why do you think investors are celebrating a little bit today?

O'Hare: I guess they're celebrating because earnings are better than the Street expected them to be.

Hampton: And to what did you attribute that?

O'Hare: Why, I would hope that it's attributable to the fact this ship of ours is turning quicker than other people ... had expected....

Hampton: Is there at Chubb a sense that commercial lines pricing is bottoming or are you still contending with the soft market conditions?

O'Hare: There is definitely a sense at Chubb that pricing is firming.

* * *

I will tell you this, that from what I've seen on a monthly basis, we have gone from a, let's take the month of December, where we were seeing price declines to a point that we are now seeing standard commercial lines price increases that are, let's call them 3-1/2 percent. I fully expect that [they're] going to build rather rapidly to 5-1/2 percent ....

"This ship of ours is turning quicker than other people may have expected," Dean R. O'Hare, chairman and chief executive of the Warren, New Jersey, company said in an interview, referring to the profit surprise.

CB beat consensus with Q1 earnings of $1.02 vs. expectations of $0.97....

Management's repricing strategy is clearly working to drive out underpriced business and garner average rate increases on what remains.

* * *

After a number of quarters of ratcheting down expectations, Chubb's first quarter of 1999 was pleasant surprise. In addition to stronger earnings than we were looking for from a better-than-expected combined ratio, management commented on rate movement in its books and predicted 6% average rate increases by the end of the year with a combined ratio in the standard/commercial lines down from 118% to what the company hopes will be 109-110%.

... [W]e believe this quarter was good enough to justify an increase in our estimates ....

We are reiterating our aggressive Buy rating of Chubb shares, following the company's favorable commentary on its first quarter results and expectations for the balance of the year.

... [I]mportantly, management indicated on the company's conference call that results were ahead of Chubb's own expectations. In ... standard commercial lines, the momentum is positive and is expected to continue to show better results for the balance of the year ....

* * *

Mr. O'Hare's comment in response to one question was "This ship is turning around faster than I expected ...."

* * *

Overall, Mr. O'Hare indicated he is encouraged by results in the first quarter, and is raising his own expectations for premium growth to as much as 5% for the year, compared to previous guidance to flat premiums.

After becoming somewhat agitated at the tone of the questions concerning rate activity and renewal experience associated with standard commercial ... [O'Hare] exclaimed, "You guys are so bloody negative it's disgusting. We're trying to send a strong signal to you that things are getting better. I don't know how else to say it .... This god damn ship has turned faster than I thought it was going to but it's a big ship."

* * *

STANDARD COMMERCIAL MARKET. In Q3:98, mgmt announced that it was accelerating actions to bring Chubb's Standard Commercial business back to profitability via price increases of 5-20%, non-renewals and culling of unprofitable business, "even if this aggressiveness results in lost business." Chubb suggested that it is willing to lose as much as $250-300MM of this business "if we cannot maintain adequate prices ...."

* * *

This quarter mgmt updated analysts on the progress of the rating plan: "The pricing strategy we have been executing since late last year is having the intended impact. We all know that you can't turn around a business of this size in one quarter but the signs bode well for the future. All the indications are that we are keeping much of the business that we want to keep at higher rates and we are being very disciplined about walking away from under-priced accounts..... right now we are thinking that standard commercial lines in 1999 could be down by as much as $200MM but it would be a lot more profitable."

Who would pick up this business? "As long as there are a--holes present, and boy there are still two for sure, this is going to happen."

THE FIRST GOOD NEWS FROM CHUBB IN A LONG TIME

Following a string of earnings disappointments and deteriorating patterns of underwriting performance in the standard commercial lines, Chubb made progress on all fronts in the first quarter. EPS of $1.02 ... beat ... the Street consensus of $0.97....

... [F]ollowing the very disappointing fourth quarter, Chubb aggressively implemented repricing strategies to return its standard commercial lines margins to satisfactory levels. Dean O'Hare, Chubb's Chairman and Chief Executive Officer sent out a strong signal that pricing initiatives are working, renewal rate increases are sticking and "the signs bode well for the future." We are raising our 1999 EPS estimate to $4.28 ....

Chubb Corp. management ended its first quarter 1999 teleconference with the following statement. "[We are] trying to send a strong signal that things are getting better, the ship is turning around faster [than we] originally thought." ... Specifically, ... the actions instituted to turn around the standard commercial line book of business will prove successful, thereby enabling this historically superior underwriter to enhance its future growth rate by attaining its targeted 5% underwriting profit margin pre-catastrophe related losses .... After reviewing the better than expected initial quarter 1999 results, we raised our 1999 and 2000 per share earning estimates ....

* * *

By year end, management expects to ... increase renewal rates by better than 6%, while keeping retentions above 65% and in turn significantly improving the books profitability.

(a) Chubb's aggressive actions to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines was not working, let alone exceeding management's expectations, because the rate increases were not sticking and Chubb's standard commercial insurance underwriting losses were increasing;

(b) The rate increases that were, in fact, being obtained on new and renewal standard commercial insurance policies were very small and well below the levels necessary to have any materially favorable impact on Chubb's 99 results, or even to lessen the growing underwriting losses in Chubb's standard commercial insurance business;

(c) Chubb was, in fact, not maintaining a disciplined approach to renewing standard commercial insurance and was renewing hundreds of millions of dollars of standard commercial insurance policies at premium levels Chubb knew were unprofitable and thus would adversely impact Chubb's results going forward;

(d) Chubb's aggressive action to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines, even if successful, would not have any significant positive impact on Chubb's financial results during 99 and, in fact, Chubb's standard commercial insurance problems would continue to very adversely impact Chubb's results throughout most of 99;

(e) Chubb's reserves for its property and marine insurance line had been manipulated by reserve reductions which were not justified as detailed in ¶¶114-133;

(f) Chubb's standard commercial insurance business had not stabilized as, due to weak premium growth and increasing losses, the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), leading to larger than ever losses in these lines of business;

(g) Chubb's standard commercial insurance business was not encountering strong positive momentum or positive trends. Due to weak premium growth and increasing losses, the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), leading to larger than ever losses in these lines of business;

(h) Chubb's strategy of renewing only at good prices would not have any significant impact on Chubb's results until at least mid-2000, as it would take "at least two annual renewal cycles" for Chubb to reprice the standard commercial lines premiums and after the premiums were repriced it would take another year for the higher premiums to be earned into income. Chubb concealed this key fact from its public disclosures until after the merger closed;

(i) Chubb's better-than-expected 1stQ 99 results were not the result of favorable developments or trends in Chubb's standard commercial insurance business as represented; in fact, Chubb's 1stQ 99 results had been deliberately falsified as detailed in ¶¶114-133 in order to artificially and improperly boost Chubb's reported EPS to conceal the continued serious deterioration in its standard commercial insurance business;

(j) As a result of the foregoing negative conditions which were adversely impacting Chubb's business, defendants knew that Chubb's forecasts of 5-1/2%-6% premium growth for its standard commercial insurance business during 99 and a falling combined ratio for its standard commercial insurance business were false and could not be obtained; and

(k) As a result of the foregoing negative factors which were adversely impacting Chubb's business, defendants knew Chubb's forecasts of 99 EPS of $4.10+ and 00 EPS of $4.50+ were false when made and could not and would not be achieved, even if Chubb suffered no catastrophe losses and even if Chubb achieved its repricing objectives in standard commercial insurance.

78. Chubb's stock soared higher after Chubb reported its much better-than-forecast 1stQ 99 results and O'Hare, Kelso and Schram made their very bullish comments to analysts. Chubb stock, which traded at as low as $57 on 4/26/99, jumped to $60-7/8 on 4/27/99, $62-1/16 on 4/28/99, and $70-5/16 on 5/7/99 - a major upward move for a large cap insurance stock. On 5/7/99, Bloomberg issued a report on Chubb, stating:

Chubb Corp shares gained 19 percent this week, as the 14th-largest U.S. property and casualty insurer was seen benefitting from lower losses on commercial policies and regulatory reform legislation.

Shares of the Warren, New Jersey, company advanced 11 1/6, including a 5 ½-point jump today, to a four-month high of 70 5/16....

The rebound was "overdue" said spokeswoman Gail Devlin, and was a "recognition that the shares were undervalued." She said "there may be more ahead."

On Wednesday, May 12, Dean O'Hare, Chairman and Chief Executive Officer of Chubb Corporation met with members of the Boston investment community.... We received an update on pricing initiatives in the troubled standard commercial lines, with an indication that pricing momentum continues to build. An improvement in underwriting results in this area is expected as the year unfolds.

* * *

Here is what Chairman O'Hare said.

BUILDING ON PREMIUM RATE INCREASES IN THE STANDARD COMMERCIAL LINES

Today, we received another piece of confirmation that Chubb's pricing strategies are working. Premium rates for the standard commercial lines rose 4% in the first week of May, following increases of 3.2% in April and 2.2% in March.

Retention rates remain in the low 70s. New business that is going on the books has been intensely audited and the company is very comfortable with the pricing.

* * *

Chubb's financial models indicate its stock is worth $102-140 per share. Mr. O'Hare stated that a value of $128 per share is realistic in today's market ....

Premiums from standard commercial insurance, which represent 35% of our total writings, decreased by 3.9% in the first quarter of 1999 compared with the same period a year ago. The decrease was the result of the strategy we put in place in late 1998 to renew good business at adequate prices and not renew underperforming accounts where we cannot attain price adequacy. On that business that was renewed, rates increased modestly in the first quarter of 1999 and we expect this trend to continue.

Chubb's stock continued to move higher, reaching its Class Period high of $76-3/8 on 5/24/99.

• Management's actions to turn around Chubb's standard commercial insurance operations by raising prices and not renewing unprofitable policies were not only working, in fact, they were exceeding management's expectations.

• Chubb's standard commercial insurance operations would show 5-1/2%-6% premium growth throughout 99, as Chubb's rate increases for new or renewal standard commercial insurance policies were sticking.

• The momentum of rate increases in Chubb's standard commercial insurance operations was growing month by month.

• Chubb was being successful at retaining the higher priced standard commercial insurance business which it desired and was profitable.

• Chubb was not losing as much of its standard commercial insurance business due to rate increases as it had feared.

• The combined ratio of Chubb's standard commercial insurance business would decline throughout 99, to about 110% by year-end from 119.5% at year-end 98.

• The changes in Chubb's standard commercial insurance business would produce an underwriting profit by 2000 and a 6% total return on equity by 2001.

• Chubb's stock was undervalued and, based on its improving business situation, the stock was worth between $102-$140 per share.

• O'Hare was very optimistic about the future performance of Chubb's business, in part due to the turnaround of its standard commercial insurance business.

• As a result of the better-than-expected pace of the turnaround of Chubb's standard commercial insurance business, Chubb had increased its forecasted 99 EPS to $4.10+ and its 00 EPS to $4.70+.

Last night, Chairman and CEO of the Chubb Corp., Dean O'Hare, was the guest speaker at the concluding dinner of DLJ's first annual Insurance Conference.

SIGNIFICANT COMMENTS MADE INCLUDE:

CB's execution of its turnaround strategy in its standard commercial lines business (roughly 35% of premiums written) is exceeding management's expectations.

* * *

- Management expects that the overall combined ratio, ex catastrophes, will improve steadily due to expense reductions, claims management, and the repricing or non-renewing of unprofitable standard commercial business.

84. The statements made between 5/7/99 and 6/15/99 that Chubb's stock was "undervalued" and there may be "more good news ahead," that Chubb's standard commercial insurance business' favorable pricing momentum "continues to build," that the turnaround of this business was "exceeding management's expectations," that the new standard commercial insurance being accepted by Chubb had been "intensely audited" and Chubb was now "very comfortable with the pricing," that these premiums had increased "modestly" in the 1stQ 99 and, as a result, Chubb's standard commercial insurance combined ratio (excluding catastrophe) would improve steadily in 99-00 due to Chubb's rate increase/policy non-renewal strategy, and that O'Hare was "more optimistic than usual" and Chubb was forecasting 99 EPS of $4.20+ and 00 EPS of $4.70+, and thus that Chubb's own financial models - reflecting these more favorable trends - showed Chubb's stock was worth $102-$140 per share and that a $128 price was "realistic in today's market," were false when made. The true facts, known to defendants, but which they concealed, were:

(a) Chubb's aggressive actions to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines was not working, let alone exceeding management's expectations, because the rate increases were not sticking and Chubb's standard commercial insurance underwriting losses were increasing;

(b) The rate increases that were, in fact, being obtained on new and renewal standard commercial insurance policies were very small and well below the levels necessary to have any materially favorable impact on Chubb's 99 results, or even to lessen the growing underwriting losses in Chubb's standard commercial insurance business;

(c) Chubb was, in fact, not using a disciplined approach to standard commercial insurance renewals and was renewing hundreds of millions of dollars of standard commercial insurance policies at premium levels Chubb knew were unprofitable and thus would adversely impact Chubb's results going forward;

(d) Chubb's aggressive action to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines, even if successful, would not have any significant positive impact on Chubb's financial results during 99 and, in fact, Chubb's standard commercial insurance problems would continue to very adversely impact Chubb's results throughout most of 99;

(e) Chubb's reserves for its property and marine insurance line had been manipulated by reserve reductions which were not justified as detailed in ¶¶114-133;

(f) Chubb's standard commercial insurance business had not stabilized as, due to weak premium growth and increasing losses, the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), leading to larger than ever losses in these lines of business;

(g) Chubb's standard commercial insurance business was not encountering strong positive momentum or positive trends. Due to weak premium growth and increasing losses, the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), leading to larger than ever losses in these lines of business;

(h) Chubb's strategy of renewing only at good prices would not have any significant impact on Chubb's results until at least mid-2000, as it would take "at least two annual renewal cycles" for Chubb to reprice the standard commercial lines premiums and after the premiums were repriced it would take another year for the higher premiums to be earned into income. Chubb concealed this key fact from its public disclosures until after the merger closed;

(i) Chubb's better-than-expected 1stQ 99 results were not the result of favorable developments or trends in Chubb's standard commercial insurance business as represented; in fact, Chubb's 1stQ 99 results had been deliberately falsified as detailed in ¶¶114-133 in order to artificially and improperly boost Chubb's reported EPS to conceal the continued serious deterioration in its standard commercial insurance business;

(j) As a result of the foregoing negative conditions which were adversely impacting Chubb's business, defendants knew that Chubb's forecasts of 5-1/2%-6% premium growth for its standard commercial insurance business during 99 and a falling combined ratio for its standard commercial insurance business were false and could not be obtained; and

(k) As a result of the foregoing negative factors which were adversely impacting Chubb's business, defendants knew Chubb's forecasts of 99 EPS of $4.20+ and 00 EPS of $4.70+ were false when made and could not and would not be achieved, even if Chubb suffered no catastrophe losses and even if Chubb achieved its repricing objectives in standard commercial insurance.

85. By 6/15/99, Chubb's stock closed at $70-9/16. On 6/17/99, Chubb and Executive Risk filed the final version of their Registration Statement and Merger Proxy with the SEC relating to the proposed merger, which became effective that day. The Proxy letter was signed by Sills and Kullas. The Registration Statement was signed by O'Hare, Kelso and Schram. The Merger Proxy was mailed to Executive Risk's shareholders on 6/18/99 to secure the approval of Executive Risk's shareholders of the proposed sale of their company to Chubb for 1.235 shares of Chubb stock for each Executive Risk share.

86. On 6/17/99, Chubb and Executive Risk filed the final version of their Registration Statement and Merger Proxy with the SEC relating to the proposed merger, which became effective that day. The Registration Statement was signed by O'Hare, Kelso and Schram who were also associated with and identified in the Merger Proxy. Sills, Kullas and Deutsch wrote the Merger Proxy and were associated with and identified in the Merger Proxy. The record date on the merger was 6/17/99. The Merger Proxy was mailed to Executive Risk's shareholders on 6/18/99 to secure Executive Risk's shareholders' approval of the proposed sale of their company to Chubb for 1.235 shares of Chubb stock for each Executive Risk share.

87. The Merger Proxy was mailed to Executive Risk's shareholders on 6/18/99 via the transmittal letter signed by Sills and Kullas, which stated:

We cannot complete the merger without the approval of the holders of a majority of the outstanding shares of Executive Risk common stock.

After careful consideration, your board of directors has unanimously approved the merger agreement and determined that the merger is in the best interest of Executive Risk and its shareholders. The board of directors unanimously recommends that you vote FOR the merger agreement.

In arriving at its determination and recommendation, the board of directors took into account the factors described in the attached proxy statement/prospectus, including the opinions of Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Smith Barney Inc. to the effect that the merger consideration is fair to Executive Risk stockholders from a financial point of view.

What Executive Risk Shareholders Will Receive in the Merger

You will receive 1.235 Chubb shares for each Executive Risk share you hold. ... Based on the number of shares of Executive Risk common stock outstanding on June 15, 1999 and the closing price of $70.56 per share of Chubb stock on that date, Chubb would issue approximately 14.28 million shares to the stockholders of Executive Risk with an aggregate value of approximately $1,007.5 million.

The data as of March 31, 1999 and 1998 and for the three months ended March 31, 1999 and 1998 have been derived from Chubb's unaudited consolidated financial statements which include, in the opinion of Chubb's management, all adjustments, consisting of normal recurring accruals, necessary to present fairly the results of operations and financial position of Chubb for the periods and dates presented....

89. The Merger Proxy stressed how the recent strong increase in Chubb's stock price made the sale of Executive Risk to Chubb much more advantageous to Executive Risk public shareholders:

The table ... sets forth the value of the shares of Chubb common stock that a stockholder would have received for one share of Executive Risk common stock assuming the merger has taken place on those dates....

Based on these stock prices, the total consideration to be paid to Executive Risk's shareholders had increased from $839 million on 2/5/99 to $1.019 billion on 6/15/99.

90. The 6/17/99 Registration Statement and Merger Proxy and the oral proxy statements identified in ¶¶49, 51-52, 67, 79, 81, 83 and 87-89, were false and misleading because:

(a) The merger was not in the best interests of Executive Risk's public shareholders as the price of the Chubb stock they were to receive in exchange for their Executive Risk stock was artificially inflated due to the false statements and accounting manipulations detailed herein;

(b) The merger consideration to be received by Executive Risk's public shareholders was not fair as the price of the Chubb stock they were to receive in exchange for their Executive Risk stock was artificially inflated due to the false statements and accounting manipulations detailed herein;

(c) Chubb's aggressive actions to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines was not working, let alone exceeding management's expectations, because the rate increases were not sticking and Chubb's standard commercial insurance underwriting losses were increasing;

(d) Chubb's strategy of renewing only at good prices would not have any significant impact on Chubb's results until at least mid-2000, as it would take "at least two annual renewal cycles" for Chubb to reprice the standard commercial lines premiums and after the premiums were repriced it would take another year for the higher premiums to be earned into income. Chubb concealed this key fact from its public disclosures until after the merger closed;

(e) Chubb was, in fact, not maintaining a disciplined approach to standard commercial insurance renewals and was renewing hundreds of millions of dollars of standard commercial insurance policies at premium levels Chubb knew were unprofitable and thus would adversely impact Chubb's results going forward;

(f) The rate increases that were, in fact, being obtained on new and renewal standard commercial insurance policies were very small and well below the levels necessary to have any materially favorable impact on Chubb's 99 results, or even to lessen the growing underwriting losses in Chubb's standard commercial insurance business;

(g) Chubb's aggressive action to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines, even if successful, would not have any significant positive impact on Chubb's financial results during 99 and, in fact, Chubb's standard commercial insurance problems would continue to very adversely impact Chubb's results throughout most of 99;

(h) Chubb's standard commercial insurance business had not stabilized as, due to weak premium growth and increasing losses, the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), leading to larger than ever losses in these lines of business;

(i) Chubb's standard commercial insurance business was encountering weak premium growth and increasing losses, and the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), leading to larger than ever losses in these lines of business;

(j) Chubb's better-than-expected 1stQ 99 results were not the result of favorable developments or trends in Chubb's standard commercial insurance business as represented; in fact, Chubb's 1stQ 99 results had been deliberately falsified as detailed in ¶¶114-133 in order to artificially and improperly boost Chubb's reported EPS to conceal the continued serious deterioration in its standard commercial insurance business;

(k) As a result of the foregoing negative conditions which were adversely impacting Chubb's business, defendants' forecasts of 5-1/2%-6% premium growth for Chubb's standard commercial insurance business during 99 and a falling combined ratio for its standard commercial insurance business were false and could not be obtained; and

(l) As a result of the foregoing negative factors which were adversely impacting Chubb's business, Chubb's forecasts of 99 EPS of $4.20+ and 00 EPS of $4.70 were false when made and could not and would not be achieved, even if Chubb suffered no catastrophe losses and even if Chubb achieved its repricing objections in standard commercial insurance.

91. On 6/25/99, Bear Stearns met privately with O'Hare and other top Chubb executives to receive a briefing about Chubb's business. On 6/28/99, Bear Stearns issued a report on Chubb, which was based on and repeated the information Chubb's executives had given it on 6/25/99. The report stated:

We are reiterating our aggressive Buy rating of Chubb shares, following a private meeting with management Friday. We expect that, as Chubb continues to meet and exceed "Street" earnings expectations, the shares will be revalued back toward historical relative valuations....

Chubb's CEO Dean O'Hare noted that the company's repricing/reunderwriting project in the standard commercial lines (approximately 30% of Chubb's total business) continues to make progress ....

One of the issues concerning investors earlier this year was the decline in retentions (the amount of business successfully renewed) that Chubb saw when it first began its repricing efforts. However, according to the company, the decline in retentions appears to have bottomed, and management expects these figures to begin to move higher.

(a) Chubb's aggressive actions to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines was not working, let alone exceeding management's expectations, because the rate increases were not sticking and Chubb's standard commercial insurance underwriting losses were increasing;

(b) The rate increases that were, in fact, being obtained on new and renewal standard commercial insurance policies were very small and well below the levels necessary to have any materially favorable impact on Chubb's 99 results, or even to lessen the growing underwriting losses in Chubb's standard commercial insurance business;

(c) Chubb's aggressive action to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines, even if successful, would not have any significant positive impact on Chubb's financial results during 99 and, in fact, Chubb's standard commercial insurance problems would continue to very adversely impact Chubb's results throughout all of 99;

(d) Chubb's reserves for its property and marine insurance line had been manipulated by reserve reductions which were not justified as detailed in ¶¶114-133;

(e) Chubb's standard commercial insurance business had not stabilized as, due to weak premium growth and increasing losses, the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), leading to larger than ever losses in these lines of business;

(f) Chubb's standard commercial insurance business was not encountering strong positive momentum or positive trends. Due to weak premium growth and increasing losses, the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), leading to larger than ever losses in these lines of business;

(g) Chubb's strategy of renewing only at good prices would not have any significant impact on Chubb's results until at least mid-2000, as it would take "at least two annual renewal cycles" for Chubb to reprice the standard commercial lines premiums and after the premiums were repriced it would take another year for the higher premiums to be earned into income. Chubb concealed this key fact from its public disclosures until after the merger closed;

(h) Chubb was, in fact, renewing millions of dollars of standard commercial insurance policies at premium levels Chubb knew were unprofitable and thus would adversely impact Chubb's results going forward;

(i) Chubb's better-than-expected 1stQ 99 results were not the result of favorable developments or trends in Chubb's standard commercial insurance business as represented; in fact, Chubb's 1stQ 99 results had been deliberately falsified as detailed in ¶¶114-133 in order to artificially and improperly boost Chubb's reported EPS to conceal the continued serious deterioration in its standard commercial insurance business;

(j) Chubb was actually losing more standard commercial insurance business than stated and was writing less new standard commercial insurance than stated;

(k) As a result of the foregoing negative conditions which were adversely impacting Chubb's business, defendants knew that Chubb's forecasts of 5-1/2%-6% premium growth for its standard commercial insurance business during 99 and a falling combined ratio for its standard commercial insurance business were false and could not be obtained; and

(l) As a result of the foregoing negative factors which were adversely impacting Chubb's business, defendants knew Chubb's forecasts of 99 EPS of $4.20+ and 00 EPS of $4.70+ were false when made and could not and would not be achieved, even if Chubb suffered no catastrophe losses and even if Chubb achieved its repricing objectives in standard commercial insurance.

93. Between 6/16/99 and 7/19/99, Chubb's stock traded between $67-13/16 and $74-1/8, giving the acquisition of Executive Risk a per share value of $84-$91 and an aggregate value of $982.8 million to $1.071 billion. On 7/19/99, a majority of Executive Risk's public shareholders voted to approve the sale of Executive Risk to Chubb and, on 7/20/99, Chubb completed the Executive Risk merger. Immediately after the approval of the Executive Risk acquisition, Chubb's stock began to fall - from $70-1/2 on 7/19/99 to as low as $64-1/2 on 7/26/99 - on concerns that Chubb's 2ndQ 99 results, to be announced in late 7/99, would be worse than forecast.

94. On 7/27/99, just eight days after Executive Risk's shareholders approved the sale of their company to Chubb in return for stock, Chubb reported 2ndQ 99 operating income of $1.00 per share - well below expected results! Chubb's release stated:

Standard commercial lines premiums in the second quarter declined 9% to $455.4 million and had a combined ratio of 120.8%....

"Given the moderate magnitude of rate increases in the early stages of the repricing program," said Mr. O'Hare, "it will take at least two renewal cycles to adequately reprice the entire standard commercial book, and during that time we will continue to have losses from non-renewed policies. Thus ... it will be mid-2000 before the benefits of these actions significantly flow to the bottom line."

• Management's actions to turn around Chubb's standard commercial insurance operations by raising prices and not renewing unprofitable policies were in fact working, but would take longer than expected to benefit Chubb's EPS.

• The rate increases in Chubb's standard commercial insurance operations were still growing.

• The combined ratio of Chubb's standard commercial insurance business would decline during the balance of 99.

• The changes in Chubb's standard commercial insurance business would produce an underwriting profit by 2000 and a 6% total return on equity by 2001.

97. On 7/27/99, PaineWebber issued a report on Chubb, which was based on and repeated information provided in the 7/27/99 conference call and in follow-up conversations with O'Hare, Kullas and Sills. The report cut the forecasted 99 and 00 EPS for Chubb to $4.10 and $4.55. It also stated:

* In what was perceived as a shocking disappointment, Chubb reported flat premiums for the second quarter with earnings ... short of the Street consensus ....

* Management dampened its earlier enthusiasm for improving market conditions, which had ratcheted up expectations early in the second quarter.

* * *

The bad news: Total standard commercial business shrank 9.0%, more than expected. The combined ratio remained unacceptably high at 120.8%. Commercial multiperil results were terrible.... Premiums in total were flat rather than up about 5% as expected.

CEO Dean O'Hare stated: "I might have actually gotten a little bit euphoric that we could do this turnaround of standard commercial lines without any real disturbance of the premium pattern." Q2 "has brought me back to where I started." "I'm not in any way discouraged but I admit to being somewhat overly optimistic at the end of the first quarter."...

He also noted: "we are losing more business than we did in the first quarter and we're writing less new business than we did in the first quarter."

* * *

Management stated that it will take at least two renewal cycles to adequately reprice the entire standard commercial book. It will be mid 2000 before these actions have a significant impact on the bottom line.

First quarter trends were very encouraging. As you recall, following the very disappointing fourth quarter, Chubb aggressively implemented pricing strategies to return its standard commercial lines margins to satisfactory levels. Chubb made progress on all fronts in the first quarter and management believed that the company had a good shot at increasing its total premiums by as much as 5% for the year (excluding any contribution from Executive Risk) for 1999 comparted with its earlier projection of flat premiums.

... Management is not in any way discouraged by the second quarter trends. Rate increases continue to build momentum.... Management is returning to its initial projection of flat premiums for the year with the anticipation that it will lose about $200 million in standard commercial premiums, or about 10% of the standard commercial book.

* * *

Standard commercial results were awful.... The total standard commercial book reported a combined ratio of 120.8% slightly better than a year ago but deteriorated from the 117.9% reported in the first quarter.

A month ago Chairman and CEO Dean O'Hare was enthusiastically optimistic that the turnaround in the standard commercial book might occur ahead of schedule based on trends seen mid-quarter.

HOWEVER, on yesterday's conference call he stated that he had been overly optimistic and returned to expect CB's original targets.

We are lowering our 1999 estimate to $4.25 per share from $4.35 to incorporate trends in the 2Q99 results....

THERE IS GOOD NEWS:

- CB's turnaround strategy remains on target with original expectations.

101. The reassurances of 7/27/99 and 7/28/99 that Chubb had only been "a little bit euphoric" or "overly optimistic" at the end of the 1stQ 99, that Chubb's management was "not in any way discouraged" by the performance of Chubb's standard commercial insurance business in the 2ndQ 99 as "[r]ate increases continue to build momentum," permitting Chubb management to return to Chubb's "original" (i.e., pre-4/27/99) forecasts because the standard commercial insurance "turnaround strategy remains on target with original expectations," and thus that Chubb would still achieve 99 EPS of $4.00+, were false. The true facts, known by defendants but which they concealed, were that:

(a) Chubb's action to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines had failed;

(b) The combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), which would hurt Chubb's EPS in 99;

(c) Chubb's standard commercial insurance business was encountering increasing losses due to weak premium growth and the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes);

(d) Even if Chubb was able to raise prices on its standard commercial insurance lines and shed unprofitable policies, this would not have any material positive impact on Chubb's results until at lest two renewal cycles, i.e., late in 2000, at the earliest;

(e) As a result of the foregoing, defendants knew that Chubb's forecast of 5-1/2%-6% premium growth for its standard commercial insurance business during 99 was false and could not be obtained; and

(f) As a result of the foregoing negative factors which were adversely impacting Chubb's business, defendants knew Chubb's forecasts of 99 EPS of $4.00+ and 00 EPS of $4.50+ were false when made and could not and would not be achieved, even if Chubb suffered no catastrophe losses.

102. During 8/2/99-9/22/99, Chubb's stock traded between $56 and $62-5/16, trading at as high as $56-5/8 on 9/21/99. However, in late 9/99, Chubb's stock began to fall to $49-$50 on concerns that Chubb's 3rdQ 99 results, to be released in mid-10/99, would be much worse than forecast. On 10/14/99, Chubb stock traded at as high as $49-3/8.

103. In 8/99, Chubb filed its 2ndQ 99 Report on Form 10-Q with the SEC, signed by Schram. It stated:

Premiums from standard commercial insurance, which represent 34% of our total writings, decreased by 6.4% in the first six months of 1999 and 9.1% in the second quarter compared with the similar periods in 1998. The decreases were the result of the strategy we put in place in late 1998 to renew good business at adequate prices and not renew underperforming accounts where we cannot attain price adequacy. On the business that was renewed, rates have increased modestly yet steadily in the first six months of 1999 and we expect this trend to continue. Retention levels were lower in the first six months of 1999 compared with the same period in 1998. Approximately half of the non-renewals were the result of business we chose not to renew and half were the result of customers not accepting the price increases we instituted. It will take at least two renewal cycles to adequately reprice the entire standard commercial book and during that time we will continue to have losses from non-renewal policies. Thus, it will be mid-2000 before these actions have a significant positive effect on our results.

105. On 10/15/99, Chubb revealed much lower-than-forecast 3rdQ 99 results of only about $.40-$.45, compared to $1.04 in the 3rdQ 98, due, in part, to catastrophe losses from Hurricane Floyd. However, Chubb admitted:

In addition, underwriting losses from its standard commercial business continued to have an adverse effect on earnings.

* Chubb continues to address the poor profitability in its standard commercial lines business, although an earnings turnaround could take 12-14 months.

* We have reduced our 2000 per share estimate to $4.15 from $4.65. We have taken down our 1999 estimate to $3.35 from $4.10 ....

* * *

Chubb's preannounced earnings shortfall represents another in a string of quarterly earnings disappointments. While weather has hurt earnings over the past year, the profitability problems in the company's standard commercial lines business is a greater concern among investors.

Chubb finally pre-announced third quarter earnings that will be significantly reduced by catastrophe losses .... In addition, when adjusting for the catastrophe losses, we conclude that the comparisons will still have been difficult.

Chubb announced that third quarter earnings will be in the $0.40-$0.45 range, reduced by approximately $0.50 because of catastrophe losses....

If we add back the $0.50 catastrophe losses, we get to $0.90, our recently-revised estimate for the quarter, which is about even with last year's figure. But last year, the company incurred $0.27 per share from catastrophe losses, mostly Hurricane Georges, so it becomes obvious that continued margin difficulty in the company's book of standard commercial lines of business is having a drag effect on earnings.

109. On 10/18/99, C.S. First Boston wrote:

The Chubb stock now sells for about half the price it sold at in July 1998. While in retrospect at that point the stock was over priced now it has come back to earth.

* * *

Chubb's standard commercial lines insurance operations remain a severe disappointment.

Standard commercial insurance performed poorly in the third quarter, recording a combined ratio of 130.4%, which included 10.1 percentage points of catastrophe losses....

..."[I]t will take time for the benefits of the pricing initiative to reverse the losses from underpriced business written in the extremely competitive market of the past few years," [said O'Hare].

112. In Chubb's 99 10-K, signed by O'Hare and Schram, they admitted:

PROPERTY AND CASUALTY INSURANCE

Property and casualty income before taxes was $626 million in 1999 compared with $685 million in 1998 and $828 million in 1997. The decrease in earnings in 1999 was due to deterioration in underwriting results caused in large part by the continued weakness in the standard commercial classes, which include multiple peril, casualty and workers' compensation, and to a lesser extent, higher catastrophe losses.

* * *

STANDARD COMMERCIAL INSURANCE

Reported net premiums from standard commercial insurance decreased 8% in 1999 compared with a 1% decrease in 1998....

Our standard commercial insurance business produced substantial underwriting losses in each of the past three years, with results becoming increasingly unprofitable each year. The combined loss and expense ratio was 123.6% in 1999 compared with 118.0% in 1998 and 114.5% in 1997.

It will take at least two annual renewal cycles to adequately reprice the entire standard commercial book, and during that time we will continue to have losses from underpriced business. Thus, it will be the latter part of 2000 before our pricing initiative is expected to have a noticeable effect on our standard commercial results.

Multiple peril results were unprofitable in each of the past three years due, in large part, to inadequate prices. Such results were progressively more unprofitable each year. In the liability component of this class, results deteriorated in 1998 and again in 1999 due to increases in the severity of losses.

* * *

Results for our casualty business were unprofitable in each of the past three years. Results deteriorated in 1999, primarily in the automobile and primary liability components.... Results for the primary liability component were unprofit-able in each of the past three years, but more so in 1999 ... due to a higher frequency of large losses in those years. Results in the automobile component were increasingly unprofitable in each of the past three years due to an increase in the frequency of losses. Our commercial automobile book of business has been inadequately priced, a consequence of the prolonged soft market.

Workers' compensation results were unprofitable in each of the past three years, reflecting the cumulative effect of price reductions over the past several years. Results were also adversely affected in 1999 ....

114. In order to gain approval for the acquisition of Executive Risk, it was important for Chubb to show improved financial results for the quarter ended 3/31/99. For this reason, Chubb secretly overstated its earnings in the 1stQ 99 by violating generally accepted accounting principles ("GAAP") and SEC rules by failing to properly report the losses and expenses associated with its standard commercial insurance business and manipulating reserve levels in its standard commercial business and its property and marine specialty insurance line. Chubb attributed the unusually strong 1stQ 99 results to the better-than-expected success of its rate increase/policy non-renewal initiative for its standard commercial insurance business. However, immediately after the merger was approved, Chubb had to dramatically increase the losses and expenses associated with the commercial insurance business which adversely affected the Company's results - but only after the merger had been approved. Immediately after the merger was approved, Chubb also included a new disclosure in its SEC filings that directly contradicted its prior representations and admitted that the new pricing strategy Chubb had commenced in the 3rdQ 98 would not have a significant positive impact until mid-2000 at the earliest! This very important fact had of course been omitted from Chubb's explanation of the new pricing strategy until after the merger was completed, as had the other negative facts relating to Chubb's standard commercial insurance rate increase/policy non-renewal initiative detailed herein.

115. Chubb reported the following financial results for the 1stQ 99:

Premiums Written                             $1.4 billion
Operating Income                             $166.4 million
Net Income                                      $186.9 million
Commercial Insurance Combined
        Loss & Expense Ratio                117.9%
Property and Marine Combined
        Loss & Expense Ratio                 98.7%
Net Income Per Share                      $1.14

116. These financial statements and the statements about them were false and misleading, as such financial information was not prepared in conformity with GAAP, nor was the financial information a fair presentation of the Company's 1stQ 99 operations due to the Company's improper accounting for its expenses and losses associated with its standard commercial insurance business, in violation of GAAP and SEC rules.

117. GAAP are those principles recognized by the accounting profession as the conventions, rules and procedures necessary to define accepted accounting practice at a particular time. Regulation S-X (17 C.F.R. §210.4-01(a)(1)) states that financial statements filed with the SEC which are not prepared in compliance with GAAP are presumed to be misleading and inaccurate. Regulation S-X requires that interim financial statements must also comply with GAAP, with the exception that interim financial statements need not include disclosure which would be duplicative of disclosures accompanying annual financial statements. 17 C.F.R. §210.10-01(a).

The Company's Improper Reporting of Commercial
Standard Insurance Losses and Expenses

118. GAAP, as set forth in FASB Statement of Financial Accounting Standard ("SFAS") No. 60, Accounting and Reporting by Insurance Enterprises, requires that companies recognize a liability for unpaid claims (including estimates of costs for claims relating to insured events that have occurred but have not been reported to the insurer) and a liability for loss adjustment expenses as insured events occur. SFAS No. 60, ¶9.

119. One measure of the profitability of a property and casualty insurance company is the combined loss and expense ratio ("combined ratio") which measures underwriting profitability. The combined ratio is the sum of the ratio of incurred losses and loss adjustment expenses to premiums earned plus the ratio of underwriting expenses to premiums plus the ratio of policyholders' dividends incurred to premiums earned.

120. Analysts, shareholders and other investors consider the combined ratio a key determinant of a company's success and prospects. The individual defendants knew this and also knew that this key ratio, as well as Chubb's reported earnings, could be affected by the estimates of losses and unpaid claims. A combined ratio of less than 100% is generally an indication that underwriting results are profitable. A combined ratio of more than 100% generally indicates that underwriting results are unprofitable.

121. From 96-98, Chubb's standard commercial insurance business deteriorated significantly due to unfavorable pricing compared to the losses Chubb was incurring. Note the following chart showing the combined ratio for Chubb's commercial insurance business:

122. The multiple peril, casualty and workers' compensation commercial lines, which comprise the standard commercial insurance business, also showed marked deterioration between 95 and 98:

123. In the 3rdQ 98, Chubb instituted a new strategy to renew only good business (i.e., profitable business) in the standard commercial insurance business, i.e., the standard commercial insurance rate increase/policy non-renewal initiative, and not to renew unprofitable business.

124. It was therefore important that Chubb's standard commercial insurance business show improvement in 99 to demonstrate that this new strategy was effective so that Chubb's investors and potential investors (particularly those voting on the Executive Risk merger) would view Chubb and its prospects favorably. For this reason, O'Hare, Schram and Kelso caused Chubb to understate loss reserves and estimates of unpaid claims and otherwise manipulate Chubb's loss reserves so that the Company's earnings and ratios would appear to show improvement. When Chubb ultimately reported its 1stQ 99 results, its earnings were favorable - in fact better than expected - and the standard commercial insurance combined ratio, while still greater than 100% at 117.9%, was an improvement over the ratio for the 4thQ 98 (119.5%) and was a reversal of a trend of continually increasing combined ratios over the prior years. As PaineWebber noted in its 4/27/99 report:

Standard Commercial lines remained very weak - 120.4% for multiperil, 116.8% for casualty, and 116.3% for workers compensation. This package line included 6.8 points of catastrophes but management noted that rates are trending up - 2.5% in March and 3.5% in April - on the business that is renewed. In property package, three large losses totaled $23 million and there were 11 others over $1 million. Liability package results improved to a 103% combined ratio. Management also noted a modest improvement in umbrella liability.

"Even more significantly for the future, our pricing strategy in standard commercial lines has begun to show the impact we are looking for on our renewal business. Month by month, renewal rate increases are building momentum, and we expect this trend to continue. Moreover, we have been successful in retaining business we want to keep at higher rates, while at the same time we are walking away from business where we can't obtain adequate pricing. By maintaining this profit-oriented discipline, standard commercial lines will likely show a decline in premiums throughout the year and produce improved combined ratios."

"We were particularly pleased by the improvement in the expense ratio to 32.9% from 33.3%. This resulted from our success in keeping controllable expenses flat compared with the 1998 first quarter..." said Mr. O'Hare.

127. Ultimately, Chubb has not been able to maintain the appearance of improvement in its standard commercial insurance lines as the Company's subsequent results have been adversely affected by increased unprofitability in these lines. Note the following chart which shows the slight improvement in the combined ratio of the standard commercial lines as of the 1stQ 99 and the subsequent significant increase (deterioration) in this ratio:

128. Chubb's balance in unpaid claims (its loss reserve), which increased by a total of only $228.2 million in the 1stQ and 2ndQ 99, increased by $1.2 billion (or approximately $300 million excluding the balance derived from Executive Risk) in the 3rdQ alone, reflecting in part Chubb's failure to make adequate accruals earlier in the year. The 3rdQ 99 results included large losses due to Hurricane Floyd, which resulted in larger catastrophe losses than Chubb experienced in prior quarters. However, even if the effects of catastrophe losses are excluded from every quarter, Chubb still reported a significant increase in the standard commercial insurance combined ratio. The following chart shows the combined ratio for the 3rdQ 99, versus the amount in the prior quarters:

Moreover, Chubb used this opportunity to catch up on and try to hide normal, i.e., non-catastrophe, standard commercial insurance losses that Chubb had improperly refused to record earlier.

129. Subsequent to 7/99, Chubb also disclosed important facts regarding its standard commercial insurance pricing strategy instituted in 98 which it had earlier concealed. The 2ndQ and 3rdQ Form 10-Q's (filed in 8/99 and 11/99, respectively) included a new disclosure that the pricing strategy would have no significant positive effect until at least mid-2000, contrary to Chubb's prior representations that the strategy was having a positive impact on Chubb's 1stQ 99. For example, the 2ndQ Form 10-Q stated:

The decreases were the result of the strategy we put in place in late 1998 to renew good business at adequate prices and not renew underperforming accounts where we cannot attain price adequacy. On the business that was renewed, rates have increased modestly yet steadily in the first six months of 1999 and we expect this trend to continue. Retention levels were lower in the first six months of 1999 compared with the same period in 1998. Approximately half of the non-renewals were the result of business we chose not to renew and half were the result of customers not accepting the price increases we instituted. It will take at least two renewal cycles to adequately reprice the entire standard commercial book and during that time we will continue to have losses from non-renewal policies. Thus, it will be mid-2000 before these actions have a significant positive effect on our results.

Chubb's Manipulation of Its Property
and Marine Specialty Insurance

131. For the 1stQ 99, Chubb reported a very favorable combined loss ratio for the property and marine line of its specialty commercial insurance business. The 1stQ 99 ratio for this line was only 98.7% compared to 131% in the 4thQ 98. In fact, the reason for this decline was a reversal of reserves accrued in the 4thQ 98 which defendants suddenly decided were unnecessary. In fact, this reversal allowed Chubb to report favorable overall results in the 1stQ 99. However, once the acquisition of Executive Risk was completed, Chubb reinstated the additional reserves and its combined ratio increased to 106.9% in the 2ndQ 99 and 130% in the 3rdQ 99. Chubb's improper manipulation of its property and marine reserve levels was a violation of GAAP, as set forth in SFAS No. 5, which requires that losses be accrued and maintained for liabilities which have probably been incurred and for which a reasonable estimate of the amount of the loss can be made.

Chubb's Violation of Other GAAP Standards

132. Due to these accounting improprieties, the Company presented its financial results and statements in a manner which violated GAAP, including the following fundamental accounting principles:

(a) The principle that interim financial reporting should be based upon the same accounting principles and practices used to prepare annual financial statements was violated (APB No. 28, ¶10);

(b) The principle that financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit and similar decisions was violated (FASB Statement of Concepts No. 1, ¶34);

(c) The principle that financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and effects of transactions, events and circumstances that change resources and claims to those resources was violated (FASB Statement of Concepts No. 1, ¶40);

(d) The principle that financial reporting should provide information about how management of an enterprise has discharged its stewardship responsibility to owners (stockholders) for the use of enterprise resources entrusted to it was violated. To the extent that management offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities for accountability to prospective investors and to the public in general (FASB Statement of Concepts No. 1, ¶50);

(e) The principle that financial reporting should provide information about an enterprise's financial performance during a period was violated. Investors and creditors often use information about the past to help in assessing the prospects of an enterprise. Thus, although investment and credit decisions reflect investors' expectations about future enterprise performance, those expectations are commonly based at least partly on evaluations of past enterprise performance (FASB Statement of Concepts No. 1, ¶42);

(f) The principle that financial reporting should be reliable in that it represents what it purports to represent was violated. That information should be reliable as well as relevant is a notion that is central to accounting (FASB Statement of Concepts No. 2, ¶¶58-59);

(g) The principle of completeness, which means that nothing is left out of the information that may be necessary to insure that it validly represents underlying events and conditions was violated (FASB Statement of Concepts No. 2, ¶79); and

(h) The principle that conservatism be used as a prudent reaction to uncertainty to try to ensure that uncertainties and risks inherent in business situations are adequately considered was violated. The best way to avoid injury to investors is to try to ensure that what is reported represents what it purports to represent (FASB Statement of Concepts No. 2, ¶¶95, 97).

133. Further, the undisclosed adverse information concealed by defendants during the Class Period is the type of information which, because of SEC regulations, regulations of the national stock exchanges and customary business practice, is expected by investors and securities analysts to be disclosed and is known by corporate officials and their legal and financial advisors to be the type of information which is expected to be and must be disclosed.

134. The statutory safe harbor provided for forward-looking statements ("FLS") does not apply to the false FLS pleaded. The statutory safe harbor does not apply to Chubb's allegedly false financial statements. The FLS were not identified as "forward-looking statements" when made, it was not stated that actual results "could differ materially from those projected," nor did meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the FLS accompany those FLS. None of the particular oral FLS in Chubb's conference calls and O'Hare's presentations to analysts were so identified as required. Chubb's cautionary statements were ineffective and were not meaningful cautionary statements because Chubb and the individual defendants each actually knew that because of the worsening performance of Chubb's standard commercial insurance business, the failure of Chubb's rate increase/policy non-renewal initiative and the falsification of Chubb's 1stQ 99 earnings, Chubb's positive statements and forecasts were false when made. The defendants are liable for the false FLS pleaded because, at the time each FLS was made, the speaker knew the FLS was false and the FLS was authorized and/or approved by an executive officer of Chubb who knew that the FLS was false. None of the historic or present-tense statements made by defendants were assumptions underlying or relating to any plan, projection or statement of future economic performance, as they were not stated to be such assumptions underlying or relating to any projection or statement of future economic performance when made nor were any of the projections or forecasts made by defendants expressly related to or stated to be dependent on those historic or present-tense statements when made.

135. This is a class action on behalf of purchasers of Chubb stock between 4/27/99 and 10/15/99, excluding defendants (the "Class"), including the shareholders of Executive Risk who exchanged their shares of Executive Risk stock for 1.235 shares of Chubb stock (the "Proxy Sub-Class"). Class and Proxy Sub-Class members are so numerous that joinder of them is impracticable.

136. Common questions of law and fact predominate and include whether defendants: (i) violated the 1934 Act; (ii) omitted and/or misrepresented material facts; (iii) knew or recklessly disregarded that their statements were false; and (iv) artificially inflated Chubb's stock price and the extent of and appropriate measure of damages.

137. Plaintiff's claims are typical of those of the Class. Prosecution of individual actions would create a risk of inconsistent adjudications. Plaintiff will adequately protect the interests of the Class. A class action is superior to other available methods for the fair and efficient adjudication of this controversy.

138. Plaintiff incorporates ¶¶1-137. Defendants violated §10(b) and Rule 10b-5 by:

(a) Employing devices, schemes and artifices to defraud;

(b) Making untrue statements of material facts and omitting to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and

(c) Engaging in acts, practices and a course of business that operated as a fraud or deceit upon the Class in connection with their purchases of Chubb stock.

139. Class and Proxy Sub-Class members were damaged. In reliance on the integrity of the market, they paid artificially inflated prices for Chubb stock.

140. The undisclosed adverse information concealed by defendants during the Class Period is the type of information which, because of SEC regulations, regulations of the national stock exchanges and customary business practice, is expected by investors and securities analysts to be disclosed and is known by corporate officials and their legal and financial advisors to be the type of information which is expected to be and must be disclosed.

141. Plaintiff, the Class and the Proxy Sub-Class have suffered damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for Chubb stock. Plaintiff, the Class and the Proxy Sub-Class would not have purchased Chubb stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants' misleading statements.

142. Plaintiff incorporates ¶¶1-137. Plaintiff expressly disclaims any allegations of fraud, knowledge, intent or scienter.

143. Chubb issued and the individual defendants named in this Claim for Relief signed and issued the Registration Statement.

144. On 7/19/99, the defendants named in this Claim for Relief completed the merger with Executive Risk issuing 14.8 million newly registered shares of Chubb stock to Executive Risk shareholders.

145. In fact, the 6/17/99 Registration Statement was false and misleading because:

(a) The merger was not in the best interests of Executive Risk's public shareholders as the price of the Chubb stock they were to receive in exchange for their Executive Risk stock was artificially inflated due to the false statements and accounting manipulations detailed herein;

(b) The merger consideration to be received by Executive Risk's public shareholders was not fair as the price of the Chubb stock they were to receive in exchange for their Executive Risk stock was artificially inflated due to the false statements and accounting manipulations detailed herein;

(c) Chubb was not exercising a disciplined approach to not renewing unprofitable standard commercial insurance policies and was, in fact, renewing hundreds of millions of dollars of standard commercial insurance policies at unprofitable premium levels, which would adversely impact Chubb's results going forward;

(d) Chubb's aggressive actions to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines was not working, let alone exceeding management's expectations, because the rate increases were not sticking and Chubb's standard commercial insurance underwriting losses were increasing;

(e) Chubb's strategy of renewing only at good prices would not have any significant impact on Chubb's results until at least mid-2000, as it would take "at least two annual renewal cycles" for Chubb to reprice the standard commercial lines premiums and after the premiums were repriced it would take another year for higher premiums to be earned into income. Chubb concealed this key fact from its public disclosures until after the merger closed;

(f) The rate increases that were, in fact, being obtained on new and renewal standard commercial insurance policies were very small and well below the levels necessary to have any materially favorable impact on Chubb's 99 results, or even to lessen the growing underwriting losses in Chubb's standard commercial insurance business;

(g) Chubb's aggressive action to raise prices on its standard commercial insurance policies and accept substantial non-renewals to boost operating results of those lines, even if successful, would not have any significant positive impact on Chubb's financial results during 99 and, in fact, Chubb's standard commercial insurance problems would continue to very adversely impact Chubb's results throughout all of 99;

(h) Chubb's standard commercial insurance business had not stabilized as, due to weak premium growth and increasing losses, the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), leading to larger than ever losses in these lines of business;

(i) Chubb's standard commercial insurance business was not encountering strong positive momentum or positive trends because due to weak premium growth and increasing losses, the combined ratio on these lines of business was still increasing and would continue to increase throughout 99 (excluding catastrophes), leading to larger than ever losses in these lines of business;

(j) Chubb's better-than-expected 1stQ 99 results were not the result of favorable developments or trends in Chubb's standard commercial insurance business; in fact, Chubb's 1stQ 99 results were false as detailed in ¶¶114-133 and artificially boosted Chubb's reported EPS, thus concealing the continued serious deterioration in Chubb's standard commercial insurance business;

(k) As a result of the foregoing negative conditions which were adversely impacting Chubb's business, defendants' forecasts of 5-1/2%-6% premium growth for Chubb's standard commercial insurance business during 99 and a falling combined ratio for its standard commercial insurance business were false and could not be obtained; and

(l) As a result of the foregoing negative factors which were adversely impacting Chubb's business, Chubb's forecasts of 99 EPS of $4.20+ and 00 EPS of $4.70 were false when made and could not and would not be achieved, even if Chubb suffered no catastrophe losses and even if Chubb achieved its repricing objections in standard commercial insurance.

146. As a result of the foregoing, members of the Proxy Sub-Class were damaged.

147. Members of the Proxy Sub-Class did not know of the false statements and omissions. This action was brought within one year of when they knew or reasonably could have known of such false statements or omissions.

148. Plaintiff incorporates ¶¶1-137 and 145. Plaintiff expressly disclaims any allegations of fraud, knowledge, intent or scienter.

149. Defendants violated §14(a) of the 1934 Act in that they solicited proxies or permitted the use of their names to solicit proxies from the Proxy Sub-Class by means of the Merger Proxy that contained statements which, at the time and in the light of the circumstances under which they were made, were false and misleading with respect to material facts, and omitted to state material facts necessary in order to make the statements therein not false or misleading.

150. The proxy solicitations were an essential link for the merger since the merger required a majority vote by the shareholders of Executive Risk since the officers and directors of Executive Risk did not own or control a majority of the shares.

151. The Merger Proxy and other oral proxy statements pleaded contained untrue statements of material fact and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, as specified in ¶145. Defendants were negligent in making those statements and/or permitting them to be made.

152. As a result, the Proxy Sub-Class was denied the opportunity to make an informed decision in voting on the merger, and received a smaller stake in the combined company than they otherwise would have had the information been disclosed, and have been damaged due to the harm inflicted on their equity ownership of Executive Risk.

153. The Proxy Sub-Class suffered damages as a result of the merger which was approved through the use of a proxy in violation of §14(a) of the 1934 Act.

WHEREFORE, plaintiff prays for judgment as follows: declaring this action to be a proper class action; awarding damages, including interest; rescinding the sale of Executive Risk to Chubb or ordering a new vote with a truthful proxy; and such other relief as the Court may deem proper.

Plaintiff demands a trial by jury.
 

DATED: August 31, 2000

COHN LIFLAND PEARLMAN  HERRMANN & KNOPF PETER S. PEARLMAN         ____________________________ PETER S. PEARLMAN New Jersey Bar No. PP8416 Park 80 Plaza West One Saddlebrook, NJ 07663 Telephone: 201/845-9600 MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH DARREN J. ROBBINS       ___________________________ WILLIAM S. LERACH 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 Attorneys for Plaintiff

1. Chubb's 99 10-K reflected the impact of the acquisition of Executive Risk on Chubb and noted:

Executive protection results were highly profitable in each of the past three years due to favorable loss experience on business worldwide, particularly in the directors and officers and fiduciary components.