UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to            

THE CHUBB CORPORATION

(Exact name of registrant as specified in its charter)

NEW JERSEY		13-2595722
(State or other jurisdiction of		(I. R. S. Employer
incorporation or organization)		Identification No.)
15 MOUNTAIN VIEW ROAD, WARREN, NEW JERSEY		07059
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (908) 903-2000

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ     NO o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o     NO þ

     The number of shares of common stock outstanding as of September 30, 2008 was 355,701,526.

 

 

THE CHUBB CORPORATION
INDEX

		Page
		Number
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2008 and 2007			1
Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007			2
Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2008 and 2007			3
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007			4
Notes to Consolidated Financial Statements			5
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 4 - Controls and Procedures			34
Part II. Other Information:
Item 1 – Legal Proceedings			35
Item 1A – Risk Factors			35
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 6 – Exhibits			37
Signatures			37
EX-10.1: OFFER LETTER
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

Page 1

Part I. FINANCIAL INFORMATION

Item 1 — Financial Statements

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

PERIODS ENDED SEPTEMBER 30

		Third Quarter								Nine Months
		2008				2007				2008				2007
		(in millions)
Revenues
Premiums Earned		$	2,964			$	2,978			$	8,926			$	8,927
Investment Income			439				446				1,316				1,291
Other Revenues			13				8				25				43
Realized Investment Gains (Losses), Net			(113	)			117				(121	)			328
Total Revenues			3,303				3,549				10,146				10,589
Losses and Expenses
Losses and Loss Expenses			2,006				1,541				5,339				4,693
Amortization of Deferred Policy Acquisition Costs			781				763				2,336				2,273
Other Insurance Operating Costs and Expenses			104				109				330				331
Investment Expenses			8				8				25				27
Other Expenses			13				7				30				44
Corporate Expenses			73				74				210				186
Total Losses and Expenses			2,985				2,502				8,270				7,554
Income Before Federal and Foreign Income Tax			318				1,047				1,876				3,035
Federal and Foreign Income Tax			54				309				479				878
Net Income		$	264			$	738			$	1,397			$	2,157
Net Income Per Share
Basic		$	.74			$	1.90			$	3.84			$	5.42
Diluted			.73				1.87				3.78				5.33
Dividends Declared Per Share			.33				.29				.99				.87

See Notes to Consolidated Financial Statements.

Page 2

THE CHUBB CORPORATION

CONSOLIDATED BALANCE SHEETS

		Sept. 30,				Dec. 31,
		2008				2007
		(in millions)
Assets
Invested Assets
Short Term Investments		$	2,380			$	1,839
Fixed Maturities
Tax Exempt (cost $18,365 and $18,208)			18,135				18,559
Taxable (cost $15,466 and $15,266)			15,211				15,312
Equity Securities (cost $1,660 and $1,907)			1,702				2,320
Other Invested Assets			2,220				2,051
TOTAL INVESTED ASSETS			39,648				40,081
Cash			46				49
Securities Lending Collateral			150				1,247
Accrued Investment Income			442				440
Premiums Receivable			2,134				2,227
Reinsurance Recoverable on Unpaid Losses and Loss Expenses			2,320				2,307
Prepaid Reinsurance Premiums			398				392
Deferred Policy Acquisition Costs			1,571				1,556
Deferred Income Tax			828				442
Goodwill			467				467
Other Assets			1,551				1,366
TOTAL ASSETS		$	49,555			$	50,574
Liabilities
Unpaid Losses and Loss Expenses		$	23,282			$	22,623
Unearned Premiums			6,525				6,599
Securities Lending Payable			150				1,247
Long Term Debt			3,975				3,460
Dividend Payable to Shareholders			118				110
Accrued Expenses and Other Liabilities			1,901				2,090
TOTAL LIABILITIES			35,951				36,129
Contingent Liabilities (Note 6)
Shareholders’ Equity
Common Stock — $1 Par Value; 371,980,710 and 374,649,923 Shares			372				375
Paid-In Surplus			233				346
Retained Earnings			14,220				13,280
Accumulated Other Comprehensive Income (Loss)			(409	)			444
Treasury Stock, at Cost - 16,279,184 Shares in 2008			(812	)			—
TOTAL SHAREHOLDERS’ EQUITY			13,604				14,445
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	49,555			$	50,574

See Notes to Consolidated Financial Statements.

Page 3

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

PERIODS ENDED SEPTEMBER 30

		Third Quarter								Nine Months
		2008				2007				2008				2007
		(in millions)
Net Income		$	264			$	738			$	1,397			$	2,157
Other Comprehensive Income (Loss), Net of Tax
Change in Unrealized Appreciation or Depreciation of Investments			(350	)			220				(814	)			(3	)
Foreign Currency Translation Gains (Losses)			(113	)			54				(57	)			88
Amortization of Net Loss and Prior Service Cost Included in Net Postretirement Benefit Costs			8				6				18				15
			(455	)			280				(853	)			100
Comprehensive Income (Loss)		$	(191	)		$	1,018			$	544			$	2,257

See Notes to Consolidated Financial Statements.

Page 4

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30

		2008				2007
		(in millions)
Cash Flows from Operating Activities
Net Income		$	1,397			$	2,157
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Increase in Unpaid Losses and Loss Expenses, Net			793				360
Decrease in Unearned Premiums, Net			(43	)			(64	)
Decrease in Premiums Receivable			93				140
Change in Income Tax Recoverable or Payable			(318	)			8
Deferred Income Tax			81				59
Amortization of Premiums and Discounts on Fixed Maturities			157				175
Depreciation			49				52
Realized Investment Losses (Gains), Net			121				(328	)
Other, Net			(186	)			6
Net Cash Provided by Operating Activities			2,144				2,565
Cash Flows from Investing Activities
Proceeds from Fixed Maturities
Sales			2,893				2,519
Maturities, Calls and Redemptions			1,801				1,309
Proceeds from Sales of Equity Securities			267				243
Purchases of Fixed Maturities			(5,486	)			(5,752	)
Purchases of Equity Securities			(163	)			(336	)
Investments in Other Invested Assets, Net			(102	)			(68	)
Increase in Short Term Investments, Net			(571	)			(244	)
Increase in Net Payable from Security Transactions Not Settled			183				57
Purchases of Property and Equipment, Net			(35	)			(30	)
Other, Net			—				10
Net Cash Used in Investing Activities			(1,213	)			(2,292	)
Cash Flows from Financing Activities
Proceeds from Issuance of Long Term Debt			1,200				1,800
Repayment of Long Term Debt			(685	)			(125	)
Proceeds from Issuance of Common Stock Under Stock-Based Employee Compensation Plans			103				106
Repurchase of Shares			(1,170	)			(1,679	)
Dividends Paid to Shareholders			(353	)			(339	)
Other, Net			(29	)			(32	)
Net Cash Used in Financing Activities			(934	)			(269	)
Net Increase (Decrease) in Cash			(3	)			4
Cash at Beginning of Year			49				38
Cash at End of Period		$	46			$	42

See Notes to Consolidated Financial Statements.

Page 5

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1) General

     The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of The Chubb Corporation (Chubb) and its subsidiaries (collectively, the Corporation). Significant intercompany transactions have been eliminated in consolidation.

     The amounts included in this report are unaudited but include those adjustments, consisting of normal recurring items, that management considers necessary for a fair presentation. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in Chubb’s Annual Report on Form 10-K for the year ended December 31, 2007.

2) Adoption of New Accounting Pronouncements

     Effective January 1, 2008, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies whenever other accounting pronouncements require or permit assets or liabilities to be measured at fair value. The Statement does not expand the use of fair value to any new circumstances. The adoption of SFAS No. 157 did not have a significant effect on the Corporation’s financial position or results of operations.

3) Investments

     Short term investments, which have an original maturity of one year or less, are carried at amortized cost, which approximates fair value. Fixed maturities and equity securities, all of which are classified as available-for-sale, are carried at fair value as of the balance sheet date. Fair value is defined as the price that would be received to sell the security in an orderly transaction between market participants.

     Fair values of fixed maturities and equity securities are determined using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs, such as quoted prices for similar securities, that are observable, either directly or indirectly. Where observable inputs are not available, fair value estimates are derived from unobservable inputs. Unobservable inputs reflect the Corporation’s assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.

Page 6

     The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:

     Level 1 — Unadjusted quoted prices in active markets for identical assets.

     Level 2 — Other inputs that are observable for the asset, either directly or indirectly.

     Level 3 — Inputs that are unobservable.

     The fair value of fixed maturities and equity securities at September 30, 2008 categorized based upon the lowest level of input that was significant to the fair value measurement was as follows:

		Level 1				Level 2				Level 3				Total
		(in millions)
Fixed maturities		$	—			$	32,958			$	388			$	33,346
Equity securities			1,669				—				33				1,702

     The change in unrealized appreciation or depreciation of fixed maturities and equity securities was as follows:

		Periods Ended September 30
		Third Quarter								Nine Months
		2008				2007				2008				2007
		(in millions)
Change in unrealized appreciation or depreciation of fixed maturities		$	(430	)		$	407			$	(882	)		$	(90	)
Change in unrealized appreciation of equity securities			(109	)			(67	)			(371	)			86
			(539	)			340				(1,253	)			(4	)
Deferred income tax (credit)			(189	)			120				(439	)			(1	)
Change in unrealized appreciation or depreciation of investments, net		$	(350	)		$	220			$	(814	)		$	(3	)

4) Debt

     Chubb repaid $460 million of outstanding 5.472% notes that were due August 16, 2008.

     Chubb repaid $225 million of outstanding 3.95% notes that were due April 1, 2008.

     In May 2008, Chubb issued $600 million of unsecured 5.75% senior notes due May 15, 2018 and $600 million of unsecured 6.5% senior notes due May 15, 2038.

Page 7

5) Segments Information

     The principal business of the Corporation is the sale of property and casualty insurance. The profitability of the property and casualty insurance business depends on the results of both underwriting and investment operations, which are viewed as two distinct operations. The underwriting operations are managed and evaluated separately from the investment function.

     The property and casualty insurance subsidiaries (P&C Group) underwrite most lines of property and casualty insurance. Underwriting operations consist of four separate business units: personal insurance, commercial insurance, specialty insurance and reinsurance assumed. The personal segment targets the personal insurance market. The personal classes include automobile, homeowners and other personal coverages. The commercial segment includes those classes of business that are generally available in broad markets and are of a more commodity nature. Commercial classes include multiple peril, casualty, workers’ compensation and property and marine. The specialty segment includes those classes of business that are available in more limited markets since they require specialized underwriting and claim settlement. Specialty classes include professional liability coverages and surety. The reinsurance assumed business is effectively in runoff following the sale, in December 2005, of the ongoing business to a Bermuda based reinsurance company, Harbor Point Limited.

     Corporate and other includes investment income earned on corporate invested assets, corporate expenses and the results of the Corporation’s non-insurance subsidiaries.

Page 8

     Revenues and income before income tax of the operating segments were as follows:

		Periods Ended September 30
		Third Quarter								Nine Months
		2008				2007				2008				2007
		(in millions)
Revenues
Property and casualty insurance
Premiums earned
Personal insurance		$	950			$	919			$	2,837			$	2,716
Commercial insurance			1,253				1,278				3,801				3,836
Specialty insurance			731				739				2,219				2,213
Total insurance			2,934				2,936				8,857				8,765
Reinsurance assumed			30				42				69				162
			2,964				2,978				8,926				8,927
Investment income			418				413				1,254				1,201
Other revenues			—				3				4				9
Total property and casualty insurance			3,382				3,394				10,184				10,137
Corporate and other			34				38				83				124
Realized investment gains (losses), net			(113	)			117				(121	)			328
Total revenues		$	3,303			$	3,549			$	10,146			$	10,589
Income before income tax
Property and casualty insurance
Underwriting
Personal insurance		$	(21	)		$	135			$	293			$	448
Commercial insurance			(51	)			221				161				543
Specialty insurance			135				178				398				495
Total insurance			63				534				852				1,486
Reinsurance assumed			13				24				37				86
			76				558				889				1,572
Increase (decrease) in deferred policy acquisition costs			(7	)			11				29				64
Underwriting income			69				569				918				1,636
Investment income			411				405				1,231				1,176
Other income (charges)			4				(1	)			7				3
Total property and casualty insurance			484				973				2,156				2,815
Corporate and other loss			(53	)			(43	)			(159	)			(108	)
Realized investment gains (losses), net			(113	)			117				(121	)			328
Total income before income tax		$	318			$	1,047			$	1,876			$	3,035

Page 9

6) Contingent Liabilities

     Chubb and certain of its subsidiaries have been involved in the investigations of certain business practices in the property and casualty insurance industry by various Attorneys General and other regulatory authorities of several states, the U.S. Securities and Exchange Commission, the U.S. Attorney for the Southern District of New York and certain non-U.S. regulatory authorities with respect to, among other things, (1) potential conflicts of interest and anti-competitive behavior arising from the payment of contingent commissions to brokers and agents and (2) loss mitigation and finite reinsurance arrangements. In connection with these investigations, Chubb and certain of its subsidiaries have received subpoenas and other requests for information from various regulators. The Corporation has been cooperating fully with these investigations.

     In December 2006, the Corporation settled with the Attorneys General of New York, Connecticut and Illinois all issues arising out of their investigations and, among other things, agreed to the implementation of certain business reforms. In September 2008, the Corporation settled with the Indiana Department of Insurance all issues arising out of that Department’s investigation. As part of this settlement, the Corporation agreed to implement the same business reforms it has implemented as agreed to with the Attorneys General of New York, Connecticut and Illinois. The Indiana settlement did not require the Corporation to pay any fine, penalty, costs, expenses or any other amount.

     In August 2007, Chubb and certain of its subsidiaries were named as defendants in an action filed by the Ohio Attorney General against several insurers and one broker in the Court of Common Pleas in Cuyahoga County, Ohio. This action alleges violations of Ohio’s antitrust laws. In July 2008, the court denied the Corporation’s and the other defendants’ motions to dismiss the Attorney General’s complaint. In August 2008, the Corporation and the other defendants filed answers to the complaint and discovery has begun. Although no other Attorney General or regulator has initiated an action against the Corporation, it is possible that such an action may be brought against the Corporation with respect to some or all of the issues that are the focus of these investigations.

     Individual actions and purported class actions arising out of the investigations into the payment of contingent commissions to brokers and agents have been filed in a number of federal and state courts. In August  2005, Chubb and certain of its subsidiaries were named in a putative class action entitled In re Insurance Brokerage Antitrust Litigation in the U.S. District Court for the District of New Jersey. This action, brought against several brokers and insurers on behalf of a class of persons who purchased insurance through the broker defendants, asserts claims under the Sherman Act and state law and the Racketeer Influenced and Corrupt Organizations Act (RICO) arising from the alleged unlawful use of contingent commission agreements. Chubb and certain of its subsidiaries have also been named as defendants in two putative class actions relating to allegations of unlawful use of contingent commission arrangements that were originally filed in state court. The first was filed in February 2005 in Seminole County, Florida. The second was filed in May 2005 in Essex County, Massachusetts. Both cases were removed to federal court and then transferred by the Judicial Panel on Multidistrict Litigation to the U.S. District Court for the District of New Jersey for consolidation with the In re Insurance Brokerage Antitrust Litigation. Since being transferred to the District of New Jersey, the plaintiff in the former action has been

Page 10

inactive, and that action currently is stayed. The latter action has been voluntarily dismissed. In September 2007, the U.S. District Court for the District of New Jersey dismissed the second amended complaint filed by the plaintiffs in the In re Insurance Brokerage Antitrust Litigation in its entirety. In so doing, the court dismissed the plaintiffs’ Sherman Act and RICO claims with prejudice for failure to state a claim, and it dismissed the plaintiffs’ state law claims without prejudice because it declined to exercise supplemental jurisdiction over them. The plaintiffs have appealed the dismissal of their second amended complaint to the U.S. Court of Appeals for the Third Circuit, and that appeal is currently pending.

     In December 2005, Chubb and certain of its subsidiaries were named in a putative class action similar to the In re Insurance Brokerage Antitrust Litigation. The action is pending in the U.S. District Court for the District of New Jersey and has been assigned to the judge who is presiding over the In re Insurance Brokerage Antitrust Litigation. The complaint has never been served in this matter. Separately, in April 2006, Chubb and one of its subsidiaries were named in an action similar to the In re Insurance Brokerage Antitrust Litigation. This action was filed in the U.S. District Court for the Northern District of Georgia and subsequently was transferred by the Judicial Panel on Multidistrict Litigation to the U.S. District Court for the District of New Jersey for consolidation with the In re Insurance Brokerage Antitrust Litigation. This action currently is stayed. In May 2007, Chubb and one of its subsidiaries were named as defendants in another action similar to the In re Insurance Brokerage Antitrust Litigation. This action was filed in the U.S. District Court for the District of New Jersey and consolidated with the In re Insurance Brokerage Antitrust Litigation. This action currently is stayed.

     In October 2007, certain of Chubb’s subsidiaries were named as defendants in an action similar to the In re Insurance Brokerage Antitrust Litigation. This action was filed in the U.S. District Court for the Northern District of Georgia. This action has been identified to the Judicial Panel on Multidistrict Litigation as a potential “tag-along action” to the In re Insurance Brokerage Antitrust Litigation. The Corporation currently anticipates that this action will be transferred by the Judicial Panel on Multidistrict Litigation to the U.S. District Court for the District of New Jersey and consolidated with the In re Insurance Brokerage Antitrust Litigation.

     In these actions, the plaintiffs generally allege that the defendants unlawfully used contingent commission agreements and conspired to reduce competition in the insurance markets. The actions seek treble damages, injunctive and declaratory relief, and attorneys’ fees. The Corporation believes it has substantial defenses to all of the aforementioned legal proceedings and intends to defend the actions vigorously.

     The Corporation cannot predict at this time the ultimate outcome of the aforementioned ongoing investigations and legal proceedings, including any potential amounts that the Corporation may be required to pay in connection with them. Nevertheless, management believes that it is likely that the outcome will not have a material adverse effect on the Corporation’s results of operations or financial condition.

Page 11

7) Earnings Per Share

     The following table sets forth the computation of basic and diluted earnings per share:

		Periods Ended September 30
		Third Quarter								Nine Months
		2008				2007				2008				2007
		(in millions,
		except for per share amounts)
Basic earnings per share:
Net income		$	264			$	738			$	1,397			$	2,157
Weighted average number of common shares outstanding			356.8				387.5				363.6				397.8
Basic earnings per share		$	.74			$	1.90			$	3.84			$	5.42
Diluted earnings per share:
Net income		$	264			$	738			$	1,397			$	2,157
Weighted average number of common shares outstanding			356.8				387.5				363.6				397.8
Additional shares from assumed exercise of stock-based compensation awards			5.5				6.1				5.6				6.7
Weighted average number of common shares and potential common shares assumed outstanding for computing diluted earnings per share			362.3				393.6				369.2				404.5
Diluted earnings per share		$	.73			$	1.87			$	3.78			$	5.33

Page 12

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition of the Corporation as of September 30, 2008 compared with December 31, 2007 and the results of operations for the nine months and three months ended September 30, 2008 and 2007. This discussion should be read in conjunction with the condensed consolidated financial statements and related notes contained in this report and the consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007.

Cautionary Statement Regarding Forward-Looking Information

     Certain statements in this document are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements are made pursuant to the safe harbor provisions of the PSLRA and include statements regarding our loss reserve and reinsurance recoverable estimates; the impact of changes to our reinsurance program; premium volume, rates and terms and conditions of the policies we write; the impact of market disruptions on our opportunities to write new business; competition; the fourth quarter 2008 performance of our limited partnership investments; the repurchase of common stock under our share repurchase program; our capital adequacy and funding of liquidity needs; and the impact of widening credit spreads and equity market declines. Forward-looking statements are made based upon management’s current expectations and beliefs concerning trends and future developments and their potential effects on us. These statements are not guarantees of future performance. Actual results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties, which include, among others, those discussed or identified from time to time in our public filings with the Securities and Exchange Commission and those associated with:

•

global political conditions and the occurrence of terrorist attacks, including any nuclear, biological, chemical or radiological events;

•

the effects of the outbreak or escalation of war or hostilities;

•

premium pricing and profitability or growth estimates overall or by lines of business or geographic area, and related expectations with respect to the timing and terms of any required regulatory approvals;

•

adverse changes in loss cost trends;

•

the ability to retain existing business and attract new business;

•

our expectations with respect to cash flow and investment income and with respect to other income;

Page 13

•

the adequacy of our loss reserves, including:

	–		our expectations relating to reinsurance recoverables;
	–		the willingness of parties, including us, to settle disputes;
	–		developments in judicial decisions or regulatory or legislative actions relating to coverage and liability, in particular, for asbestos, toxic waste and other mass tort claims;
	–		development of new theories of liability;
	–		our estimates relating to ultimate asbestos liabilities;
	–		the impact from the bankruptcy protection sought by various asbestos producers and other related businesses; and
	–		the effects of proposed asbestos liability legislation, including the impact of claims patterns arising from the possibility of legislation and those that may arise if legislation is not passed;

•

the availability and cost of reinsurance coverage;

•

the occurrence of significant weather-related or other natural or human-made disasters, particularly in locations where we have concentrations of risk;

•

the impact of economic factors on companies on whose behalf we have issued surety bonds, and in particular, on those companies that file for bankruptcy or otherwise experience deterioration in creditworthiness;

•

the effects of disclosures by, and investigations of, companies relating to possible accounting irregularities, practices in the financial services industry, investment losses or other corporate governance issues, including:

	–		claims and litigation arising out of stock option “backdating,” “spring loading” and other equity grant practices by public companies;
	–		the effects on the capital markets and the markets for directors and officers and errors and omissions insurance;
	–		claims and litigation arising out of actual or alleged accounting or other corporate malfeasance by other companies;
	–		claims and litigation arising out of practices in the financial services industry;
	–		claims and litigation relating to uncertainty in the credit and broader financial markets; and
	–		legislative or regulatory proposals or changes;

•

the effects of changes in market practices in the U.S. property and casualty insurance industry, in particular contingent commissions and loss mitigation and finite reinsurance arrangements, arising from any legal or regulatory proceedings, related settlements and industry reform, including changes that have been announced and changes that may occur in the future;

•

the impact of legislative and regulatory developments on our business, including those relating to terrorism, catastrophes and the financial markets;

•

any downgrade in our claims-paying, financial strength or other credit ratings;

•

the ability of our subsidiaries to pay us dividends;

Page 14

•

general economic and market conditions including:

	–		changes in interest rates, market credit spreads and the performance of the financial markets;
	–		currency fluctuations;
	–		the effects of inflation;
	–		changes in domestic and foreign laws, regulations and taxes;
	–		changes in competition and pricing environments;
	–		regional or general changes in asset valuations;
	–		the inability to reinsure certain risks economically; and
	–		changes in the litigation environment; and

•

our ability to implement management’s strategic plans and initiatives.

     Chubb assumes no obligation to update any forward-looking information set forth in this document, which speak as of the date hereof.

Critical Accounting Estimates and Judgments

     The consolidated financial statements include amounts based on informed estimates and judgments of management for transactions that are not yet complete. Such estimates and judgments affect the reported amounts in the financial statements. Those estimates and judgments that were most critical to the preparation of the financial statements involved the determination of loss reserves and the recoverability of related reinsurance recoverables. These estimates and judgments, which are discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2007 as supplemented within the following analysis of our results of operations, require the use of assumptions about matters that are highly uncertain and therefore are subject to change as facts and circumstances develop. If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements.

Overview

     The following highlights do not address all of the matters covered in the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations or contain all of the information that may be important to Chubb’s shareholders or the investing public. This overview should be read in conjunction with the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

•

Net income was $1.4 billion in the first nine months of 2008 and $264 million in the third quarter compared with $2.2 billion and $738 million, respectively, in the comparable periods of 2007. The lower net income in the 2008 periods was due primarily to two factors. First, underwriting income in our property and casualty insurance business was substantially lower in the 2008 periods compared with the same periods in 2007, due in large part to higher catastrophe losses. Second, we had realized investment losses in the 2008 periods compared with realized investment gains in the 2007 periods.

Page 15

	•		Underwriting results were highly profitable in the first nine months of 2008 and 2007, but more so in 2007. Underwriting results in the third quarter of 2008 were modestly profitable compared to highly profitable results in the same period of 2007. Results in the 2008 periods, particularly in the third quarter, were adversely affected by high catastrophe losses. Catastrophe losses were $616 million in the first nine months of 2008 and $402 million in the third quarter compared with $249 million and $58 million, respectively, in the corresponding periods in 2007. The combined loss and expense ratio was 90.2% in the first nine months of 2008 and 98.1% in the third quarter compared with 82.6% and 81.6% in the respective 2007 periods.
	•		During the first nine months and third quarter of 2008, we experienced overall favorable development of about $660 million and $210 million, respectively, on loss reserves established as of the previous year end, due primarily to favorable loss experience in certain professional liability and commercial liability classes and lower than expected emergence of losses in the homeowners and commercial property classes. During the first nine months and third quarter of 2007, we experienced overall favorable development of about $480 million and $150 million, respectively, primarily in the professional liability classes and the homeowners and commercial property classes as well as in the run-off of the reinsurance assumed business.
	•		In a highly competitive market environment, total net premiums written were flat in the first nine months of 2008 and decreased by 1% in the third quarter compared with the same periods in 2007. Net premiums written in the United States decreased by 3% in the first nine months of 2008 and 4% in the third quarter. Net premiums written outside the United States increased by 11% in the first nine months of 2008 and 8% in the third quarter; the growth was largely attributable to the impact of currency fluctuation due to the weakness of the U.S. dollar.
	•		Property and casualty investment income after tax increased 4% in the first nine months of 2008 and 1% in the third quarter compared with the same periods in 2007. The growth was due to an increase in invested assets over the past year. For more information on this non-GAAP financial measure, see “Property and Casualty Insurance - Investment Results.”
	•		Net realized investment losses were $121 million in the first nine months of 2008 and $113 million in the third quarter compared with net realized investment gains of $328 million and $117 million, respectively, in the comparable periods of 2007. The net realized losses in the first nine months and third quarter of 2008 were primarily attributable to other-than-temporary impairment losses. The net realized gains in the first nine months and third quarter of 2007 were primarily attributable to gains from investments in limited partnerships.

Page 16

     A summary of our consolidated net income is as follows:

		Periods Ended September 30
		Third Quarter								Nine Months
		2008				2007				2008				2007
						(in millions)
Property and Casualty Insurance		$	484			$	973			$	2,156			$	2,815
Corporate and Other			(53	)			(43	)			(159	)			(108	)
Realized Investment Gains (Losses)			(113	)			117				(121	)			328
Consolidated Income Before Income Tax			318				1,047				1,876				3,035
Federal and Foreign Income Tax			54				309				479				878
Consolidated Net Income		$	264			$	738			$	1,397			$	2,157

Property and Casualty Insurance

     A summary of the results of operations of our property and casualty insurance business is as follows:

		Periods Ended September 30
		Third Quarter								Nine Months
		2008				2007				2008				2007
						(in millions)
Underwriting
Net Premiums Written		$	2,900			$	2,938			$	8,883			$	8,863
Decrease in Unearned Premiums			64				40				43				64
Premiums Earned			2,964				2,978				8,926				8,927
Losses and Loss Expenses			2,006				1,541				5,339				4,693
Operating Costs and Expenses			871				874				2,669				2,649
Decrease (Increase) in Deferred Policy Acquisition Costs			7				(11	)			(29	)			(64	)
Dividends to Policyholders			11				5				29				13
Underwriting Income			69				569				918				1,636
Investments
Investment Income Before Expenses			418				413				1,254				1,201
Investment Expenses			7				8				23				25
Investment Income			411				405				1,231				1,176
Other Income (Charges)			4				(1	)			7				3
Property and Casualty Income Before Tax		$	484			$	973			$	2,156			$	2,815
Property and Casualty Investment Income After Tax		$	327			$	324			$	981			$	942

     Property and casualty income before tax was much lower in the first nine months and third quarter of 2008 compared with the same periods in 2007. Underwriting income was substantially lower in the 2008 periods compared with the same periods in 2007. The decrease in underwriting income in 2008 was due in large part to higher catastrophe losses, particularly in the third quarter. Investment income grew in both 2008 periods compared with the same periods in 2007, but growth slowed considerably in the third quarter.

Page 17

     The profitability of the property and casualty insurance business depends on the results of both our underwriting and investment operations. We view these as two distinct operations since the underwriting functions are managed separately from the investment function. Accordingly, in assessing our performance, we evaluate underwriting results separately from investment results.

  Underwriting Results

     We evaluate the underwriting results of our property and casualty insurance business in the aggregate and also for each of our separate business units.

  Net Premiums Written

     Net premiums written were $8.9 billion in the first nine months of 2008, nearly identical to the amount in the same period of 2007. Net premiums written in the third quarter of 2008 were $2.9 billion, a decrease of 1% compared with the same period of 2007.

     Net premiums written by business unit were as follows:

		Quarter Ended												Nine Months Ended
		Sept.  30								% Incr.				Sept. 30								% Incr.
		2008				2007				(Decr.)				2008				2007				(Decr.)
		(in millions)												(in millions)
Personal insurance		$	995			$	977				2	%		$	2,887			$	2,792				3	%
Commercial insurance			1,178				1,204				(2	)			3,819				3,821				—
Specialty insurance			709				726				(2	)			2,123				2,150				(1	)
Total insurance			2,882				2,907				(1	)			8,829				8,763				1
Reinsurance assumed			18				31				(42	)			54				100				(46	)
Total		$	2,900			$	2,938				(1	)		$	8,883			$	8,863				—

     Net premiums written from our insurance business increased 1% in the first nine months of 2008 and decreased by 1% in the third quarter compared with the corresponding periods in 2007. Premiums in the United States, which represented 75% of our insurance premiums in the first nine months of 2008, decreased by 2% in the first nine months and 3% in the third quarter. Premiums outside the U.S. increased by 11% in the first nine months and 8% in the third quarter. The growth outside the U.S. was largely attributable to the impact of currency fluctuation due to the weakness of the U.S. dollar in the 2008 periods compared with the 2007 periods; in local currencies, growth outside the U.S. was 4% in both periods.

     In a highly competitive market environment, we continued our emphasis on underwriting discipline. Rates continued to be under competitive pressure that varied by class of business and geographic area. The decline in rates in the third quarter of 2008 was somewhat less than we had experienced in recent quarters. We continued to retain a high percentage of our existing customers and to renew these accounts at acceptable prices relative to the exposure. However, there were fewer opportunities to write new business at acceptable rates in the first nine months of 2008 compared with the same period in 2007.

Page 18

     Over the past few months, the property and casualty insurance market has experienced significant disruption as a result of broader issues in the financial markets and the economies of the United States and other countries. The market disruption may result in an increase in opportunities for us to write new business, but competition for that new business may also be significant. Nonetheless, we currently expect the market environment to remain competitive for the balance of 2008.

     Net premiums written in the reinsurance assumed business, which is in runoff, were not significant in the first nine months or third quarter of 2008 or 2007.

  Reinsurance Ceded

     Our premiums written are net of amounts ceded to reinsurers who assume a portion of the risk under the insurance policies we write that are subject to the reinsurance.

     Reinsurance rates for property risks have declined somewhat in 2008. However, capacity restrictions continued in some segments of the marketplace.

     We renewed our major property reinsurance treaties, which represent the most significant component of our reinsurance program, in April 2008.

     On our commercial property per risk treaty, we increased the reinsurance coverage in the top layer of the treaty. This treaty now provides approximately $560 million of coverage per risk in excess of our $25 million retention.

     The structure of our property catastrophe program for events in the United States was modified, but the overall coverage is similar to the previous program. We purchased $200 million of fully collateralized three-year reinsurance coverage in place of traditional reinsurance. This reinsurance was purchased from East Lane Re II Ltd., which financed the provision of reinsurance through the issuance of $200 million in catastrophe bonds to investors under three separate bond tranches. The current traditional catastrophe reinsurance treaty, in combination with the collateralized coverage, provides coverage of approximately 70% of losses (net of recoveries from other available reinsurance) between $350 million and $1.3 billion, with additional coverage of 60% of losses between $1.3 billion and $2.05 billion in the northeastern part of the United States, where we have our greatest concentration of catastrophe exposure.

     We have additional fully collateralized four-year reinsurance coverage, purchased in 2007, for homeowners-related losses sustained from qualifying hurricane loss events in the northeastern part of the United States. This reinsurance was purchased from East Lane Re Ltd., which financed the provision of reinsurance through the issuance of $250 million in catastrophe bonds to investors under two separate bond tranches. This reinsurance provides coverage in 2008 of approximately 30% of covered losses between $1.35 billion and $2.2 billion.

     We have additional reinsurance from the Florida Hurricane Catastrophe Fund, which is a state-mandated fund designed to reimburse insurers for a portion of their residential catastrophic hurricane losses. Our participation in this program limits our initial retention in Florida for homeowners related losses to approximately $185 million.

Page 19

     On our property catastrophe treaty for events outside the United States, we increased the reinsurance coverage in the top layer of the treaty by $50 million and modestly increased our participation in the program. The treaty now provides coverage of approximately 85% of losses (net of recoveries from other available reinsurance) between $75 million and $325 million.

     Our property reinsurance treaties generally contain terrorism exclusions for acts perpetrated by foreign terrorists, and for nuclear, biological, chemical and radiological loss causes whether such acts are perpetrated by foreign or domestic terrorists.

     The overall cost of our property reinsurance program in the first nine months of 2008 was modestly lower than that in the comparable period in 2007. We do not expect the changes we made to our reinsurance program during 2008 to have a material effect on the Corporation’s results of operations, financial condition or liquidity.

  Profitability

     The combined loss and expense ratio, expressed as a percentage, is the key measure of underwriting profitability traditionally used in the property and casualty insurance business. Management evaluates the performance of our underwriting operations and of each of our business units using, among other measures, the combined loss and expense ratio calculated in accordance with statutory accounting principles. It is the sum of the ratio of losses and loss expenses to premiums earned (loss ratio) plus the ratio of statutory underwriting expenses to premiums written (expense ratio) after reducing both premium amounts by dividends to policyholders. When the combined ratio is under 100%, underwriting results are generally considered profitable; when the combined ratio is over 100%, underwriting results are generally considered unprofitable.

     Statutory accounting principles applicable to property and casualty insurance companies differ in certain respects from generally accepted accounting principles (GAAP). Under statutory accounting principles, policy acquisition and other underwriting expenses are recognized immediately, not at the time premiums are earned. Management uses underwriting results determined in accordance with GAAP, among other measures, to assess the overall performance of our underwriting operations. To convert statutory underwriting results to a GAAP basis, policy acquisition expenses are deferred and amortized over the period in which the related premiums are earned. Underwriting income determined in accordance with GAAP is defined as premiums earned less losses and loss expenses incurred and GAAP underwriting expenses incurred.

     Underwriting results were highly profitable in the first nine months of 2008 and 2007. Underwriting results in the third quarter of 2008 were modestly profitable compared to highly profitable results in the same period in 2007. The combined loss and expense ratio for our overall property and casualty business was as follows:

		Periods Ended September 30
		Third Quarter								Nine Months
		2008				2007				2008				2007
Loss ratio			67.9	%			51.8	%			60.0	%			52.7	%
Expense ratio			30.2				29.8				30.2				29.9
Combined ratio			98.1	%			81.6	%			90.2	%			82.6	%

Page 20

     The loss ratio was significantly higher in both the first nine months and third quarter of 2008 compared with the respective periods in 2007. The increase, particularly in the third quarter, was due in large part to higher catastrophe losses. Excluding the impact of catastrophes, the loss ratio in both years remained relatively low, reflecting our disciplined underwriting in recent years as well as favorable reserve development. However, the loss ratio in the 2008 periods was adversely affected by declining earned premium rates and several large non-catastrophe losses.

     Catastrophe losses were $616 million in the first nine months of 2008, which represented 6.9 percentage points of the loss ratio, compared with $249 million or 2.8 percentage points in the same period of 2007. Catastrophe losses were $402 million in the third quarter of 2008, which represented 13.6 percentage points of the loss ratio, compared with $58 million or 2.0 percentage points in the same period in 2007. Of the catastrophe losses in the third quarter of 2008, about $340 million related to Hurricane Ike, including our estimated share of an assessment from the Texas Windstorm Insurance Association, a windstorm insurance entity created by the State of Texas. The estimated loss from Hurricane Ike does not reflect any reinsurance recoveries from our catastrophe reinsurance treaties since the aggregate gross loss was within our initial retention of $350 million.

     The expense ratio was slightly higher in the first nine months and third quarter of 2008 compared to the same periods of 2007, due to an increase in commissions, which more than offset lower operating costs related to the run-off of our reinsurance business. The increase in commissions was due to premium growth outside the United States in countries where commission rates are higher than in the United States as well as modestly higher commission rates in the United States in certain classes of business.

     In lieu of paying contingent commissions, beginning in 2007, we implemented a new guaranteed supplemental compensation program for agents and brokers in the United States with whom we previously had contingent commission agreements. Under this arrangement, agents and brokers are paid a percentage of written premiums on eligible lines of business in a calendar year based upon their prior performance. The change in our commission arrangements created a difference in the timing of expense recognition, which resulted in a one-time benefit to income during the 2007 transition year. The impact of the change in the first nine months and third quarter of 2007 was to increase deferred policy acquisition costs by approximately $60 million and $20 million, respectively. The change had no effect on the expense ratio.

Page 21

  Review of Underwriting Results by Business Unit

  Personal Insurance

     Net premiums written from personal insurance, which represented 33% of our premiums written in the first nine months of 2008, increased by 3% in the first nine months of 2008 and 2% in the third quarter compared with the same periods in 2007. Net premiums written for the classes of business within the personal insurance segment were as follows:

		Quarter Ended												Nine Months Ended
		Sept. 30								% Incr.				Sept. 30								% Incr.
		2008				2007				(Decr.)				2008				2007				(Decr.)
		(in millions)												(in millions)
Automobile		$	154			$	161				(4	)%		$	457			$	472				(3	)%
Homeowners			646				657				(2	)			1,859				1,831				2
Other			195				159				23				571				489				17
Total personal		$	995			$	977				2			$	2,887			$	2,792				3

     Personal automobile premiums decreased in the 2008 periods due to a highly competitive U.S. marketplace. Premium growth in our homeowners business was constrained in 2008 due to an increasingly competitive market. The growth in the first nine months of 2008 was due to increased insurance-to-value. The in-force policy count for this class decreased slightly during the first nine months of 2008. Our other personal business includes insurance for excess liability, yacht and accident coverages. The substantial growth in this business was due to a significant increase in accident premiums.

     Our personal insurance business produced highly profitable underwriting results in the first nine months of both 2008 and 2007, but more so in 2007. Results in the third quarter of 2008 were near breakeven compared with highly profitable results in the same period of 2007. The combined loss and expense ratios for the classes of business within the personal insurance segment were as follows:

		Periods Ended September 30
		Third Quarter								Nine Months
		2008				2007				2008				2007
Automobile			85.7	%			91.1	%			88.5	%			89.6	%
Homeowners			102.9				76.8				85.8				77.2
Other			105.8				99.0				100.5				95.3
Total personal			100.7	%			83.3	%			89.1	%			82.6	%

     The less profitable results in the 2008 periods were due in large part to the adverse impact of higher catastrophe losses, particularly in the third quarter, primarily from Hurricane Ike. Catastrophe losses represented 7.5 percentage points of the combined ratio for the personal insurance segment for the first nine months of 2008 and 16.3 percentage points for the third quarter compared with 4.9 and 5.2 percentage points, respectively, in the same periods of 2007.

     Our personal automobile business produced highly profitable results in the first nine months and third quarter of both 2008 and 2007. Our non-U.S. personal automobile business experienced significant improvement in the 2008 periods.

Page 22

     Homeowners results were highly profitable in the first nine months of 2008 and 2007, but more so in 2007. Results in the third quarter of 2008 were unprofitable compared to highly profitable results in the same period in 2007. The less profitable results in the 2008 periods were due to higher catastrophe losses, primarily related to Hurricane Ike in the third quarter, as well as the higher severity of large non-catastrophe losses. Catastrophe losses represented 11.0 percentage points of the combined ratio for this class in the first nine months of 2008 and 23.8 percentage points in the third quarter compared with 7.4 and 8.0 percentage points, respectively, in the corresponding periods of 2007.

     Other personal results were near breakeven in the first nine months of 2008 compared with profitable results in the same period of 2007. Results in the third quarter of 2008 were unprofitable compared with near breakeven results in the same period of 2007. Our accident business was profitable in the first nine months and third quarter of 2008 compared with highly profitable results in both periods in 2007. Our yacht business was highly unprofitable in the first nine months of 2008, compared to highly profitable results in the comparable period in 2007. Yacht results were highly unprofitable in the third quarter of 2008 compared with unprofitable results in the same period of 2007. Yacht results in the 2008 periods were adversely affected by several large non-catastrophe losses as well as $10 million of losses related to Hurricane Ike. Our excess liability results improved somewhat in 2008 but remained unprofitable. Results in both years were adversely affected by inadequate pricing and, in 2007, by unfavorable prior year loss development. Excess liability rates have increased modestly in the past year.

  Commercial Insurance

     Net premiums written from commercial insurance, which represented 43% of our premiums written in the first nine months of 2008, were flat in the first nine months of 2008 and decreased by 2% in the third quarter compared with the same periods a year ago. Net premiums written for the classes of business within the commercial insurance segment were as follows:

		Quarter Ended												Nine Months Ended
		Sept. 30								% Incr.				Sept. 30								% Incr.
		2008				2007				(Decr.)				2008				2007				(Decr.)
		(in millions)												(in millions)
Multiple peril		$	308			$	313				(2	)%		$	915			$	926				(1	)%
Casualty			385				403				(4	)			1,281				1,300				(1	)
Workers’ compensation			205				205				—				666				686				(3	)
Property and marine			280				283				(1	)			957				909				5
Total commercial		$	1,178			$	1,204				(2	)		$	3,819			$	3,821				—

Page 23

     Premium growth in the first nine months of 2008 was constrained due to a highly competitive marketplace, particularly for new business. Growth in the first nine months in the property and marine classes was due to selective initiatives. Overall, rates in the first nine months of 2008 were down modestly. Certain classes of business, such as workers’ compensation and large property risks, experienced more competitive pressure than others. Competitive pressure also varied among geographic areas. Retention levels of our existing customers remained strong, slightly higher than those in the first nine months of 2007. However, new business volume in the first nine months of 2008 was down from 2007 levels as it has become more difficult to find new opportunities at acceptable rates. We have continued to maintain our underwriting discipline in the highly competitive market, renewing business and writing new business only where we believe we are securing acceptable rates and appropriate terms and conditions for the exposures. We expect continued pressure on rates for the balance of 2008.

     Our commercial insurance business produced profitable underwriting results in the first nine months of 2008, but unprofitable results in the third quarter. Results in both periods in 2007 were highly profitable. The combined loss and expense ratios for the classes of business within the commercial insurance segment were as follows:

		Periods Ended September 30
		Third Quarter								Nine Months
		2008				2007				2008				2007
Multiple peril			103.6	%			73.4	%			87.0	%			81.1	%
Casualty			99.8				98.4				94.6				95.1
Workers’ compensation			81.3				79.4				80.5				76.0
Property and marine			133.3				79.5				116.0				85.4
Total commercial			106.0	%			84.4	%			95.6	%			85.9	%

     The less profitable results in the 2008 periods were due in large part to higher catastrophe losses in the property and marine and multiple peril classes, particularly in the third quarter, primarily from Hurricane Ike. Catastrophe losses represented 10.6 percentage points of the combined ratio for the commercial insurance segment for the first nine months of 2008 and 19.9 percentage points for the third quarter compared with 3.0 and 0.8 percentage points, respectively, in the same periods of 2007. Results in both years benefited from favorable loss experience, disciplined risk selection and appropriate terms and conditions in recent years.

     Multiple peril results were highly profitable in the first nine months of 2008 but were modestly unprofitable in the third quarter. Results in the comparable 2007 periods were highly profitable, exceptionally so in the third quarter. The less profitable results in the 2008 periods were in the property component of this business due to higher catastrophe losses. Catastrophe losses represented 12.1 percentage points of the combined ratio for this class in the first nine months of 2008 and 28.2 percentage points in the third quarter compared with 2.5 and zero percentage points, respectively, for the comparable periods in 2007. Results in the property component benefited in both years from favorable non-catastrophe loss experience, particularly outside the United States in 2008. The liability component of this business was highly profitable in the first nine months of both years, but more so in 2008, due to favorable prior year loss development.

Page 24

     Our casualty business produced similarly profitable results in the first nine months of 2008 and 2007. Results in the third quarter of 2008 were near breakeven compared to modestly profitable results in the same period of 2007. The automobile component of this business was highly profitable in both years. The primary liability component was highly profitable in the first nine months of both years but was less profitable in the third quarter of both years. The excess liability component produced profitable results in the first nine months and third quarter of 2008 and 2007. Excess liability results in both years, but more so in 2008, benefited from favorable prior year loss development. Casualty results in the first nine months and third quarter of 2008 were adversely affected by incurred losses of $50 million and $25 million, respectively, related to toxic waste claims. Casualty results in the first nine months and third quarter of 2007 were adversely affected by incurred losses of $63 million and $20 million, respectively, related to asbestos and toxic waste claims. Our analysis of asbestos and toxic waste exposures in the relevant periods of 2008 and 2007 resulted in increases in the estimate of our ultimate liabilities.

     Workers’ compensation results were highly profitable in the first nine months and third quarter of 2008 and 2007. Results in both years benefited from our disciplined risk selection during the past several years as well as the positive effect of reforms in California. The modestly less profitable results in 2008 were primarily due to lower earned premiums, which were due to rate reductions associated with state reforms and increased competition.

     Property and marine results were highly unprofitable in the first nine months and third quarter of 2008 compared with highly profitable results in the comparable periods of 2007. The deterioration in the 2008 periods was due primarily to higher catastrophe losses, and, to a lesser extent, an increase in the frequency and severity of large non-catastrophe losses. Catastrophe losses represented 29.5 percentage points of the combined ratio for these classes in the first nine months of 2008 and 49.0 percentage points in the third quarter compared with 9.6 and 1.7 percentage points, respectively, in the corresponding periods of 2007.

  Specialty Insurance

     Net premiums written from specialty insurance, which represented 24% of our premiums written in the first nine months of 2008, decreased by 1% in the first nine months of 2008 and 2% in the third quarter compared with the same periods a year ago. Net premiums written for the classes of business within the specialty insurance segment were as follows:

		Quarter Ended												Nine Months Ended
		Sept. 30								% Incr.				Sept. 30								% Incr.
		2008				2007				(Decr.)				2008				2007				(Decr.)
		(in millions)												(in millions)
Professional liability		$	617			$	647				(5	)%		$	1,847			$	1,893				(2	)%
Surety			92				79				16				276				257				7
Total specialty		$	709			$	726				(2	)		$	2,123			$	2,150				(1	)

Page 25

     Our ability to grow premiums in the professional liability classes was constrained due to the continuing competitive pressure on rates, particularly in the directors and officers liability component, and our commitment to maintain underwriting discipline in this environment. While professional liability rates generally decreased in the first nine months of 2008, rates increased with respect to directors and officers liability insurance for public financial institutions, particularly for those companies that have been directly implicated in the current crisis in the financial markets. Retention levels in the professional liability classes remained strong in the first nine months of 2008, comparable to those in the same period in 2007. New business volume in 2008 was somewhat lower than in 2007. We continued to get what we believe are acceptable rates and appropriate terms and conditions on both new business and renewals. While we expect the overall market to remain competitive for the remainder of 2008, we anticipate that the pace of rate decreases, specifically with regard to directors and officers liability insurance, will slow.

     Although premiums grew significantly in our surety business in the third quarter of 2008 compared with the same period in 2007, the timing of premium writings in the surety business is linked to the project timing of our insureds and is not consistent among quarters.

     Our specialty insurance business produced highly profitable underwriting results in the first nine months and third quarter of 2008 and 2007, but more so in 2007. The combined loss and expense ratios for the classes of business within the specialty insurance segment were as follows:

		Periods Ended September 30
		Third Quarter								Nine Months
		2008				2007				2008				2007
Professional liability			84.3	%			81.8	%			84.0	%			83.7	%
Surety			65.0				30.8				76.1				31.5
Total specialty			82.3	%			76.3	%			83.2	%			78.3	%

     Our professional liability business produced highly profitable results in the first nine months and third quarter of 2008 and 2007. Results in the fiduciary liability and employment practices liability classes were highly profitable in both years. The directors and officers liability class was also profitable in the first nine months of both years, but more so in 2007. Profitability in this class was particularly strong outside the United States in 2008. Results in the errors and omissions liability class were modestly unprofitable in the first nine months of 2008 compared with modestly profitable results in the same period of 2007. Collectively, these professional liability classes benefited from a significant amount of favorable prior year loss development in the relevant periods of 2008 and 2007, due to the recognition of the positive loss trends we have been experiencing related to accident years 2005 and prior. These trends were largely the result of a favorable business climate, lower policy limits and better terms and conditions. The fidelity class was highly profitable in the 2008 and 2007 periods due to favorable loss experience. The expected loss ratio for the current accident year in our professional liability business is slightly above breakeven, and higher than last year, due in part to the uncertainty surrounding the ongoing crisis in the financial markets.

     Surety results were highly profitable in the first nine months and third quarter of 2008. Results were exceptionally profitable in the comparable periods of 2007. Results in 2008 were adversely impacted by one large loss. Our surety business tends to be characterized by infrequent but potentially high severity losses.

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  Reinsurance Assumed

     Net premiums written from our reinsurance assumed business, which is in runoff, were not significant in the first nine months and third quarter of 2008 or 2007.

     Reinsurance assumed results were profitable in the first nine months and third quarter of 2008 and 2007. Results in both years, but more so in 2007, benefited from significant favorable prior year loss development.

  Loss Reserves

     Unpaid losses and loss expenses, also referred to as loss reserves, are the largest liability of our business.

     Our loss reserves include case estimates for claims that have been reported and estimates for claims that have been incurred but not reported at the balance sheet date as well as estimates of the expenses associated with processing and settling all reported and unreported claims, less estimates of anticipated salvage and subrogation recoveries. Estimates are based upon past loss experience modified for current trends as well as prevailing economic, legal and social conditions. Our loss reserves are not discounted to present value.

     We regularly review our loss reserves using a variety of actuarial techniques. We update the reserve estimates as historical loss experience develops, additional claims are reported and/or settled and new information becomes available. Any changes in estimates are reflected in operating results in the period in which the estimates are changed.

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     Our gross case and incurred but not reported (IBNR) loss reserves and related reinsurance recoverable by class of business were as follows:

																		Net
		Gross Loss Reserves												Reinsurance				Loss
September 30, 2008		Case				IBNR				Total				Recoverable				Reserves
		(in millions)
Personal insurance
Automobile		$	222			$	201			$	423			$	14			$	409
Homeowners			455				404				859				30				829
Other			415				621				1,036				206				830
Total personal			1,092				1,226				2,318				250				2,068
Commercial insurance
Multiple peril			603				1,105				1,708				40				1,668
Casualty			1,575				4,619				6,194				419				5,775
Workers’ compensation			845				1,367				2,212				234				1,978
Property and marine			916				545				1,461				536				925
Total commercial			3,939				7,636				11,575				1,229				10,346
Specialty insurance
Professional liability			1,779				6,140				7,919				498				7,421
Surety			102				51				153				10				143
Total specialty			1,881				6,191				8,072				508				7,564
Total insurance			6,912				15,053				21,965				1,987				19,978
Reinsurance assumed			374				943				1,317				333				984
Total		$	7,286			$	15,996			$	23,282			$	2,320			$	20,962