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, 2009

OR

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

For the transition period from                      to                     

Commission file number 1-8661

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   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):

     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, 2009 was 341,572,078.

 

 

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, 2009 and 2008			1
Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008			2
Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2009 and 2008			3
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008			4
Notes to Consolidated Financial Statements			5
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 4 — Controls and Procedures			42
Part II. Other Information:
Item 1A — Risk Factors			43
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 6 — Exhibits			44
Signatures			44
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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
		2009				2008				2009				2008
		(in millions)
Revenues
Premiums Earned		$	2,836			$	2,964			$	8,490			$	8,926
Investment Income			414				439				1,224				1,316
Other Revenues			1				13				7				25
Realized Gains (Losses), Net
Total Other-Than-Temporary Impairment Losses on Investments			(24	)			(96	)			(117	)			(217	)
Other-Than-Temporary Impairment Losses on Investments Recognized in Other Comprehensive Income			4				—				19				—
Other Realized Gains (Losses), Net			89				(17	)			(72	)			96
Total Realized Gains (Losses), Net			69				(113	)			(170	)			(121	)
Total Revenues			3,320				3,303				9,551				10,146
Losses and Expenses
Losses and Loss Expenses			1,534				2,006				4,721				5,339
Amortization of Deferred Policy Acquisition Costs			775				781				2,260				2,336
Other Insurance Operating Costs and Expenses			116				104				321				330
Investment Expenses			11				8				27				25
Other Expenses			2				13				9				30
Corporate Expenses			73				73				221				210
Total Losses and Expenses			2,511				2,985				7,559				8,270
Income Before Federal and Foreign Income Tax			809				318				1,992				1,876
Federal and Foreign Income Tax			213				54				504				479
Net Income		$	596			$	264			$	1,488			$	1,397
Net Income Per Share
Basic		$	1.70			$	.74			$	4.21			$	3.84
Diluted			1.69				.73				4.18				3.78
Dividends Declared Per Share			.35				.33				1.05				.99

See Notes to Consolidated Financial Statements.

Page 2

THE CHUBB CORPORATION

CONSOLIDATED BALANCE SHEETS

		Sept. 30,				Dec. 31,
		2009				2008
		(in millions)
Assets
Invested Assets
Short Term Investments		$	2,587			$	2,478
Fixed Maturities
Tax Exempt (cost $18,672 and $18,299)			19,758				18,345
Taxable (cost $15,957 and $14,592)			16,510				14,410
Equity Securities (cost $1,224 and $1,563)			1,353				1,479
Other Invested Assets			1,838				2,026
TOTAL INVESTED ASSETS			42,046				38,738
Cash			61				56
Accrued Investment Income			452				435
Premiums Receivable			2,034				2,201
Reinsurance Recoverable on Unpaid Losses and Loss Expenses			2,142				2,212
Prepaid Reinsurance Premiums			318				373
Deferred Policy Acquisition Costs			1,545				1,532
Deferred Income Tax			340				1,144
Goodwill			467				467
Other Assets			1,373				1,271
TOTAL ASSETS		$	50,778			$	48,429
Liabilities
Unpaid Losses and Loss Expenses		$	22,902			$	22,367
Unearned Premiums			6,198				6,367
Long Term Debt			3,975				3,975
Dividend Payable to Shareholders			121				118
Accrued Expenses and Other Liabilities			2,064				2,170
TOTAL LIABILITIES			35,260				34,997
Contingent Liabilities (Note 6)
Shareholders’ Equity
Common Stock — $1 Par Value; 371,980,460 and 371,980,710 Shares			372				372
Paid-In Surplus			209				253
Retained Earnings			15,658				14,509
Accumulated Other Comprehensive Income (Loss)			721				(735	)
Treasury Stock, at Cost — 30,408,382 and 19,726,097 Shares			(1,442	)			(967	)
TOTAL SHAREHOLDERS’ EQUITY			15,518				13,432
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	50,778			$	48,429

See Notes to Consolidated Financial Statements.

     Page 3

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

PERIODS ENDED SEPTEMBER 30

		Third Quarter								Nine Months
		2009				2008				2009				2008
		(in millions)
Net Income		$	596			$	264			$	1,488			$	1,397
Other Comprehensive Income (Loss), Net of Tax
Change in Unrealized Appreciation or Depreciation of Investments			813				(350	)			1,328				(814	)
Change in Unrealized Other-Than-Temporary Impairment Losses on Investments			3				—				(6	)			—
Foreign Currency Translation Gains (Losses)			98				(113	)			143				(57	)
Amortization of Net Loss and Prior Service Cost Included in Net Postretirement Benefit Costs			9				8				21				18
			923				(455	)			1,486				(853	)
Comprehensive Income (Loss)		$	1,519			$	(191	)		$	2,974			$	544

See Notes to Consolidated Financial Statements.

     Page 4

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30

 

		2009				2008
		(in millions)
Cash Flows from Operating Activities
Net Income		$	1,488			$	1,397
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Increase in Unpaid Losses and Loss Expenses, Net			306				793
Decrease in Unearned Premiums, Net			(196	)			(43	)
Decrease in Premiums Receivable			167				93
Change in Income Tax Recoverable or Payable			(39	)			(318	)
Amortization of Premiums and Discounts on Fixed Maturities			140				157
Depreciation			46				49
Realized Investment Losses, Net			170				121
Other, Net			(236	)			(105	)
Net Cash Provided by Operating Activities			1,846				2,144
Cash Flows from Investing Activities
Proceeds from Fixed Maturities
Sales			2,512				2,893
Maturities, Calls and Redemptions			2,031				1,801
Proceeds from Sales of Equity Securities			368				267
Purchases of Fixed Maturities			(5,838	)			(5,486	)
Purchases of Equity Securities			(13	)			(163	)
Investments in Other Invested Assets, Net			(1	)			(102	)
Increase in Short Term Investments, Net			(108	)			(571	)
Increase in Net Payable from Security Transactions Not Settled			143				183
Purchases of Property and Equipment, Net			(38	)			(35	)
Other, Net			4				—
Net Cash Used in Investing Activities			(940	)			(1,213	)
Cash Flows from Financing Activities
Proceeds from Issuance of Long Term Debt			—				1,200
Repayment of Long Term Debt			—				(685	)
Proceeds from Issuance of Common Stock Under Stock-Based Employee Compensation Plans			26				103
Repurchase of Shares			(564	)			(1,170	)
Dividends Paid to Shareholders			(366	)			(353	)
Other, Net			3				(29	)
Net Cash Used in Financing Activities			(901	)			(934	)
Net Increase (Decrease) in Cash			5				(3	)
Cash at Beginning of Year			56				49
Cash at End of Period		$	61			$	46

See Notes to Consolidated Financial Statements.

     Page 5

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1)

General

2)

Adoption of New Accounting Pronouncements

 

     Page 6

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Effective April 1, 2009, the Corporation adopted new guidance issued by the FASB related to the recognition and presentation of other-than-temporary impairments. The FASB modified the guidance on the recognition of other-than-temporary impairments of debt securities. Under this guidance, an entity is required to recognize an other-than-temporary impairment when the entity concludes it has the intent to sell or it is more likely than not the entity will be required to sell an impaired debt security before the security recovers to its amortized cost value or it is likely the entity will not recover the entire amortized cost value of an impaired debt security. This guidance also changes the presentation in the financial statements of other-than-temporary impairments and provides for enhanced disclosures of both debt and equity securities. Under this guidance, if an entity has the intent to sell or it is more likely than not the entity will be required to sell an impaired debt security before the security recovers to its amortized cost value, the security is written down to fair value and the entire amount of the writedown is charged to income as a realized investment loss. For all other impaired debt securities, the impairment loss is separated into the amount representing the credit loss and the amount representing the loss related to all other factors. The portion of the impairment loss that represents the credit loss is charged to income as a realized investment loss and the amount representing the loss that relates to all other factors is included in other comprehensive income. This guidance requires a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption with a corresponding adjustment to accumulated other comprehensive income. The cumulative effect adjustment from adopting this guidance resulted in a $30 million increase to retained earnings and a corresponding decrease to accumulated other comprehensive income. The adoption of this guidance did not have a significant effect on the Corporation’s financial position or results of operations.

     Effective January 1, 2009, the Corporation adopted new guidance issued by the FASB related to the accounting for financial guarantee insurance contracts, which clarifies the guidance for such contracts. The adoption of this guidance did not have a significant effect on the Corporation’s financial position or results of operations.

     Effective January 1, 2009, the Corporation adopted new guidance issued by the FASB related to determining whether instruments granted in share-based payment transactions are participating securities. This guidance addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting in computing earnings per share. The adoption of this guidance did not have a significant effect on the Corporation’s earnings per share.

     Page 7

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3)

Invested Assets

 

(a)   The amortized cost and fair value of invested assets were as follows:

 

		September 30, 2009
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Appreciation				Depreciation				Value
		(in millions)
Fixed maturities
Tax exempt		$	18,672			$	1,164			$	78			$	19,758
Taxable
U.S. Government and government agency and authority obligations			631				22				2				651
Corporate bonds			3,787				262				11				4,038
Foreign bonds			7,864				338				21				8,181
Residential mortgage-backed securities			1,988				90				24				2,054
Commercial mortgage-backed securities			1,687				5				106				1,586
			15,957				717				164				16,510
Total fixed maturities		$	34,629			$	1,881			$	242			$	36,268
Equity securities		$	1,224			$	213			$	84			$	1,353

 

At September 30, 2009, the gross unrealized depreciation of fixed maturities included $15 million of unrealized other-than-temporary impairment losses recognized in accumulated other comprehensive income.

 

The amortized cost and fair value of fixed maturities at September 30, 2009 by contractual maturity were as follows:

 

		Amortized				Fair
		Cost				Value
		(in millions)
Due in one year or less		$	1,156			$	1,175
Due after one year through five years			10,385				10,879
Due after five years through ten years			12,305				13,131
Due after ten years			7,108				7,443
			30,954				32,628
Residential mortgage-backed securities			1,988				2,054
Commercial mortgage-backed securities			1,687				1,586
		$	34,629			$	36,268

Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations.

     Page 8

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

(b) The components of unrealized appreciation or depreciation, including unrealized other-than-temporary impairment losses, of investments carried at fair value were as follows:

 

		September 30, 2009
		(in millions)
Fixed maturities
Gross unrealized appreciation		$	1,881
Gross unrealized depreciation			242
			1,639
Equity securities
Gross unrealized appreciation			213
Gross unrealized depreciation			84
			129
			1,768
Deferred income tax liability			619
		$	1,149

 

When the fair value of any investment is lower than its cost, an assessment is made to determine whether the decline is temporary or other than temporary. The assessment of other-than-temporary impairment of fixed maturities and equity securities is based on both quantitative criteria and qualitative information and also considers a number of other factors including, but not limited to, the length of time and the extent to which the fair value has been less than the cost, the financial condition and near term prospects of the issuer, whether the issuer is current on contractually obligated interest and principal payments, general market conditions and industry or sector specific factors.

 

For fixed maturities, prior to April 1, 2009, the Corporation considered many factors including its intent and ability to hold a security for a period of time sufficient to allow for the recovery of the security’s cost. When an impairment was deemed other-than-temporary, the security was written down to fair value and the entire writedown was charged to income as a realized investment loss. Effective April 1, 2009, the Corporation adopted new guidance issued by the FASB which modified the guidance on the recognition of other-than-temporary impairments of debt securities. Under this guidance, the Corporation is required to recognize an other-than-temporary impairment loss when it concludes it has the intent to sell or it is more likely than not it will be required to sell an impaired fixed maturity before the security recovers to its amortized cost value or it is likely it will not recover the entire amortized cost value of an impaired debt security. Also under this guidance, if the Corporation has the intent to sell or it is more likely than not that the Corporation will be required to sell an impaired fixed maturity before the security recovers to its amortized cost value, the security is written down to fair value and the entire amount of the writedown is charged to income as a realized investment loss. For all other impaired fixed maturities, the impairment loss is separated into the amount representing the credit loss and the amount representing the loss related to all other factors. The amount of the impairment loss that represents the credit loss is charged to income as a realized investment loss and the amount of the impairment loss that relates to all other factors is included in other comprehensive income.

Page 9

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

For equity securities, the Corporation considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost. If the decline in the fair value of an equity security is deemed to be other than temporary, the security is written down to fair value and the amount of the writedown is charged to income as a realized investment loss.

 

For fixed maturities, the split between the amount of other-than-temporary impairment losses that represents credit losses and the amount that relates to all other factors is principally based on assumptions regarding the amount and timing of projected cash flows. For fixed maturities other than mortgage-backed securities, cash flow estimates are based on assumptions regarding the probability of default and estimates regarding the timing and amount of recoveries associated with a default. For mortgage-backed securities, cash flow estimates are based on assumptions regarding future prepayment rates, default rates, loss severity and timing of recoveries. The Corporation has developed the estimates of projected cash flows using information based on historical market data, industry analyst reports and forecasts and other data relevant to the collectability of a security.

 

The following table summarizes, for all investment securities in an unrealized loss position at September 30, 2009, the aggregate fair value and gross unrealized depreciation, including unrealized other-than-temporary impairment losses, by investment category and length of time that individual securities have continuously been in an unrealized loss position:

 

		Less than 12 Months								12 Months or More								Total
						Gross								Gross								Gross
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Depreciation				Value				Depreciation				Value				Depreciation
		(in millions)
Fixed maturities
Tax exempt		$	29			$	1			$	1,346			$	77			$	1,375			$	78
Taxable
U.S. Government and government agency and authority obligations			34				1				19				1				53				2
Corporate bonds			47				4				91				7				138				11
Foreign bonds			747				18				45				3				792				21
Residential mortgage- backed securities			21				5				90				19				111				24
Commercial mortgage- backed securities			—				—				1,430				106				1,430				106
			849				28				1,675				136				2,524				164
Total fixed maturities			878				29				3,021				213				3,899				242
Equity securities			392				40				178				44				570				84
		$	1,270			$	69			$	3,199			$	257			$	4,469			$	326

Page 10

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

At September 30, 2009, approximately 590 individual fixed maturity and equity securities were in an unrealized loss position, of which approximately 550 were fixed maturities. The Corporation does not have the intent to sell and it is not more likely than not that the Corporation will be required to sell these fixed maturities before the securities recover to their amortized cost value. In addition, the Corporation believes that none of the declines in the fair values of these fixed maturities relate to credit losses. The Corporation has the intent and ability to hold the equity securities in an unrealized loss position for a period of time sufficient to allow for the recovery of cost. The Corporation believes that none of the declines in fair value of these fixed maturities and equity securities were other than temporary at September 30, 2009.

 

The change in unrealized appreciation or depreciation of investments carried at fair value, including the change in unrealized other-than-temporary impairment losses and the cumulative effect adjustment as a result of adopting new guidance issued by the FASB related to the recognition and presentation of other-than-temporary impairments effective April 1, 2009 (see Note (2)), was as follows:

 

		Periods Ended September 30, 2009
		Third Quarter				Nine Months
		(in millions)
Change in unrealized appreciation or depreciation of fixed maturities		$	1,081			$	1,775
Change in unrealized appreciation or depreciation of equity securities			175				213
			1,256				1,988
Deferred income tax			440				696
		$	816			$	1,292

 

(c) Realized investment gains and losses were as follows:

 

		Periods Ended September 30, 2009
		Third Quarter				Nine Months
		(in millions)
Fixed maturities
Gross realized gains		$	30			$	95
Gross realized losses			(13	)			(30	)
Other-than-temporary impairment losses			(3	)			(22	)
			14				43
Equity securities
Gross realized gains			7				78
Other-than-temporary impairment losses			(17	)			(76	)
			(10	)			2
Other invested assets			65				(215	)
		$	69			$	(170	)

 

Page 11

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

Fair values of financial instruments 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 assets or liabilities or other inputs, such as quoted prices for similar assets or liabilities, that are observable, either directly or indirectly. In those instances where observable inputs are not available, fair values are measured using unobservable inputs for the asset or liability. Unobservable inputs reflect the Corporation’s own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are 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. Certain financial instruments, particularly insurance contracts, are excluded from fair value disclosure requirements.

 

The methods and assumptions used to estimate the fair values of financial instruments are as follows:

 

(i)   The carrying value of short term investments approximates fair value due to the short maturities of these investments.

 

(ii)  Fair values for fixed maturities are determined by management, utilizing prices obtained from an independent, nationally recognized pricing service or, in the case of securities for which prices are not provided by a pricing service, from independent brokers. For fixed maturities that have quoted prices in active markets, market quotations are provided. For fixed maturities that do not trade on a daily basis, the pricing services and brokers provide fair value estimates using a variety of inputs including, but not limited to, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, reference data, prepayment spreads and measures of volatility. Management reviews on an ongoing basis the reasonableness of the methodologies used by the relevant pricing services and brokers. In addition, management, using the prices received for the securities from the pricing services and brokers, determines the aggregate portfolio price performance and reviews it against applicable indices. If management believes that significant discrepancies exist, it will discuss these with the relevant pricing service or broker to resolve the discrepancies.

 

(iii)   Fair values of equity securities are based on quoted market prices.

 

(iv)   Fair values of long term debt issued by Chubb are determined by management, utilizing prices obtained from an independent, nationally recognized pricing service.

 

Page 12

     Page 13

 

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

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 operations and investments, 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 run-off following the sale, in 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 14

 

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

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

 

		Periods Ended September 30
		Third Quarter								Nine Months
		2009				2008				2009				2008
		(in millions)
Revenues
Property and casualty insurance
Premiums earned
Personal insurance		$	930			$	950			$	2,754			$	2,837
Commercial insurance			1,192				1,253				3,585				3,801
Specialty insurance			704				731				2,110				2,219
Total insurance			2,826				2,934				8,449				8,857
Reinsurance assumed			10				30				41				69
			2,836				2,964				8,490				8,926
Investment income			400				418				1,180				1,254
Other revenues			—				—				—				4
Total property and casualty insurance			3,236				3,382				9,670				10,184
Corporate and other			15				34				51				83
Realized investment gains (losses), net			69				(113	)			(170	)			(121	)
Total revenues		$	3,320			$	3,303			$	9,551			$	10,146
Income before income tax
Property and casualty insurance
Underwriting
Personal insurance		$	166			$	(21	)		$	409			$	293
Commercial insurance			147				(51	)			368				161
Specialty insurance			125				135				373				398
Total insurance			438				63				1,150				852
Reinsurance assumed			16				13				56				37
			454				76				1,206				889
Increase (decrease) in deferred policy acquisition costs			(31	)			(7	)			(11	)			29
Underwriting income			423				69				1,195				918
Investment income			390				411				1,156				1,231
Other income (charges)			(12	)			4				(7	)			7
Total property and casualty insurance			801				484				2,344				2,156
Corporate and other loss			(61	)			(53	)			(182	)			(159	)
Realized investment gains (losses), net			69				(113	)			(170	)			(121	)
Total income before income tax		$	809			$	318			$	1,992			$	1,876

 

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

 

Chubb and certain of its subsidiaries have been involved in the investigations 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 certain business practices in the property and casualty insurance industry including (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 received subpoenas and other requests for information from various regulators. The Corporation has cooperated fully with these investigations. The Corporation has settled with several state Attorneys General and insurance departments all issues arising out of their investigations. As described in more detail below, the Attorney General of Ohio in August 2007 filed an action against Chubb and certain of its subsidiaries, as well as several other insurers and one broker, as a result of the Ohio Attorney General’s business practices investigation. 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 ongoing 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. On August 1, 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 (the N.J. District Court). 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. On September 28, 2007, the N.J. District Court 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.

 

Chubb and certain of its subsidiaries also have been named as defendants in other putative class actions relating or similar to the In re Insurance Brokerage Antitrust Litigation that have been filed in various state courts or in U.S. district courts between 2005 and 2007. These actions have been subsequently removed and ultimately transferred to the N.J. District Court for consolidation with the In re Insurance Brokerage Antitrust Litigation. These actions have either been dismissed or are currently stayed.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition of the Corporation as of September 30, 2009 compared with December 31, 2008 and the results of operations for the nine months and three months ended September 30, 2009 and 2008. 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, 2008.

 

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 ceded reinsurance program, including its cost and terms; property and casualty insurance market conditions, including premium volume, rates and policy terms and conditions; the impact of the continuation of the weak economy; the repurchase of common stock under our share repurchase program; the impact of a downgrade of our credit ratings; and our capital adequacy and funding of liquidity needs. 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:

 

Page 18

•

the adequacy of 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 19

•

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;

•

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 and the evaluation of whether a decline in value of any investment is temporary or other than temporary. These estimates and judgments, which are discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2008 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.

Page 20

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 $1.5 billion in the first nine months of 2009 and $596 million in the third quarter compared with $1.4 billion and $264 million, respectively, in the comparable periods of 2008. The modestly higher net income in the first nine months of 2009 was due to higher underwriting income in our property and casualty insurance business, due to lower catastrophe losses, offset in part by lower investment income and higher realized investment losses compared with the same period in 2008. The higher net income in the third quarter of 2009 compared with the same period in 2008 was attributable to two factors. First, underwriting income was higher in the third quarter of 2009 due to lower catastrophe losses. Second, we had realized investment gains in the third quarter of 2009 compared to realized investment losses in the third quarter of 2008.
	•		Underwriting results were highly profitable in the first nine months of 2009 and 2008, but more so in 2009. Underwriting results in the third quarter of 2009 were highly profitable compared to modestly profitable results in the same period of 2008. Our combined loss and expense ratio was 86.5% in the first nine months of 2009 and 85.4% in the third quarter compared with 90.2% and 98.1% in the respective periods of 2008. The more profitable results in the first nine months of 2009 were primarily due to lower catastrophe losses, offset in part by a lower amount of favorable prior year loss development as well as the cumulative impact of rate reductions experienced in our commercial and professional liability classes over the past several years. The more profitable results in the third quarter of 2009 were due to lower catastrophe losses. Catastrophe losses were $91 million in the first nine months of 2009 and $22 million in the third quarter compared with $616 million and $402 million, respectively, in the corresponding periods of 2008.
	•		During the first nine months of 2009, we estimate that we experienced overall favorable development of about $545 million on loss reserves established as of the previous year end, due to better than expected results in several classes, particularly the professional liability classes. During the third quarter of 2009, we estimate that we experienced overall favorable development of about $205 million, primarily in the professional liability and personal insurance classes. During the first nine months and third quarter of 2008, we estimate that we experienced overall favorable development of about $660 million and $210 million, respectively, 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.
	•		Total net premiums written decreased by 7% in the first nine months and third quarter of 2009 compared with the same periods in 2008. In both periods, the decrease was primarily due to the general downturn in the economy. Premium growth was also adversely impacted by currency fluctuation on business written outside the United States due to the strength of the U.S. dollar in the first nine months of 2009 compared to the same period in 2008. We have continued our emphasis on underwriting discipline in a market environment that remains competitive.

     Page 21

 

Page 22

 

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
		2009				2008				2009				2008
		(in millions)
Underwriting
Net Premiums Written		$	2,705			$	2,900			$	8,294			$	8,883
Decrease in Unearned Premiums			131				64				196				43
Premiums Earned			2,836				2,964				8,490				8,926
Losses and Loss Expenses			1,534				2,006				4,721				5,339
Operating Costs and Expenses			841				871				2,541				2,669
Decrease (Increase) in Deferred Policy Acquisition Costs			31				7				11				(29	)
Dividends to Policyholders			7				11				22				29
Underwriting Income			423				69				1,195				918
Investments
Investment Income Before Expenses			400				418				1,180				1,254
Investment Expenses			10				7				24				23
Investment Income			390				411				1,156				1,231
Other Income (Charges)			(12	)			4				(7	)			7
Property and Casualty Income Before Tax		$	801			$	484			$	2,344			$	2,156
Property and Casualty Investment Income After Tax		$	317			$	327			$	935			$	981

 

Property and casualty income before tax was higher in the first nine months of 2009 compared to the same period in 2008. The higher income in 2009 was attributable to an increase in underwriting income, offset in part by lower investment income. The increase in underwriting income in 2009 was primarily due to lower catastrophe losses, offset in part by a lower amount of favorable prior year loss development as well as the cumulative impact of rate reductions experienced in our commercial and professional liability classes over the past several years. The decrease in investment income in 2009 was due to lower yields, particularly on short term investments, as well as the effects of currency fluctuation on income from our non-U.S. investments. Property and casualty income before tax was significantly higher in the third quarter of 2009 compared to the same period in 2008 due to substantially higher underwriting income as a result of lower catastrophe losses.

 

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.

Page 23

 

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 $8.3 billion in the first nine months of 2009 and $2.7 billion in the third quarter, compared with $8.9 billion and $2.9 billion, respectively, in the comparable periods of 2008.

 

Net premiums written by business unit were as follows:

 

		Nine Months Ended Sept. 30												Quarter Ended Sept. 30
		2009				2008				% Decr.				2009				2008				% Decr.
		(in millions)												(in millions)
Personal insurance		$	2,750			$	2,887				(5	)%		$	946			$	995				(5	)%
Commercial insurance			3,559				3,819				(7	)			1,086				1,178				(8	)
Specialty insurance			1,968				2,123				(7	)			669				709				(6	)
Total insurance			8,277				8,829				(6	)			2,701				2,882				(6	)
Reinsurance assumed			17				54				(69	)			4				18				(78	)
Total		$	8,294			$	8,883				(7	)		$	2,705			$	2,900				(7	)

 

Net premiums written decreased by 7% in the first nine months and third quarter of 2009 compared with the comparable periods in 2008. The decline in premiums written in both periods in 2009 was due in large part to the general downturn in the economy, which began in 2008 and has continued in 2009. The impact of currency fluctuation on business written outside the United States as a result of the strengthening of the U.S. dollar that began in the latter part of 2008 also contributed to the decline. The weaker economy will continue to adversely impact premium growth for the remainder of 2009.

 

During the first nine months of 2009, we continued our emphasis on underwriting discipline in a competitive market. Overall, renewal rates in the U.S. commercial and professional liability businesses increased slightly in the first nine months of 2009, following several years of decline. We continued to retain a high percentage of our existing customers and to renew those accounts at what we believe are acceptable rates relative to the risks. We have written some new business due to the dislocation in the insurance markets caused by the impact on some of our competitors of the financial market crisis that began in the second half of 2008. However, the modestly positive effect was offset by the decrease in demand in nearly all classes of our insurance business caused by the general downturn in the economy that has continued in 2009.

 

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 reinsurance.

 

Reinsurance rates for property risks have increased somewhat in 2009. Capacity restrictions continued in some segments of the marketplace.

Page 24

 

The most significant component of our ceded reinsurance program is property reinsurance of which we purchase two coverages: catastrophe and property per risk. We renewed our major traditional property catastrophe treaties and our commercial property per risk treaty in April 2009.

 

For the United States and Canada, we refer to our traditional catastrophe reinsurance treaty as the North American catastrophe treaty. In recent years, we have reduced the amount of reinsurance purchased under this treaty and replaced it with multi-year, collateralized reinsurance coverage funded through the issuance of securitized risk linked securities, known as catastrophe bonds.

 

In 2009, we modified the structure of our North American catastrophe treaty. For the 2009 treaty, our initial retention is $500 million per occurrence. We did not renew the coverage for 45% of covered losses between $350 million and $500 million we had under the 2008 treaty. We also converted a northeastern United States-only layer into a layer that covers all of the United States and Canada. The overall impact of these changes was to slightly reduce the maximum amount that we can recover per occurrence under the North American catastrophe treaty.

 

For United States and Canadian exposures, the North American catastrophe treaty and catastrophe bond coverage purchased in 2008 collectively provide coverage of approximately 72% of losses (net of recoveries from other available reinsurance) between $500 million and $1.15 billion and 60% of losses between $1.15 billion and $1.65 billion.

 

The first of the catastrophe bond coverages, which we purchased in 2007, is a $250 million, four-year reinsurance arrangement that provides coverage for homeowners-related hurricane losses in the northeastern part of the United States, where we have our greatest concentration of catastrophe exposure. The second of the catastrophe bond coverages, which we purchased in 2008, is a $200 million, three-year reinsurance arrangement that provides coverage for homeowners and commercial exposures. A portion of this coverage is limited to loss events in the northeastern part of the United States and the remainder provides coverage for losses occurring anywhere in the continental United States or Canada. Our third catastrophe bond coverage, which we purchased in 2009, is a $150 million, three-year reinsurance arrangement that provides coverage for homeowners-related hurricane losses in Florida.

 

For events in the northeastern part of the United States, we have additional reinsurance that covers approximately 35% of losses (net of recoveries from other available reinsurance) between $1.15 billion and $2.05 billion. This coverage is provided through a combination of our North American catastrophe reinsurance treaty and the catastrophe bond coverage that we purchased in 2008. Additionally, the catastrophe bond coverage purchased in 2007 provides coverage for approximately 30% of homeowners-related hurricane losses between $1.45 billion and $2.25 billion.

 

In addition to the United States and Canadian coverages described above, for hurricane events in Florida, we have a combination of reinsurance coverages. We have reinsurance from the Florida Hurricane Catastrophe Fund (FHCF), 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 $190 million and provides coverage of 90% of covered losses between approximately $190 million and $700 million. Additionally, the 2009 catastrophe bond coverage provides coverage of 50% of homeowners-related hurricane losses between $850 million and $1,150 million.

Page 25

 

For any catastrophe losses, we are subject to certain coinsurance requirements that affect the interaction of some elements of our catastrophe reinsurance program.

 

Our property catastrophe treaty for events outside the United States was renewed with only modest changes in coverage. We increased both our initial retention and the reinsurance coverage in the top layer of the treaty by $25 million and increased our participation in the program. The treaty now provides coverage of approximately 75% of losses (net of recoveries from other available reinsurance) between $100 million and $350 million.

 

Our commercial property per risk treaty was renewed with only slight changes in coverage. This treaty provides approximately $560 million of coverage per risk in excess of our initial retention, which is generally $25 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 was modestly higher in the first nine months of 2009 than in the comparable period in 2008. We do not expect the changes we made to our reinsurance program during 2009 to have a material effect on our 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.

Page 26

 

Underwriting results were highly profitable in the first nine months of 2009 and 2008. Results in the third quarter of 2009 were highly profitable compared to modestly profitable results in the same period in 2008. The combined loss and expense ratio for our overall property and casualty business was as follows:

 

		Periods Ended September 30
		Nine Months								Third Quarter
		2009				2008				2009				2008
Loss ratio			55.8	%			60.0	%			54.2	%			67.9	%
Expense ratio			30.7				30.2				31.2				30.2
Combined ratio			86.5	%			90.2	%			85.4	%			98.1	%

 

The loss ratio was lower in both the first nine months and third quarter of 2009 compared with the respective periods in 2008. The decrease was primarily due to substantially lower catastrophe losses. The loss ratio in all periods reflects the favorable loss experience which we believe resulted from our disciplined underwriting in recent years as well as relatively mild loss trends in certain classes of business. However, excluding the impact of catastrophes, the loss ratio in the first nine months of 2009 was slightly higher compared with the same period in 2008, reflecting the cumulative impact of rate reductions experienced in our commercial and professional liability classes over the past several years as well as a lower amount of favorable prior year loss development.

 

Catastrophe losses were $91 million in the first nine months of 2009, which represented 1.1 percentage points of the combined loss and expense ratio, compared with $616 million, or 6.9 percentage points, in the same period in 2008. Catastrophe losses were $22 million in the third quarter of 2009, which represented 0.8 percentage points of the combined ratio, compared with $402 million or 13.6 percentage points in the same period in 2008. 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 expense ratio was higher in the first nine months and third quarter of 2009 compared with the same periods in 2008. The increase in the 2009 periods was due to two factors: a decline in premiums written at a rate that exceeded the rate of reduction of our overhead expenses and a slight increase in commission rates in certain classes of business in the United States.

Page 27

 

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 2009, decreased by 5% in the first nine months and third quarter of 2009 compared with the comparable periods in 2008. The decrease in the 2009 periods was largely due to the impact of currency fluctuation on business written outside the U.S. and the downturn in the economy, particularly in the U.S. Net premiums written for the classes of business within the personal insurance segment were as follows:

 

		Nine Months Ended Sept. 30												Quarter Ended Sept. 30
		2009				2008				% Decr.				2009				2008				% Decr.
		(in millions)												(in millions)
Automobile		$	428			$	457				(6	)%		$	150			$	154				(3	)%
Homeowners			1,771				1,859				(5	)			620				646				(4	)
Other			551				571				(4	)			176				195				(10	)
Total personal		$	2,750			$	2,887				(5	)		$	946			$	995				(5	)

 

Personal automobile premiums decreased in the 2009 periods due to a highly competitive U.S. marketplace as well as the impact of currency fluctuation on business written outside the United States. Premium growth in our homeowners business was constrained by the downturn in the economy, which resulted in a slowdown in construction of new homes as well as lower demand for jewelry and fine arts endorsements. The in-force policy count for this class decreased modestly during the first nine months of 2009. Premiums from our other personal business, which includes insurance for excess liability, yacht and accident and health coverages, decreased in the first nine months and third quarter of 2009 compared with the same periods in 2008. The decrease in both periods in 2009 was driven by our accident and health business, due primarily to the effect of currency fluctuation on the non-U.S. component of this business. The adverse impact of currency fluctuation was offset in part by growth in the U.S. component of this business in the first nine months of 2009, due primarily to a select initiative.

 

Our personal insurance business produced highly profitable underwriting results in the first nine months of both 2009 and 2008. Results in the third quarter of 2009 were also highly profitable compared with near breakeven results in the same period of 2008. The combined loss and expense ratios for the classes of business within the personal insurance segment were as follows:

 

		Periods Ended September 30
		Nine Months								Third Quarter
		2009				2008				2009				2008
Automobile			89.1	%			88.5	%			87.2	%			85.7	%
Homeowners			81.9				85.8				77.3				102.9
Other			92.8				100.5				90.9				105.8
Total personal			85.2				89.1				81.6				100.7

 

Our personal automobile business produced highly profitable results in the first nine months and third quarter of 2009 and 2008.

Page 28

 

Homeowners results were highly profitable in the first nine months of 2009 and 2008. Results in the third quarter of 2009 were highly profitable compared with unprofitable results in the same period in 2008. The more profitable results in the 2009 periods were largely attributable to lower catastrophe losses. Catastrophe losses represented only 2.1 percentage points of the combined ratio for this class in the first nine months of 2009 compared with 11.0 percentage points in the same period in 2008. The impact of catastrophe losses, which included subrogation recoveries related to the California wildfires of 2007, slightly reduced the combined ratio in the third quarter of 2009. Catastrophe losses represented 23.8 percentage points of the combined ratio in the same period in 2008.

 

Other personal results were profitable in the first nine months and third quarter of 2009 compared with near breakeven results in the first nine months of 2008 and unprofitable results in the third quarter of 2008, due primarily to significant improvement in our excess liability business and, to a lesser extent, improvement in our yacht business. Our excess liability business produced profitable results in the first nine months and third quarter of 2009 compared with unprofitable results in the same periods in 2008. Our excess liability business experienced favorable prior year loss development in the first nine months of 2009 compared with adverse development in the same period in 2008. Our yacht business produced highly profitable results in the first nine months and third quarter of 2009 compared to unprofitable results in the same periods of 2008. 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 accident and health business produced unprofitable results in the first nine months and third quarter of 2009 compared with profitable results in the same periods in 2008.

 

Commercial Insurance

 

Net premiums written from commercial insurance, which represented 43% of our premiums written in the first nine months of 2009, decreased by 7% in the first nine months of 2009 and 8% 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:

 

		Nine Months Ended Sept. 30												Quarter Ended Sept. 30
		2009				2008				% Decr.				2009				2008				% Decr.
		(in millions)												(in millions)
Multiple Peril		$	835			$	915				(9	)%		$	274			$	308				(11	)%
Casualty			1,161				1,281				(9	)			346				385				(10	)
Workers’ compensation			610				666				(8	)			186				205				(9	)
Property and marine			953				957				—				280				280				—
Total commercial		$	3,559			$	3,819				(7	)		$	1,086			$	1,178				(8	)