Annual Report 2005 - Chubb Group of Insurance Companies

(13) Commitments and Contingent Liabilities rangements in the property and casualty insurance industry.
In connection with these investigations, Chubb and
(a) As part of ongoing investigations of market prac- certain of its subsidiaries have received subpoenas and
tices in the insurance industry relating to the payment of requests for information from various regulators includcontingent
commissions to brokers and agents, Chubb ing the U.S. Securities and Exchange Commission and
and certain of its subsidiaries have received subpoenas the U.S. Attorney for the Southern District of New
and other information requests from the Attorneys Gen- York. The Corporation is cooperating, and intends to
eral and insurance regulators of several states. The Cor- continue to cooperate, fully with these investigations.
poration is cooperating, and intends to continue to
cooperate, fully in such investigations.
The Corporation cannot at this time predict the outcome
of the aforementioned investigations and legal
Purported class actions arising out of the aforemen- proceedings, is unable to estimate a range of possible loss,
tioned investigations into market practices involving the if any, and cannot predict whether or not that outcome
payment of contingent commissions to brokers and will have a material adverse eÅect on the Corporation's
agents have been Ñled in a number of state and federal future operating results.
courts. On August 1, 2005, Chubb and certain of its
subsidiaries were named in a putative class action entitled (b) CFS participated in derivative Ñnancial instru-
In re Insurance Brokerage Antitrust Litigation in the U.S. ments, principally as a counterparty in portfolio credit
District Court for the District of New Jersey. This action, default swaps. CFS's participation in a typical portfolio
brought against several brokers and insurers on behalf of credit default swap was designed to replicate the performa
class of persons who purchased insurance through the ance of a portfolio of corporate securities or a portfolio of
broker defendants, asserts claims under the Sherman Act asset-backed securities. Chubb has issued unconditional
and state law and the Racketeer InÖuenced and Corrupt guarantees with respect to all obligations of CFS arising
Organizations Act (""RICO'') arising from the unlawful from these transactions.
use of contingent commission agreements. The complaint
seeks treble damages, injunctive and declaratory CFS's aggregate exposure, or retained risk, from its in-
relief, and attorneys' fees.
force portfolio credit default swaps and other derivative
Ñnancial instruments is referred to as notional amount.
Chubb has also been named in two purported class Notional amounts are used to express the extent of
actions in state court relating to allegations of unlawful involvement in derivative transactions. The notional
use of contingent commission arrangements. The Ñrst amounts are used to calculate the exchange of contracwas
Ñled on February 16, 2005 in Seminole County, tual cash Öows and are not necessarily representative of
Florida. In October 2005, the Judicial Panel on Multidis- the potential for gain or loss. Notional amounts are not
trict Litigation issued an order transferring this case to recorded on the balance sheet.
the U.S. District Court for the District of New Jersey for
consolidation with the In re Insurance Brokerage Anti- Future obligations with respect to derivative Ñnancial
trust Litigation. The second was Ñled on May 17, 2005 in instruments are carried at estimated fair value at the
Essex County, Massachusetts. In October 2005, the balance sheet date and are included in other liabilities.
Judicial Panel on Multidistrict Litigation issued a Condi- The notional amount and fair value of future obligations
tional Transfer Order conditionally transferring the case under CFS's derivative contracts by type of risk were as
to the U.S. District Court for the District of New Jersey follows:
for consolidation with the In re Insurance Brokerage December 31
Antitrust Litigation. The plaintiÅ and one of Chubb's
Notional
unaÇliated co-defendants have Ñled motions to vacate Amount Fair Value
the Conditional Transfer Order. Those motions have 2005 2004 2005 2004
not yet been decided. (in billions) (in millions)
In December 2005, Chubb and certain of its subsidiar-
Credit default swaps
Corporate securitiesÏÏÏÏÏÏÏÏÏÏ $.2 $1.3 $ .9 $ 5.1
ies were named in an action similar to the In re Insurance Asset-backed securities ÏÏÏÏÏÏÏ .8 7.4 1.2 8.5
Brokerage Antitrust Litigation. The action is pending in 1.0 8.7 2.1 13.6
the same court and has been assigned to the judge who is Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ .3 .3 7.3 8.2
presiding over the In re Insurance Brokerage Antitrust
Litigation. The complaint has not yet been served in this
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1.3 $9.0 $9.4 $21.8
matter.
In 2003, CFS entered into a contract that guaranteed
In these actions, the plaintiÅs generally allege that the to the counterparty the payment of any principal and
defendants unlawfully used contingent commission interest amount due and not paid with respect to a group
agreements. The actions seek unspeciÑed damages and of referenced securities. The carried liability at Decem-
attorneys' fees. The Corporation believes it has substanwhich
was included in other liabilities. In September
ber 31, 2004 related to the guarantee was $186.4 million,
tial defenses to all of the aforementioned lawsuits and
intends to defend the actions vigorously.
2005, CFS agreed with the counterparty to terminate the
guarantee. CFS paid the counterparty $198.0 million
Certain regulators also have commenced investigations under the terms of the agreement and eliminated the
into certain loss mitigation and Ñnite reinsurance ar- $186.4 million liability.
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