Annual Report 2005 - Chubb Group of Insurance Companies

However, there are inherent limitations in all of these tactics and no assurance can be given that an
event or series of unanticipated events will not result in loss levels in excess of our probable maximum
loss models, which could have a material adverse eÅect on our Ñnancial condition or results of
operations.
The availability of reinsurance coverage and our inability to collect amounts due from reinsurers
could have a material adverse eÅect on our Ñnancial condition or results of operations.
The availability and cost of reinsurance are subject to prevailing market conditions. In recent
years, for certain coverages, we have elected not to renew reinsurance treaties that we believed were
no longer economical. We have also increased the amount of the risk we retain in many of the treaties
that we have renewed. Accordingly, our net exposure to liability has increased, which, in turn, could
have a material adverse eÅect on our Ñnancial condition or results of operations.
With respect to reinsurance coverages we have purchased, our ability to recover amounts due
from reinsurers may be aÅected by the creditworthiness and willingness to pay of the reinsurers from
whom we have purchased coverage. The inability or unwillingness of any of our reinsurers to meet
their obligations to us could have a material adverse eÅect on our results of operations.
Cyclicality of the property and casualty insurance industry may cause Öuctuations in our results.
The property and casualty insurance business historically has been cyclical, experiencing periods
characterized by intense price competition, relatively low premium rates and less restrictive underwriting
standards followed by periods of relatively low levels of competition, high premium rates and
more selective underwriting standards. We expect this cyclicality to continue. The periods of intense
price competition in the cycle could adversely aÅect our Ñnancial condition, proÑtability or cash Öows.
A number of factors, including many that are volatile and unpredictable, can have a signiÑcant
impact on cyclical trends in the property and casualty insurance industry and the industry's
proÑtability. These factors include:
‚an apparent trend of courts to grant increasingly larger awards for certain damages;
‚catastrophic hurricanes, windstorms, earthquakes and other natural disasters, as well as the
occurrence of man-made disasters (e.g., a terrorist attack);
‚availability, price and terms of reinsurance;
‚Öuctuations in interest rates;
‚changes in the investment environment that aÅect market prices of and income and returns on
investments; and
‚inÖationary pressures that may tend to aÅect the size of losses experienced by insurance
companies.
We cannot predict whether or when market conditions will improve, remain constant or deteriorate.
Negative market conditions may impair our ability to write insurance at rates that we consider
appropriate relative to the risk assumed. If we cannot write insurance at appropriate rates, our ability
to transact business would be materially and adversely aÅected.
A downgrade in our ratings could adversely impact the competitive positions of our operating
businesses.
Ratings can be an important factor in establishing our competitive position in the insurance
markets. There can be no assurance that our ratings will continue for any given period of time or that
they will not be changed. If our credit ratings were downgraded in the future, we could incur higher
borrowing costs and may have more limited means to access capital. In addition, a downgrade in our
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