Annual Report 2005 - Chubb Group of Insurance Companies

PROPERTY AND CASUALTY INSURANCE
A summary of the results of operations of our property and casualty insurance business is as
follows:
Years Ended December 31
2005 2004 2003
(in millions)
Underwriting
Net premiums writtenÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $12,283 $12,053 $11,068
Increase in unearned premiums ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (107) (417) (885)
Premiums earned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12,176 11,636 10,183
Losses and loss expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,813 7,321 6,867
Operating costs and expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,436 3,516 3,356
Increase in deferred policy acquisition costsÏÏÏÏÏ (17) (76) (168)
Dividends to policyholdersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23 29 23
Underwriting incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 921 846 105
Investments
Investment income before expenses ÏÏÏÏÏÏÏÏÏÏÏÏ 1,342 1,207 1,083
Investment expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27 23 25
Investment incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,315 1,184 1,058
Other charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1) (4) (30)
Property and casualty income before tax ÏÏÏÏÏÏÏÏÏÏÏÏ $2,235 $ 2,026 $ 1,133
Property and casualty investment income after tax ÏÏÏ $1,056 $ 949 $ 843
Property and casualty income before tax in 2005 was higher than in 2004 which, in turn, was
substantially higher than in 2003. Income in 2005 and 2004 beneÑted from highly proÑtable underwriting
results. Underwriting income increased modestly in 2005 despite signiÑcantly higher catastrophe
losses, primarily from Hurricane Katrina. Results in 2005 and 2004 also beneÑted from a signiÑcant
increase in investment income.
The proÑtability of the property and casualty insurance business depends on the results of both
underwriting operations and investments. We view these as two distinct operations. The underwriting
functions are managed separately from the investment function. Accordingly, in assessing our
performance, we evaluate underwriting results separately from investment results.
Underwriting Operations
We evaluate the underwriting results of our property and casualty insurance business in the
aggregate and also for each of our separate business units.
The combined loss and expense ratio, expressed as a percentage, is the key measure of
underwriting proÑtability 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 proÑtable; when the combined ratio is
over 100%, underwriting results are generally considered unproÑtable.
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