Annual Report 2005 - Chubb Group of Insurance Companies

loss ratio. Losses from catastrophes were $270 million in 2004, which represented 2.3 percentage points
of the loss ratio, and $294 million or 2.9 percentage points in 2003. The 2004 catastrophe loss amount
reÖects an $80 million reduction in loss reserves related to the September 11, 2001 attack, which
reduced the impact of catastrophes on the loss ratio for the year by 0.7 of a percentage point. Other
than the reinsurance recoverable related to Hurricane Katrina, we did not have any recoveries from
our catastrophe reinsurance program during the three year period because there were no other
individual catastrophes for which our losses exceeded our initial retention under the program.
Incurred losses related to asbestos claims were $35 million in 2005, $75 million in 2004 and
$250 million in 2003, which represented 0.3, 0.6 and 2.5 percentage points, respectively, of the loss
ratio.
Our expense ratio improved in 2004 and again in 2005. The lower expense ratio in 2004 was due to
premiums written growing at a higher rate than overhead expenses, as we made progress in reducing
our expense structure, and to lower contingent commission expenses.
The decrease in contingent commissions in 2004 was due to two factors that reduced producer
compensation. First, we did not pay contingent commissions in the fourth quarter to those large
brokers who elected to terminate such arrangements before year end. Second, the slowdown of
premium growth in the second half of the year resulted in lower compensation to other producers
whose commissions, in part, were contingent on the volume of business placed with us.
The decrease in the expense ratio in 2005 was due to lower contingent commission expenses and,
to a lesser extent, Öat overhead expenses compared with 2004, as we continued to make progress in
reducing our cost structure through outsourcing and other initiatives, and the discontinuation of a
professional liability per risk reinsurance treaty, which resulted in an increase in net premiums written
without a commensurate increase in expenses.
Review of Underwriting Results by Business Unit
Personal Insurance
Net premiums from personal insurance, which represented 27% of the premiums written by our
property and casualty subsidiaries in 2005, increased by 6% in 2005 compared with a 9% increase in
2004. Net premiums written for the classes of business within the personal insurance segment were as
follows:
Years Ended December 31
% Increase % Increase
2005 2005 vs. 2004 2004 2004 vs. 2003 2003
(dollars in millions)
Automobile ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 645 2% $ 629 7% $ 590
HomeownersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,104 8 1,951 10 1,777
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 558 4 536 7 501
Total personalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $3,307 6 $3,116 9 $2,868
In both 2005 and 2004, premium growth was driven by our homeowners business. The growth in
our homeowners business in both years was due to increased insurance-to-value and, to a lesser extent,
higher rates. The in-force policy count for this class had minimal growth in both years. Homeowners
premiums in 2005 were reduced by reinsurance reinstatement premium costs of $17 million related to
Hurricane Katrina. The low growth in our personal automobile business in 2005 was due to our
maintaining underwriting discipline in a more competitive marketplace. Growth in our other personal
business, which includes insurance for excess liability, yacht and accident coverages, was lower in 2005
than in the prior year. This was attributable to lower premiums in our U.S. accident business due to
increased competition and the culling of our health care business.
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