Annual Report 2005 - Chubb Group of Insurance Companies

District of New York. We are cooperating, and intend to continue to cooperate, fully with these
investigations.
We cannot predict at this time the outcome of these investigations or any impact on our business
or results of operations.
Catastrophe Risk Management
Our property and casualty subsidiaries have exposure to losses caused by natural perils such as
hurricanes and other windstorms, earthquakes, winter storms and brush Ñres and from man-made
catastrophic events such as terrorism. The frequency and severity of catastrophes are unpredictable.
Natural Catastrophes
The extent of losses from a natural catastrophe is a function of both the total amount of insured
exposure in an area aÅected by the event and the severity of the event. We regularly assess our
concentration of risk exposures in catastrophe exposed areas globally and have strategies and
underwriting standards to manage this exposure through individual risk selection, subject to regulatory
constraints, and through the purchase of catastrophe reinsurance. We have invested in modeling
technologies and a concentration management tool that allow us to monitor and control our
accumulations of potential losses in catastrophe exposed areas in the United States, such as California
and the gulf and east coasts, as well as in such areas in other countries. Actual results may diÅer
materially from those suggested by the model. We also continue to actively explore and analyze
credible scientiÑc evidence, including the impact of global climate change, that may aÅect our ability
to manage exposure under the insurance policies we issue.
Despite these eÅorts, the occurrence of one or more severe natural catastrophic events in heavily
populated areas could have a material adverse eÅect on the Corporation's results of operations,
Ñnancial condition or liquidity.
Terrorism Risk and Legislation
The September 11, 2001 attack changed the way the property and casualty insurance industry
views catastrophic risk. That tragic event demonstrated that numerous classes of business we write are
subject to terrorism-related catastrophic risks in addition to the catastrophic risks related to natural
occurrences. This has required us to change how we identify and evaluate risk accumulations. We have
licensed a terrorism model that provides estimates of loss events. We also have a concentration
management tool that enables us to identify locations and geographic areas that are exposed to risk
accumulations. The information provided by the model and the tracking tool has resulted in our nonrenewing
some accounts and has restricted us from writing others. Actual results may diÅer materially
from those suggested by the model.
The Terrorism Risk Insurance Act of 2002 (TRIA) established a temporary program under which
the federal government will share the risk of loss from certain acts of international terrorism with the
insurance industry. The program, which was applicable to most lines of commercial business, was
scheduled to terminate on December 31, 2005. In December 2005, the federal government extended
TRIA through December 31, 2007. Under the terms of the amended law, certain lines of business
previously subject to the provisions of TRIA, including commercial automobile, surety and professional
liability insurance, other than directors and oÇcers liability, are excluded from the program. As
a precondition to recovery under TRIA, insurance companies with direct commercial insurance
exposure in the United States for TRIA lines of business are required to make insurance for covered
acts of terrorism available under their policies. Each insurer has a separate deductible that it must meet
in the event of an act of terrorism before federal assistance becomes available. The deductible is based
on a percentage of direct U.S. earned premiums for the covered lines of business in the previous
calendar year. For 2006, that deductible is 17.5% of direct premiums earned in 2005 for these lines of
business. For losses above the deductible, the federal government will pay for 90% of covered losses,
while the insurer retains 10%. In 2007, the deductible will increase to 20% of direct premiums earned in
2006 and the insurer share for losses above the deductible will increase to 15%. There is a combined
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