Annual Report 2005 - Chubb Group of Insurance Companies

who allegedly had asbestos on their property, under the premises or operations section of primary
general liability policies. Unlike products exposures, these non-products exposures typically had no
aggregate limits on coverage, creating potentially greater exposure. Further, in an eÅort to seek
additional insurance coverage, some insureds with installation activities who have substantially eroded
their products coverage are presenting new asbestos claims as non-products operations claims or
attempting to reclassify previously settled products claims as non-products claims to restore a portion
of previously exhausted products aggregate limits. It is diÇcult to predict whether insureds will be
successful in asserting claims under non-products coverage or whether insurers will be successful in
asserting additional defenses. Therefore, the future impact of such eÅorts on insurers is uncertain.
In establishing our asbestos reserves, we evaluate the exposure presented by each insured. As part
of this evaluation, we consider a variety of factors including: the available insurance coverage; limits
and deductibles; the jurisdictions involved; past settlement values of similar claims; the potential role
of other insurance, particularly underlying coverage below our excess liability policies; potential
bankruptcy impact; and applicable coverage defenses, including asbestos exclusions. We have assumed
a continuing unfavorable legal environment with no beneÑt from any federal asbestos reform
legislation. Proposed legislation currently being considered by the Senate would create a $140 billion
asbestos trust fund. We are among those who oppose this bill because it provides neither certainty nor
Ñnality.
In the fourth quarter of 2003, our actuaries and claim personnel, together with our outside
actuarial consultants, performed a rigorous update of a 2002 ground-up analysis of our asbestos related
exposures. The review noted certain adverse trends, particularly an increase in estimates of the
ultimate liabilities for several of our traditional asbestos defendants. In addition, the number of
peripheral asbestos defendants for whom we established reserves and the average severity of these
claims were both higher than anticipated. Upon completion of the update, we increased our net
asbestos loss reserves by $250 million.
During 2004 and 2005, our actuaries and claim personnel performed analyses of our asbestos
related exposures. The 2004 analysis noted that both the number of peripheral asbestos defendants for
whom we established reserves and the average severity of these claims were again somewhat higher
than expected. In addition, there was an increase in our estimate of the ultimate liabilities for one of
our traditional asbestos defendants. The 2005 analysis noted an increase in our estimate of the ultimate
liabilities for two of our asbestos defendants. Based on these analyses, which were conÑrmed by our
outside actuarial consultants, we increased our net asbestos loss reserves by $75 million in 2004 and
$35 million in 2005.
The following table presents a reconciliation of the beginning and ending loss reserves related to
asbestos claims.
Years Ended December 31
2005 2004 2003
(in millions)
Gross loss reserves, beginning of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $961 $1,068 $ 885
Reinsurance recoverable, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 55 56 51
Net loss reserves, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 906 1,012 834
Net incurred losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35 75 250
Net losses paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 61 181 72
Net loss reserves, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 880 906 1,012
Reinsurance recoverable, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 50 55 56
Gross loss reserves, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $930 $ 961 $1,068
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