Annual Report 2005 - Chubb Group of Insurance Companies

At December 31, 2004
Total
Estimated
There- Amortized Market
2005 2006 2007 2008 2009 after Cost Value
(in millions)
Tax-exempt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,020 $ 547 $ 756 $ 846 $1,010 $9,661 $13,840 $14,410
Average interest rate ÏÏÏÏÏÏÏÏ 5.8% 5.4% 5.3% 5.0% 5.1% 4.2% Ì Ì
Taxable Ì other than mortgagebacked
securities ÏÏÏÏÏÏÏÏÏÏÏÏ 749 1,191 909 1,550 1,620 3,633 9,652 9,866
Average interest rate ÏÏÏÏÏÏÏÏ 4.3% 3.7% 4.3% 4.2% 4.4% 5.1% Ì Ì
Mortgage-backed securitiesÏÏÏÏÏ 409 376 431 665 436 1,394 3,711 3,754
Average interest rate ÏÏÏÏÏÏÏÏ 4.8% 4.8% 4.6% 5.3% 4.7% 4.9% Ì Ì
TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,178 $2,114 $2,096 $3,061 $3,066 $14,688 $27,203 $28,030
Credit risk is the potential loss resulting from adverse changes in the issuer's ability to repay the
debt obligation. We have consistently invested in high quality marketable securities. As a result, we
believe that we have minimal credit quality risk. About 75% of the taxable bonds in our portfolio are
issued by the U.S. Treasury or U.S. government agencies or rated AA or better by Moody's or Standard
and Poor's. Of the tax-exempt bonds, about 95% are rated AA or better with about 70% rated AAA.
About 2% of our bond portfolio is below investment grade. Our taxable bonds have an average maturity
of Ñve years, while our tax-exempt bonds mature on average in nine years.
Prepayment risk refers to the changes in prepayment patterns related to decreases and increases
in interest rates that can either shorten or lengthen the expected timing of the principal repayments
and thus the average life of a security, potentially reducing or increasing its eÅective yield. Such risk
exists primarily within our portfolio of mortgage-backed securities. We monitor such risk regularly.
Mortgage-backed securities comprised 30% and 28% of our taxable bond portfolio at year-end 2005
and 2004, respectively. About 73% of our mortgage-backed securities holdings at December 31, 2005
related to residential mortgages consisting of government agency pass-through securities, government
agency collateralized mortgage obligations (CMOs) and AAA rated non-agency CMOs backed by
government agency collateral or single family home mortgages. The majority of the CMOs are actively
traded in liquid markets and market value information is readily available from broker/dealers. An
additional 20% of our mortgage-backed securities were call protected, AAA rated commercial
mortgage-backed securities. The remaining mortgage-backed holdings were in investment grade
commercial mortgage-backed securities.
Foreign currency risk is the sensitivity to foreign exchange rate Öuctuations of the market value
and investment income related to foreign currency denominated Ñnancial instruments. The functional
currency of our foreign operations is generally the currency of the local operating environment since
business is primarily transacted in such local currency. We reduce the risks relating to currency
Öuctuations by maintaining investments in those foreign currencies in which our property and casualty
subsidiaries have loss reserves and other liabilities. Such investments generally have characteristics
similar to our liabilities in those currencies. At December 31, 2005, the property and casualty
subsidiaries held non-U.S. investments of $4.6 billion supporting their international operations. These
investments have quality and maturity characteristics similar to our domestic portfolio. The principal
currencies creating foreign exchange rate risk for the property and casualty subsidiaries are the
Canadian dollar, the British pound sterling and the euro.
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