Annual Report 2001 - Chubb Group of Insurance Companies

Gross loss reserves
December 31
2001 2000 1999
(in millions)
Total, per balance sheetÏÏÏÏÏÏÏÏÏÏÏÏÏ $15,515 $11,904 $11,435
Less:
future will be impacted by changing rates of inÖation
and other economic conditions, changing legislative,
judicial and social environments and changes in our
claim handling procedures.
We use a variety of actuarial methods to estimate loss
Related to September 11 attack ÏÏÏÏ 2,775
Related to Enron surety exposure ÏÏ 333
reserves. These methods generally utilize analyses of
historical patterns of the development of paid and
reported losses by accident year for each class of
business. This process relies on the basic assumption
that past experience, adjusted for the eÅects of current
Related to September 11 attack ÏÏÏÏ 2,239
developments and likely trends, is an appropriate basis
Related to Enron surety exposure ÏÏ 121 for predicting future outcomes.
Total, as adjusted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $12,407 $11,904 $11,435
Reinsurance recoverable
Total, per balance sheetÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 4,505 $ 1,853 $ 1,686
Less:
Total, as adjusted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,145 $ 1,853 $ 1,686
Net loss reserves
Our loss reserves include amounts related to short tail
TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $11,010 $10,051 $ 9,749 and long tail classes of business. Short tail classes consist
Total, as adjusted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10,262 10,051 9,749 principally of homeowners, personal valuables and commercial
property business. For these classes, the estima-
Adjusted to exclude the loss reserves related to the tion of loss reserves is less complex because claims are
September 11 attack and the Enron surety losses, loss generally reported and settled quickly and the claims
reserves, net of reinsurance recoverable, increased by relate to tangible property.
$211 million or 2% in 2001 compared with $302 million
or 3% in 2000. Loss reserves for personal insurance and Long-tail classes include directors and oÇcers liability
specialty insurance increased in 2001 and 2000 while and other executive protection coverages, commercial
loss reserves for commercial insurance decreased each excess liability and other liability classes. Most of our loss
year. Such decrease reÖects the signiÑcant exposure reserves relate to long tail liability classes of business. For
reductions of the past several years and improved many liability claims signiÑcant periods of time, ranging
accident year results due to price increases and more up to several years or more, may elapse between the
stringent risk selection.
occurrence of the loss, the reporting of the loss and the
settlement of the claim. The longer the time span
During 2001, we experienced overall favorable develop- between the incidence of a loss and the settlement of
ment of $196 million on loss reserves established as of the claim, the more the ultimate settlement amount can
the previous year-end. This compares with favorable vary. For the long tail liability classes, a relatively small
development of $230 million in 2000 and $206 million proportion of net losses in the more recent accident
in 1999. Such redundancies were reÖected in operating years are reported claims and an even smaller proportion
results in these respective years. Each of the past three are paid losses. Therefore, a relatively large proportion
years beneÑted from favorable claim experience for of our net losses for these classes are reserves for
certain liability classes, oÅset in part by losses incurred incurred but not reported (IBNR) losses Ì claims that
related to asbestos and toxic waste claims.
had not yet been reported to us, some of which were
not yet known to the insured, and future development
The process of establishing loss reserves is complex and on reported claims. In fact, approximately 60% of our
imprecise as it reÖects signiÑcant judgmental factors. This aggregate net loss reserves at December 31, 2001 were
is true because claim settlements to be made in the for IBNR.
32