Annual Report 2001 - Chubb Group of Insurance Companies

occurred, including both those known to us and those
yet to be reported. In establishing such reserves,
management considers facts currently known and the
present state of the law and coverage litigation. How-
ever, given the expansion of coverage and liability by the
courts and the legislatures in the past and the possibili-
ties of similar interpretations in the future, particularly as
they relate to asbestos and toxic waste claims, additional
increases in loss reserves may emerge in future periods.
Any such increases would have an adverse eÅect on
future operating results. However, management does not
expect that any such increases would have a material
adverse eÅect on the Corporation's consolidated Ñnancial
condition or liquidity.
Litigation costs remain substantial, particularly for hazardous
waste claims. Primary policies provide a limit on
indemnity payments but many do not limit defense
costs. This unlimited defense provided in the policies
sometimes leads to the payment of defense costs
substantially exceeding the indemnity exposure. A substantial
portion of the funds we have expended to date
has been for legal fees incurred in the prolonged
litigation of coverage issues.
The tragic event of September 11 changed the way the
property and casualty insurance industry views cata-
strophic risk. Numerous classes of business have become
exposed to terrorism related catastrophic risks in addition
to the catastrophic risks related to natural occur-
rences. This has required us to change how we identify
and evaluate risk accumulations. We have changed our
underwriting protocols to address terrorism and the
limited availability of terrorism reinsurance. However,
given the uncertainty of the potential threats, we cannot
be sure that we have addressed all the possibilities.
Reserves for asbestos and toxic waste claims cannot be
estimated with traditional loss reserving techniques that
rely on historical accident year loss development factors.
We have established case reserves and expense reserves
for costs of related litigation where suÇcient information
has been developed to indicate the involvement of a
speciÑc insurance policy. In addition, IBNR reserves
have been established to cover additional exposures on
both known and unasserted claims.
The following table presents loss reserve activity, net of
reinsurance recoverable, related to asbestos and toxic
waste claims. Reinsurance recoveries related to these
claims are not signiÑcant.
Years Ended December 31
2001 2000 1999
(in millions)
CATASTROPHE EXPOSURE
Loss reserves, beginning of yearÏÏÏÏÏÏÏ $450 $524 $1,075(a)
Incurred losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 61 31 47 The Corporation's property and casualty subsidiaries also
Losses paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 99 105 598(a)
have exposure to insured losses caused by hurricanes,
Loss reserves, end of year ÏÏÏÏÏÏÏÏÏÏÏ $412 $450 $ 524 earthquakes, winter storms, windstorms and other natural
(a) Includes $549 million related to asbestos claims against Fibreboard
catastrophic events. The frequency and severity of
Corporation.
natural catastrophes are unpredictable. The extent of
losses from a catastrophe is a function of both the total
Reserves for asbestos and toxic waste claims are continu- amount of insured exposure in an area aÅected by the
ally reviewed and updated. Further increases in such loss event and the severity of the event. We continually
reserves in 2002 and future years are possible as legal assess our concentration of underwriting exposures in
and factual issues concerning these claims continue to be catastrophe prone areas globally and develop strategies to
clariÑed. The amount cannot be reasonably estimated at manage this exposure through individual risk selection,
the present time.
subject to regulatory constraints, and through the
purchase of catastrophe reinsurance. In recent years, we
Management believes that the aggregate loss reserves of have invested in modeling technologies and concentrathe
property and casualty subsidiaries at December 31, tion management tools that enable us to better monitor
2001 were adequate to cover claims for losses that had and control catastrophe exposures. We also continue to
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