Annual Report 2001 - Chubb Group of Insurance Companies

other marketable securities to provide for immediate
cash needs. Should the need for additional liquidity
develop, the Corporation could either sell a portion of
its investment portfolio or draw down under its existing
commercial paper or bank credit facilities.
Corporate and Other
losses, related to numerous credit events, exceed a
speciÑed attachment point.
Credit default swaps are derivatives and are carried at
estimated fair value in the Ñnancial statements. Changes
in fair value are included in income in the period of the
change. Valuation models are used to estimate the fair
value of our obligation in each credit default swap. Such
valuations require considerable judgment and are subject
to signiÑcant uncertainty. The fair value of our credit
default swaps is subject to Öuctuations arising from,
among other factors, observable changes in credit
Corporate and other includes investment income earned
on corporate invested assets, interest expense and other
expenses not allocated to the operating subsidiaries, and
the results of Chubb Financial Solutions and our real
estate and other non-insurance subsidiaries. Corporate
and other produced a loss before taxes of $14 million in spreads and interest rates. Increases in the fair value of
2001 compared with a loss of $4 million in both 2000 obligations, which would result in a charge to income,
and 1999. Interest expense increased each year due to could be material upon the occurrence of an extreme,
the inclusion of interest expense on the debt assumed in widespread or persistent economic event that suggests an
connection with the Executive Risk acquisition in July actual loss is possible. The market risks associated with
1999 and the issuance of short term and long term debt our obligations under credit default swaps are discussed
in 2001. In 2000, corporate and other included income under ""Market Risk Ì Credit Derivatives''.
of $10 million from a noncompete payment related to
the sale of the Corporation's 50% interest in Associated The insurance and reinsurance solutions that CFSI
Aviation Underwriters, Inc. (AAU).
develops to meet the risk management needs of its
customers are written by our property and casualty
CHUBB FINANCIAL SOLUTIONS
subsidiaries. Results from this business are included
Chubb Financial Solutions (CFSI) was organized by the
within our insurance results. A property and casualty
Corporation in 2000 to engage in developing and
subsidiary issued a reinsurance contract to an insurer
providing risk-Ñnancing services through the capital and
that provides Ñnancial guarantees on asset-backed transinsurance
markets. Since its inception, CFSI's nonactions.
At December 31, 2001, the amount of aggregate
insurance operations have been primarily in the credit
principal commitments related to the contract was
derivatives business, principally as a counterparty to
approximately $400 million, all of which expire by 2023.
credit default swaps. The Corporation guarantees all of
these obligations. Income before taxes from the non-
REAL ESTATE
insurance business of CFSI was $7 million in 2001 and
Real estate operations resulted in a loss before taxes of
$3 million in 2000, which amounts are included in the
$4 million in each of the past three years, which
corporate and other results. Revenues from this busiamounts
are included in the corporate and other results.
ness, consisting of earned fees, were $27 million and
In each year, we sold selected commercial properties as
$12 million in 2001 and 2000, respectively.
well as residential properties. Real estate revenues were
In a typical credit default swap, CFSI participates in the $87 million in 2001, $75 million in 2000 and $97 milsenior
or super senior layer of a structure designed to lion in 1999.
replicate the performance of a portfolio of securities,
loans or other debt obligations. The structure of these We own approximately $310 million of land that we
credit default swaps generally requires CFSI to make expect will be developed in the future. In addition, we
payment to counterparties to the extent cumulative own approximately $185 million of commercial proper-
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