Annual Report 2001 - Chubb Group of Insurance Companies

work in urban areas. Clearly, the attack of September 11th was directed
not at individuals but at the United States of America. Terrorism is a
risk that the government should bear. If the government fails to do so,
the effect will be to impose costs that will discourage socially and
economically desirable behaviors. Already there is anecdotal evidence of
canceled real estate and other business projects, layoffs and businesses
going without terrorism insurance because it is unavailable or
unaffordable.
As if the September 11th attack were not a big enough financial
drain on Chubb, it was followed late in the year with the largest
bankruptcy in United States history — the collapse of Enron, for which
Chubb recognized $220 million in surety bond losses, net of reinsurance.
We are disputing some of the claims in court on the grounds of fraud.
It is indicative of Chubb’s underlying earnings power that we were
able to absorb all of these losses within one year’s earnings and still turn
a profit for the year, albeit a relatively small one of $111 million.
When I reported to you in these pages a year ago, we were standing
on the threshold of an improving insurance market, having led the
market in putting an end to a 12-year downward spiral of standard
It is indicative of Chubb’s
underlying earnings
power that we were
able to absorb the
September 11th and Enron
losses within one year’s
earnings and still turn a
profit for the year, albeit
a relatively small one of
$111million.
commercial rates. The attack of September 11th, tragic as it was, has
accelerated that improvement. When the industry suffers the loss of a
significant chunk of its capital base, insurance capacity becomes scarcer.
Together with the need of insurers to recoup their losses and rebuild
their capital, the reduced capacity has led to sharply higher rates in most
lines.
Even before September 11th, the industry was severely
underreserved and had negative cash flow. Inadequate prices and
underwriting losses were subsidized by high investment returns and
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