Annual Report 2001 - Chubb Group of Insurance Companies

(19) Fair Values of Financial Instruments (iii) Fair values of equity securities with active
markets are based on quoted market prices. For other
Fair values of Ñnancial instruments are based on equity securities, fair values are estimates of value.
quoted market prices where available. Fair values of
(iv) Fair values of real estate mortgages and notes
Ñnancial instruments for which quoted market prices are
receivable are estimated individually as the value of the
not available are based on estimates using present value
discounted future cash Öows of the loan, subject to the
or other valuation techniques. Those techniques are
estimated fair value of the underlying collateral. The
signiÑcantly aÅected by the assumptions used, including
cash Öows are discounted at rates based on a U.S.
the discount rates and the estimated amounts and timing
Treasury security with a maturity similar to the loan,
of future cash Öows. In such instances, the derived fair
adjusted for credit risk.
value estimates cannot be substantiated by comparison to
independent markets and are not necessarily indicative of (v) The carrying value of short term debt approxithe
amounts that could be realized in immediate settle- mates fair value due to the short maturities of this
ment of the instrument. Certain Ñnancial instruments, debt.
particularly insurance contracts, are excluded from fair
value disclosure requirements.
(vi) Long term debt consists of a term loan, mort-
gages payable, long term notes and capital securities.
The methods and assumptions used to estimate the fair
The fair value of the term loan approximates the
value of Ñnancial instruments are as follows:
carrying value because such loan consists of variable-
rate debt that reprices frequently. Fair values of mortgages
payable are estimated using discounted cash Öow
(i) The carrying value of short term investments
approximates fair value due to the short maturities of
analyses. Fair values of the long term notes and capital
these investments.
securities are based on prices quoted by dealers.
(vii) Fair values of credit derivatives, principally
(ii) Fair values of Ñxed maturities with active mar- credit default swaps, are determined using an internal
kets are based on quoted market prices. For Ñxed valuation model that is similar to external valuation
maturities that trade in less active markets, fair values models. The fair value of a credit default swap is
are obtained from independent pricing services. Fair subject to Öuctuations arising from, among other facvalues
of Ñxed maturities are principally a function of tors, observable changes in credit spreads and interest
current interest rates. Care should be used in evaluat- rates.
ing the signiÑcance of these estimated market values
which can Öuctuate based on such factors as interest
rates, inÖation, monetary policy and general economic
conditions.
The carrying values and fair values of Ñnancial instruments were as follows:
December 31
2001 2000
Carrying Fair Carrying Fair
Value Value Value Value
(in millions)
Assets
Invested assets
Short term investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 956.8 $ 956.8 $ 605.6 $ 605.6
Fixed maturities (Note 5)
Held-to-maturity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,218.5 1,282.5 1,496.1 1,564.7
Available-for-sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 14,898.2 14,898.2 14,068.3 14,068.3
Equity securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 710.4 710.4 830.6 830.6
Real estate mortgages and notes receivable (Note 7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 97.7 89.0 89.7 81.9
Liabilities
Short term debt (Note 10)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 199.0 199.0 Ì Ì
Long term debt (Note 10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,351.0 1,387.1 753.8 745.8
Credit derivatives (Note 16) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 47.9 47.9 6.2 6.2
69