10-K

As filed with the Securities and Exchange Commission on March 28, 2002

UNITED   STATES   SECURITIES   AND   EXCHANGE   COMMISSION

Washington, D. C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM           TO
Commission File No. 1-8661

The Chubb Corporation

(Exact name of registrant as specified in its charter)

New Jersey	13-2595722
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
15 Mountain View Road, P.O. Box 1615
Warren, New Jersey	07061-1615
(Address of principal executive offices)	(Zip Code)

(908) 903-2000

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $1 per share		New York Stock Exchange
Series B Participating Cumulative
	Preferred Stock Purchase Rights	New York Stock Exchange
(Title of each class)		(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ü. No.  .

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

      The aggregate market value of voting stock held by non-affiliates of the registrant was $12,444,817,906 as of March 11, 2002.

170,973,722

Number of shares of common stock outstanding as of March 11, 2002

Documents Incorporated by Reference

      Portions of The Chubb Corporation 2001 Annual Report to Shareholders are incorporated by reference in Parts I, II and IV of this Form 10-K. Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders on April 30, 2002 are incorporated by reference in Part III of this Form 10-K.

PART I.

Item 1.  Business

General

      The Chubb Corporation (the Corporation) was incorporated as a business corporation under the laws of the State of New Jersey in June 1967. The Corporation is a holding company with subsidiaries principally engaged in the property and casualty insurance business. The Corporation and its subsidiaries employed approximately 12,600 persons worldwide on December 31, 2001.

      Revenues, income before income tax and assets for each operating segment for the three years ended December 31, 2001 are included in Note (18) of the notes to consolidated financial statements incorporated by reference from the Corporation’s 2001 Annual Report to Shareholders.

      The property and casualty insurance subsidiaries provide insurance coverages principally in the United States, Canada, Europe, Australia, and parts of Latin America and the Far East. Revenues of the property and casualty insurance subsidiaries by geographic area for the three years ended December 31, 2001 are included in Note (18) of the notes to consolidated financial statements incorporated by reference from the Corporation’s 2001 Annual Report to Shareholders.

Property and Casualty Insurance

      The principal members of the Property and Casualty Insurance Group (the Group) are Federal Insurance Company (Federal), Pacific Indemnity Company (Pacific Indemnity), Vigilant Insurance Company (Vigilant), Great Northern Insurance Company (Great Northern), Chubb Custom Insurance Company (Chubb Custom), Chubb National Insurance Company (Chubb National), Chubb Indemnity Insurance Company (Chubb Indemnity), Chubb Insurance Company of New Jersey (Chubb New Jersey), Texas Pacific Indemnity Company, Northwestern Pacific Indemnity Company, Executive Risk Indemnity Inc. (Executive Risk Indemnity), Executive Risk Specialty Insurance Company (Executive Risk Specialty) and Quadrant Indemnity Company (Quadrant) in the United States, as well as Chubb Atlantic Indemnity Ltd, Chubb Insurance Company of Canada, Chubb Insurance Company of Europe, S.A., Chubb Insurance Company of Australia Limited, Chubb Argentina de Seguros, S.A. and Chubb do Brasil Companhia de Seguros.

      Federal is the manager of Vigilant, Pacific Indemnity, Great Northern, Chubb National, Chubb Indemnity, Chubb New Jersey, Executive Risk Indemnity, Executive Risk Specialty and Quadrant. Federal also provides certain services to other members of the Group. Acting subject to the supervision and control of the Boards of Directors of the members of the Group, the Chubb & Son division of Federal provides day to day executive management and operating personnel and makes available the economy and flexibility inherent in the common operation of a group of insurance companies.

      The Group presently underwrites most lines of property and casualty insurance. All members of the Group write non-participating policies. Several members of the Group also write participating policies, particularly in the workers’ compensation class of business, under which dividends are paid to the policyholders.

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  Premiums Written

      A summary of the Group’s premiums written during the past three years is shown in the following table:

	Direct		Reinsurance		Reinsurance		Net
	Premiums		Premiums		Premiums		Premiums
Year	Written		Assumed(a)		Ceded(a)		Written
	(in millions)
1999	$	6,042.6	$	275.2	$	616.7	$	5,701.1
2000		6,741.6		384.4		792.8		6,333.2
2001		7,534.3		525.2		1,098.0		6,961.5

      (a) Intercompany items eliminated.

      The net premiums written during the last five years for major classes of the Group’s business are incorporated by reference from page 22 of the Corporation’s 2001 Annual Report to Shareholders.

      One or more members of the Group are licensed and transact business in each of the 50 states of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, Canada, Europe, Australia, and parts of Latin America and the Far East. In 2001, approximately 82% of the Group’s direct business was produced in the United States, where the Group’s businesses enjoy broad geographic distribution with a particularly strong market presence in the Northeast. The four states accounting for the largest amounts of direct premiums written were New York with 13%, California with 10% and New Jersey and Texas each with 5%. No other state accounted for 5% or more of such premiums. Approximately 10% of the Group’s direct premiums written was produced in Europe and 3% was produced in Canada.

  Underwriting Results

      A frequently used industry measurement of property and casualty insurance underwriting results is the combined loss and expense ratio. This ratio is the sum of the ratio of incurred losses and related loss adjustment expenses to premiums earned (loss ratio) plus the ratio of underwriting expenses to premiums written (expense ratio) after reducing both premium amounts by dividends to policyholders. When the combined ratio is under 100%, underwriting results are generally considered profitable; when the combined ratio is over 100%, underwriting results are generally considered unprofitable. Investment income is not reflected in the combined ratio. The profitability of property and casualty insurance companies depends on income from both underwriting operations and investments.

      The net premiums and the loss, expense and combined loss and expense ratios of the Group for the last five years are shown in the following table:

	Net Premiums										Combined
	(in millions)										Loss and
					Loss			Expense			Expense
Year	Written		Earned		Ratios			Ratios			Ratios
1997	$	5,448.0	$	5,157.4		64.5	%		32.4	%		96.9	%
1998		5,503.5		5,303.8		66.3			33.5			99.8
1999		5,701.1		5,652.0		70.3			32.5			102.8
2000		6,333.2		6,145.9		67.5			32.9			100.4
2001		6,961.5		6,656.4		80.8			32.6			113.4
Total for five years ended December 31, 2001	$	29,947.3	$	28,915.5		70.4	%		32.8	%		103.2	%

      The 2001 net premiums and ratios include the effect of estimated net claims and claim expenses of $665 million and net reinsurance reinstatement premium revenue of $30 million related to the September 11 attack in the United States. The 2001 ratios also include the effect of net surety bond losses of $220 million arising from the bankruptcy of Enron Corp. Excluding the effect of these two loss events, the loss ratio, the expense ratio and the combined loss and expense ratio were 67.7%, 32.8% and 100.5%, respectively, for the year 2001 and 67.4%, 32.8% and 100.2%, respectively, for the five years ended December 31, 2001.

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      The combined loss and expense ratios during the last five years for major classes of the Group’s business are incorporated by reference from page 22 of the Corporation’s 2001 Annual Report to Shareholders. The combined loss and expense ratios for the major classes of the Group’s business for 2001, excluding the impact of the September 11 attack, are included in Item 7 on page 18 of this report.

      Another frequently used measurement in the property and casualty insurance industry is the ratio of statutory net premiums written to policyholders’ surplus. At December 31, 2001 and 2000, such ratio for the Group was 1.82.

  Producing and Servicing of Business

      In the United States and Canada, the Group is represented by approximately 5,000 independent agents and accepts business on a regular basis from an estimated 1,000 insurance brokers. In most instances, these agents and brokers also represent other companies that compete with the Group. The Group’s branch and service offices assist these agents and brokers in producing and servicing the Group’s business. In addition to the administrative offices in Warren, New Jersey, the Group has seven zone offices and branch and service offices throughout the United States and Canada.

      The Group’s overseas business is developed by its foreign agents and brokers through local branch offices of the Group and by its United States and Canadian agents and brokers. In conducting its overseas business, the Group reduces the risks relating to currency fluctuations by maintaining investments in those foreign currencies in which the Group transacts business with characteristics similar to the liabilities in those currencies. The net asset or liability exposure to the various foreign currencies is regularly reviewed.

      Business for the Group is also produced through participation in certain underwriting pools and syndicates. Such pools and syndicates provide underwriting capacity for risks which an individual insurer cannot prudently underwrite because of the magnitude of the risk assumed or which can be more effectively handled by one organization due to the need for specialized loss control and other services.

  Reinsurance

      In accordance with the normal practice of the insurance industry, the Group assumes and cedes reinsurance with other insurers or reinsurers. Reinsurance is ceded to provide greater diversification of risk and to limit the Group’s maximum net loss arising from large risks or from hazards of potential catastrophic events.

      Ceded reinsurance contracts do not relieve the Group of its primary obligation to the policyholders. Thus, a credit exposure exists with respect to reinsurance ceded to the extent that any reinsurer is unable to meet the obligations assumed under the reinsurance contracts. The collectibility of reinsurance is subject to the solvency of the reinsurers. The Group is selective in regard to its reinsurers, placing reinsurance with only those reinsurers with strong balance sheets and superior underwriting ability. The Group monitors the financial strength of its reinsurers on an ongoing basis. As a result, uncollectible amounts have not been significant.

      A large portion of the Group’s reinsurance is effected under contracts known as treaties under which all risks meeting prescribed criteria are automatically covered. Most of the Group’s treaty reinsurance arrangements consist of excess of loss and catastrophe contracts with other insurers or reinsurers which protect against a specified part or all of certain types of losses over stipulated amounts arising from any one occurrence or event. In certain circumstances, reinsurance is also effected by negotiation on individual risks. The amount of each risk retained by the Group is subject to maximum limits which vary by line of business and type of coverage. Retention limits are continually reviewed and are revised periodically as the Group’s capacity to underwrite risks changes.

      As a result of the substantial losses incurred by reinsurers related to the September 11 attack, the cost of reinsurance is expected to increase significantly in 2002 and the availability of reinsurance for

4

certain coverages is expected to be limited. Reinsurance contracts renewed in 2002 are expected to generally exclude coverage for terrorism. These issues are discussed in Item 7 of this report on page 19.

      The tragic event of September 11 changed the way the property and casualty insurance industry views catastrophic risk. Numerous classes of business have become exposed to terrorism related catastrophic risks in addition to the catastrophic risks related to natural occurrences. This has required the Group to change how it identifies and monitors risk accumulations. The Group has changed its underwriting protocols to address terrorism and the limited availability of terrorism reinsurance. However, given the uncertainty of the potential threats, the Group cannot be sure that it has addressed all the possibilities.

      The Group also has exposure to insured losses caused by hurricanes, earthquakes, winter storms, windstorms and other natural catastrophic events. The frequency and severity of natural catastrophes are unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in an area affected by the event and the severity of the event. The Group continually assesses its concentration of underwriting exposures in catastrophe prone areas globally and develops strategies to manage this exposure through individual risk selection, subject to regulatory constraints, and through the purchase of catastrophe reinsurance. The Group uses modeling techniques and concentration management tools that enable it to better monitor and control catastrophe exposures. The Group maintains records showing concentrations of risk in catastrophe prone areas such as California (earthquake and brush fires) and the gulf and east coast of the United States (hurricanes). The Group’s current catastrophe reinsurance program provides coverage for individual catastrophic events of approximately 80% of losses between $100 million and $450 million in the United States and approximately 90% of losses between $25 million and $175 million outside the United States. The catastrophe reinsurance program is being negotiated for renewal in April 2002. It is expected that in the United States the Group’s initial retention for each catastrophic event will be higher. However, it is also expected that the Group will purchase an increased amount of reinsurance coverage for each event.

  Unpaid Claims and Claim Adjustment Expenses and Related Amounts Recoverable from Reinsurers

      Insurance companies are required to establish a liability in their accounts for the ultimate costs (including claim adjustment expenses) of claims that have been reported but not settled and of claims that have been incurred but not reported. Insurance companies are also required to report as assets the portion of such liability that will be recovered from reinsurers.

      The process of establishing the liability for unpaid claims and claim adjustment expenses is complex and imprecise as it reflects significant judgmental factors. This is true because claim settlements to be made in the future will be impacted by changing rates of inflation and other economic conditions, changing legislative, judicial and social environments and changes in the Group’s claim handling procedures.

      The Group’s estimates of losses for reported claims are established judgmentally on an individual case basis. Such estimates are based on the Group’s particular experience with the type of risk involved and its knowledge of the circumstances surrounding each individual claim. These estimates are reviewed on a regular basis or as additional facts become known. The reliability of the estimation process is monitored through comparison with ultimate settlements.

      The Group’s estimates of losses for unreported claims are principally derived from 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 effects of current developments and likely trends, is an appropriate basis for predicting future outcomes. For certain classes of business where anticipated loss experience is less predictable because of the small number of claims and/or erratic claim severity patterns, the Group’s estimates are based on both expected and actual reported losses. Salvage and subrogation estimates are developed from patterns of actual recoveries.

5

      The Group’s estimates of unpaid claim adjustment expenses are based on analyses of the relationship of projected ultimate claim adjustment expenses to projected ultimate losses for each class of business. Claim staff has discretion to override these expense formulas where judgment indicates such action is appropriate.

      The Group’s estimates of reinsurance recoverable related to reported and unreported claims and claim adjustment expenses represent the portion of such liabilities that will be recovered from reinsurers. Amounts recoverable from reinsurers are recognized as assets at the same time and in a manner consistent with the liabilities associated with the reinsured policies.

      Estimates are continually reviewed and updated. Any changes in estimates are reflected in operating results in the period in which the estimates are changed.

      The anticipated effect of inflation is implicitly considered when estimating liabilities for unpaid claims and claim adjustment expenses. Estimates of the ultimate value of all unpaid claims are based in part on the development of paid losses, which reflect actual inflation. Inflation is also reflected in the case estimates established on reported open claims which, when combined with paid losses, form another basis to derive estimates of reserves for all unpaid claims. There is no precise method for subsequently evaluating the adequacy of the consideration given to inflation, since claim settlements are affected by many factors.

      Additional information related to the Group’s estimates related to unpaid claims and claim adjustment expenses and the uncertainties in the estimation process is discussed in Item 7 of this report on pages 23 and 24.

      The following table provides a reconciliation of the beginning and ending liability for unpaid claims and claim adjustment expenses, net of reinsurance recoverable, and a reconciliation of the ending net liability to the corresponding liability on a gross basis for the years ended December 31, 2001, 2000 and 1999:

		Years Ended December 31
		2001			2000			1999
		(in millions)
Net liability, beginning of year		$	10,051.3		$	9,748.8		$	9,049.9
Increase related to acquisition of Executive Risk (net of reinsurance recoverable of $339.5)			—			—			605.8
Net incurred claims and claim adjustment expenses
	Provision for claims occurring in the current year		5,552.9			4,357.7			4,147.6
	Decrease in estimates for claims occurring in prior years.		(195.5	)		(230.0	)		(205.6	)
			5,357.4			4,127.7			3,942.0
Net payments for claims and claim adjustment expenses related to
	Current year		1,605.3			1,342.5			1,278.9
	Prior years		2,793.7			2,482.7			2,570.0
			4,399.0			3,825.2			3,848.9
Net liability, end of year			11,009.7			10,051.3			9,748.8
Reinsurance recoverable, end of year			4,505.2			1,853.3			1,685.9
Gross liability, end of year		$	15,514.9		$	11,904.6		$	11,434.7

      As reestimated at December 31, 2001, the liability for unpaid claims and claim adjustment expenses, net of reinsurance recoverable, as established at the previous year-end was redundant by $195.5 million. This compares with favorable development of $230.0 million and $205.6 million during 2000 and 1999, respectively. Such redundancies were reflected in the Group’s operating results in these respective years. Each of the past three years benefited from favorable claim experience for certain liability classes, offset in part by losses incurred relating to asbestos and toxic waste claims of $60.9 million, $31.0 million and $46.8 million in 2001, 2000 and 1999, respectively.

6

      The Group continues to emphasize early and accurate reserving, inventory management of claims and suits, and control of the dollar value of settlements. The number of outstanding claims at year-end 2001 was approximately 2% higher than the number at year-end 2000. This compares with a 4% increase in new arising claims during 2001. The number of outstanding claims at year-end 2000 was approximately 9% lower than the number at year-end 1999 compared with a 9% decrease in new arising claims during 2000.

      The significant uncertainties relating to asbestos and toxic waste claims on insurance policies written many years ago are discussed in Item 7 of this report on pages 24 through 26.

      One master claim is generally established for all similar asbestos claims and lawsuits involving an insured. A counted claim can have from one to thousands of claimants. Generally, a toxic waste claim is established for each lawsuit, or alleged equivalent, against an insured where potential liability has been determined to exist under a policy issued by a member of the Group. Management does not believe the following claim count data is meaningful for analysis purposes.

      There were approximately 1,000 asbestos claims outstanding at December 31, 2001 compared with 1,100 asbestos claims outstanding at December 31, 2000 and 1,600 asbestos claims outstanding at December 31, 1999. In 2001, approximately 200 claims were opened and 300 claims were closed. In 2000, approximately 200 claims were opened and 700 claims were closed. In 1999, approximately 200 claims were opened and 600 claims were closed. Indemnity payments per claim have varied over time due primarily to variations in insureds, policy terms and types of claims. Management cannot predict whether indemnity payments per claim will increase, decrease or remain the same.

      There were approximately 650 toxic waste claims outstanding at December 31, 2001 and 2000 compared with 600 toxic waste claims outstanding at December 31, 1999. Approximately 250 claims were opened in 2001, 500 claims were opened in 2000 and 300 claims were opened in 1999. There were approximately 250 claims closed in 2001, 450 claims closed in 2000 and 350 claims closed in 1999. Because payments to date for toxic waste claims have varied from claim to claim, management cannot determine whether past claims experience will prove to be representative of future claims experience.

      The table on page 9 presents the subsequent development of the estimated year-end liability for unpaid claims and claim adjustment expenses, net of reinsurance recoverable, for the ten years prior to 2001. The amounts in the table for the years ended December 31, 1991 through 1998 do not include Executive Risk’s unpaid claims and claim adjustment expenses. The top line of the table shows the estimated liability for unpaid claims and claim adjustment expenses recorded at the balance sheet date for each of the indicated years. This liability represents the estimated amount of losses and loss adjustment expenses for claims arising in all prior years that are unpaid at the balance sheet date, including losses that had been incurred but not yet reported to the Group.

      The upper section of the table shows the reestimated amount of the previously recorded net liability based on experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known about the frequency and severity of claims for each individual year. The increase or decrease is reflected in operating results in the year the estimate is changed. The “cumulative deficiency (redundancy)” as shown in the table represents the aggregate change in the reserve estimates from the original balance sheet dates through December 31, 2001. The amounts noted are cumulative in nature; that is, an increase in a loss estimate that related to a prior period occurrence generates a deficiency in each intermediate year. For example, a deficiency recognized in 2001 relating to losses incurred prior to December 31, 1991 would be included in the cumulative deficiency amount for each year in the period 1991 through 2000. Yet, the deficiency would be reflected in operating results only in 2001. The effect of changes in estimates of the liabilities for claims occurring in prior years on income before income taxes in each of the past three years is shown in the reconciliation table on page 6.

      In each of the years 1991 through 2000, there was favorable development for certain liability classes as the result of favorable loss experience. In each of these years, this favorable development was offset, in varying degrees, by unfavorable development related to asbestos and toxic waste claims.

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The years 1991 and 1992 in particular reflect the effects of a $675 million increase in loss reserves related to the settlement of asbestos related claims against Fibreboard Corporation. The cumulative net deficiencies experienced relating to asbestos and toxic waste claims were also, to varying degrees, the result of: (1) an increase in the actual number of claims filed; (2) an increase in the number of unasserted claims estimated; (3) an increase in the severity of actual and unasserted claims; and (4) an increase in litigation costs associated with such claims.

      Conditions and trends that have affected development of the liability for unpaid claims and claim adjustment expenses in the past will not necessarily recur in the future. Accordingly, it is not appropriate to extrapolate future redundancies or deficiencies based on the data in this table.

      The middle section of the table on page 9 shows the cumulative amount paid with respect to the reestimated liability as of the end of each succeeding year. For example, in the 1991 column, as of December 31, 2001 the Group had paid $4,403.1 million of the currently estimated $5,200.0 million of claims and claim adjustment expenses that were unpaid at the end of 1991; thus, an estimated $796.9 million of losses incurred through 1991 remain unpaid as of December 31, 2001, approximately half of which relates to asbestos and toxic waste claims.

      The lower section of the table on page 9 shows the gross liability, reinsurance recoverable and net liability recorded at each year-end beginning with 1992 and the reestimation of these amounts as of December 31, 2001. Amounts for 1991, which was prior to the implementation of Statement of Financial Accounting Standards No. 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts, have not been presented.

      Members of the Group are required to file annual statements with insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis). The differences between the liability for unpaid claims and claim adjustment expenses, net of reinsurance recoverable, reported in the accompanying consolidated financial statements in accordance with generally accepted accounting principles (GAAP) and that reported in the annual statutory statements of the U.S. subsidiaries are as follows:

		December 31
		2001			2000
		(in millions)
Net liability reported on a statutory basis — U.S. subsidiaries		$	9,915.9		$	9,181.5
Additions (reductions):
	Unpaid claims and claim adjustment expenses of foreign subsidiaries		1,095.6			871.4
	Other reserve differences		(1.8	)		(1.6	)
Net liability reported on a GAAP basis		$	11,009.7		$	10,051.3

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ANALYSIS OF CLAIM AND CLAIM ADJUSTMENT EXPENSE DEVELOPMENT

		December 31
Year Ended		1991		1992		1993			1994			1995			1996			1997			1998
		(in millions)
Net Liability for Unpaid Claims and Claim Adjustment Expenses		$	4,743.9	$	5,267.6	$	6,450.0		$	6,932.9		$	7,614.5		$	7,755.9		$	8,564.6		$	9,049.9
Net Liability Reestimated as of:
	One year later		4,716.3		5,932.4		6,420.3			6,897.1			7,571.7			7,690.6			8,346.2			8,854.8
	Two years later		5,368.5		5,904.1		6,363.1			6,874.5			7,520.9			7,419.6			7,899.8			8,516.5
	Three years later		5,336.5		5,843.5		6,380.4			6,829.8			7,256.8			6,986.2			7,564.8			8,058.0
	Four years later		5,302.6		5,894.6		6,338.1			6,605.4			6,901.5			6,719.4			7,145.0
	Five years later		5,389.5		5,863.3		6,150.1			6,352.2			6,692.1			6,409.4
	Six years later		5,375.3		5,738.4		5,904.9			6,191.4			6,476.7
	Seven years later		5,303.9		5,582.1		5,751.4			6,044.5
	Eight years later		5,203.3		5,500.4		5,692.2
	Nine years later		5,169.0		5,467.8
	Ten years later		5,200.0
Total Cumulative Net Deficiency (Redundancy)			456.1		200.2		(757.8	)		(888.4	)		(1,137.8	)		(1,346.5	)		(1,419.6	)		(991.9	)
Cumulative Net Deficiency Related to Asbestos and Toxic Waste Claims (Included in Above Total)			1,715.0		1,555.1		779.4			664.2			482.4			331.7			206.5			138.7
Cumulative Amount of Net Liability Paid as of:
	One year later		931.2		1,039.9		1,272.0			1,250.7			1,889.4			1,418.3			1,797.7			2,520.1
	Two years later		1,479.9		1,858.5		1,985.7			2,550.7			2,678.2			2,488.2			3,444.2			3,707.8
	Three years later		2,083.0		2,332.3		3,015.8			3,073.7			3,438.8			3,757.0			4,160.6			4,653.1
	Four years later		2,386.9		3,181.4		3,264.5			3,589.8			4,457.6			4,194.8			4,710.9
	Five years later		3,125.8		3,323.0		3,624.2			4,444.4			4,755.4			4,555.6
	Six years later		3,200.4		3,603.5		4,367.9			4,683.3			5,010.6
	Seven years later		3,412.7		4,307.7		4,545.5			4,896.6
	Eight years later		4.095.5		4,468.3		4,738.2
	Nine years later		4,248.7		4,627.5
	Ten years later		4,403.1
Gross Liability, End of Year				$	7,220.9	$	8,235.4		$	8,913.2		$	9,588.2		$	9,523.7		$	9,772.5		$	10,356.5
Reinsurance Recoverable, End of Year					1,953.3		1,785.4			1,980.3			1,973.7			1,767.8			1,207.9			1,306.6
Net Liability, End of Year				$	5,267.6	$	6,450.0		$	6,932.9		$	7,614.5		$	7,755.9		$	8,564.6		$	9,049.9
Reestimated Gross Liability				$	7,470.0	$	7,652.8		$	8,134.3		$	8,457.4		$	8,066.5		$	8,235.8		$	9,324.5
Reestimated Reinsurance Recoverable					2,002.2		1,960.6			2,089.8			1,980.7			1,657.1			1,090.8			1,266.5
Reestimated Net Liability				$	5,467.8	$	5,692.2		$	6,044.5		$	6,476.7		$	6,409.4		$	7,145.0		$	8,058.0
Cumulative Gross Deficiency (Redundancy)				$	249.1	$	(582.6	)	$	(778.9	)	$	(1,130.8	)	$	(1,457.2	)	$	(1,536.7	)	$	(1,032.0	)

[Additional columns below]

[Continued from above table, first column(s) repeated]

		December 31
Year Ended		1999			2000			2001
		(in millions)
Net Liability for Unpaid Claims and Claim Adjustment Expenses		$	9,748.8		$	10,051.3		$	11,009.7
Net Liability Reestimated as of:
	One year later		9,518.8			9,855.8
	Two years later		9,094.5
	Three years later
	Four years later
	Five years later
	Six years later
	Seven years later
	Eight years later
	Nine years later
	Ten years later
Total Cumulative Net Deficiency (Redundancy)			(654.3	)		(195.5	)
Cumulative Net Deficiency Related to Asbestos and Toxic Waste Claims (Included in Above Total)			91.9			60.9
Cumulative Amount of Net Liability Paid as of:
	One year later		2,482.7			2,793.7
	Two years later		4,079.3
	Three years later
	Four years later
	Five years later
	Six years later
	Seven years later
	Eight years later
	Nine years later
	Ten years later
Gross Liability, End of Year		$	11,434.7		$	11,904.6		$	15,514.9
Reinsurance Recoverable, End of Year			1,685.9			1,853.3			4,505.2
Net Liability, End of Year		$	9,748.8		$	10,051.3		$	11,009.7
Reestimated Gross Liability		$	11,004.7		$	11,837.7
Reestimated Reinsurance Recoverable			1,910.2			1,981.9
Reestimated Net Liability		$	9,094.5		$	9,855.8
Cumulative Gross Deficiency (Redundancy)		$	(430.0	)	$	(66.9	)

The amounts for the years 1991 through 1998 do not include Executive Risk’s unpaid claims and claim adjustment expenses.

The cumulative deficiencies for the years 1991 and 1992 include the effect of the $675 million increase in claims and claim adjustment expenses related to the Fibreboard settlement.

9

  Investments

      Investment decisions are centrally managed by investment professionals based on guidelines established by management and approved by the board of directors for each member of the Group.

      The main objectives in managing the investment portfolio of the Group are to maximize after-tax investment income and total investment returns while minimizing credit risks in order to provide maximum support to the insurance underwriting operations. To accomplish this, the investment function must be highly integrated with the operating functions and capable of responding to the changing conditions in the marketplace. Investment strategies are developed based on many factors including underwriting results and the Group’s resulting tax position, regulatory requirements, fluctuations in interest rates and consideration of other market risks.

      The investment portfolio of the Group is primarily comprised of high quality bonds, principally tax-exempt, U.S. Treasury, government agency, mortgage-backed securities and corporate issues. In addition, the portfolio includes equity securities held primarily with the objective of capital appreciation.

      In 2001, the Group invested new cash primarily in corporate bonds. In 2000, the Group invested new cash primarily in mortgaged-backed securities. In 1999, the Group invested new cash primarily in tax-exempt bonds and corporate bonds. In each year, the Group tried to achieve the appropriate mix in its portfolio to balance both investment and tax strategies. At December 31, 2001, 63% of the Group’s fixed maturity portfolio was invested in tax-exempt bonds compared with 67% at December 31, 2000 and 70% at December 31, 1999.

      The investment results of the Group for each of the past three years are shown in the following table.

	Average				Percent Earned
	Invested		Investment
Year	Assets(a)		Income(b)		Before Tax			After Tax
	(in millions)
1999	$	14,208.0	$	821.0		5.78	%		4.87	%
2000		15,223.9		879.2		5.78			4.83
2001		15,800.9		902.6		5.71			4.74

(a)  Average of amounts for the years presented with fixed maturity securities at amortized cost and equity securities at market value.

(b)  Investment income after deduction of investment expenses, but before applicable income tax.

Chubb Financial Solutions

      Chubb Financial Solutions (CFSI) was organized by the Corporation in 2000 to engage in developing and providing risk-financing services through the capital and insurance markets.

      Since its inception, CFSI’s non-insurance operations have been primarily in the credit derivatives business, principally as a counterparty to credit default swaps. The Corporation has issued unconditional guarantees with respect to all obligations of CFSI arising from these transactions. The insurance and reinsurance solutions that CFSI develops to meet the risk management needs of its customers are written by members of the Group. Additional information related to CFSI’s operations is included in Item 7 of this report on page 28.

Real Estate Group

      The Real Estate Group is composed of Bellemead Development Corporation and its subsidiaries. The Real Estate Group is involved in commercial development activities primarily in New Jersey and residential development activities primarily in central Florida.

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      The Real Estate Group owns approximately $310 million of land, which is expected to be developed in the future, and approximately $185 million of commercial properties and land parcels under lease. The Real Estate Group is continuing to explore the sale of certain of its remaining properties. Additional information related to the Corporation’s real estate operations is included in Item 7 of this report on page 28.

Regulation, Premium Rates and Competition

      The Corporation is a holding company with subsidiaries primarily engaged in the property and casualty insurance business and is therefore subject to regulation by certain states as an insurance holding company. All states have enacted legislation which regulates insurance holding company systems such as the Corporation and its subsidiaries. This legislation generally provides that each insurance company in the system is required to register with the department of insurance of its state of domicile and furnish information concerning the operations of companies within the holding company system which may materially affect the operations, management or financial condition of the insurers within the system. All transactions within a holding company system affecting insurers must be fair and equitable. Notice to the insurance commissioners is required prior to the consummation of transactions affecting the ownership or control of an insurer and of certain material transactions between an insurer and any person in its holding company system and, in addition, certain of such transactions cannot be consummated without the commissioners’ prior approval.

      The Group is subject to regulation and supervision in the states in which it does business. In general, such regulation is for the protection of policyholders rather than shareholders. The extent of such regulation varies but generally has its source in statutes which delegate regulatory, supervisory and administrative powers to a department of insurance. The regulation, supervision and administration relate to, among other things, the standards of solvency which must be met and maintained; the licensing of insurers and their agents; restrictions on insurance policy terminations; unfair trade practices; the nature of and limitations on investments; premium rates; restrictions on the size of risks which may be insured under a single policy; deposits of securities for the benefit of policyholders; approval of policy forms; periodic examinations of the affairs of insurance companies; annual and other reports required to be filed on the financial condition of companies or for other purposes; limitations on dividends to policyholders and shareholders; and the adequacy of provisions for unearned premiums, unpaid claims and claim adjustment expenses, both reported and unreported, and other liabilities.

      The extent of insurance regulation on business outside the United States varies significantly among the countries in which the Group operates. Some countries have minimal regulatory requirements, while others regulate insurers extensively. Foreign insurers in many countries are faced with greater restrictions than domestic competitors. In certain countries, the Group has incorporated insurance subsidiaries locally to improve its position.

      The National Association of Insurance Commissioners has a risk-based capital requirement for property and casualty insurance companies. The risk-based capital formula is used by state regulatory authorities to identify insurance companies which may be undercapitalized and which merit further regulatory attention. The formula prescribes a series of risk measurements to determine a minimum capital amount for an insurance company, based on the profile of the individual company. The ratio of a company’s actual policyholders’ surplus to its minimum capital requirement will determine whether any state regulatory action is required. At December 31, 2001, each member of the Group had more than sufficient capital to meet the risk-based capital requirement.

      Regulatory requirements applying to premium rates vary from state to state, but generally provide that rates not be “excessive, inadequate or unfairly discriminatory.” Rates for many lines of business, including automobile and homeowners insurance, are subject to prior regulatory approval in many states. However, in certain states, prior regulatory approval of rates is not required for most lines of insurance which the Group underwrites. Ocean marine insurance rates are exempt from regulation.

11

      Subject to regulatory requirements, the Group’s management determines the prices charged for its policies based on a variety of factors including claim and claim adjustment expense experience, inflation, tax law and rate changes, and anticipated changes in the legal environment, both judicial and legislative. Methods for arriving at prices vary by type of business, exposure assumed and size of risk. Underwriting profitability is affected by the accuracy of these assumptions, by the willingness of insurance regulators to approve changes in those rates which they control and by such other matters as underwriting selectivity and expense control.

      The property and casualty insurance industry is highly competitive both as to price and service. Members of the Group compete not only with other stock companies but also with mutual companies, other underwriting organizations and alternative risk sharing mechanisms. Some competitors obtain their business at a lower cost through the use of salaried personnel rather than independent agents and brokers. Rates are not uniform for all insurers and vary according to the types of insurers and methods of operation. The Group competes for business not only on the basis of price, but also on the basis of availability of coverage desired by customers and quality of service, including claim adjustment service. The Group’s products and services are generally designed to serve specific customer groups or needs and to offer a degree of customization that is of value to the insured. The Group continues to work closely with its customers and to reinforce with them the stability, expertise and added value the Group provides.

      There are approximately 3,400 property and casualty insurance companies in the United States operating independently or in groups and no single company or group is dominant. According to A.M. Best, the Group is the 13th largest United States property and casualty insurance group based on 2000 net premiums written. The relatively large size and underwriting capacity of the Group provide opportunities not available to smaller companies.

      In all states, insurers authorized to transact certain classes of property and casualty insurance are required to become members of an insolvency fund. In the event of the insolvency of a licensed insurer writing a class of insurance covered by the fund in the state, members are assessed to pay certain claims against the insolvent insurer. Generally, fund assessments are proportionately based on the members’ written premiums for the classes of insurance written by the insolvent insurer. In certain states, a portion of these assessments is recovered through premium tax offsets and policyholder surcharges. In 2001, assessments to the members of the Group amounted to approximately $9 million. The amount of future assessments cannot be reasonably estimated.

      State insurance regulation requires insurers to participate in assigned risk plans, reinsurance facilities and joint underwriting associations, which are mechanisms that generally provide applicants with various basic insurance coverages when they are not available in voluntary markets. Such mechanisms are most prevalent for automobile and workers’ compensation insurance, but a majority of states also mandate participation in Fair Plans or Windstorm Plans, which provide basic property coverages. Some states also require insurers to participate in facilities that provide homeowners, crime and other classes of insurance where periodic market constrictions may occur. Participation is based upon the amount of a company’s voluntary written premiums in a particular state for the classes of insurance involved. These involuntary market plans generally are underpriced and produce unprofitable underwriting results.

      In several states, insurers, including members of the Group, participate in market assistance plans. Typically, a market assistance plan is voluntary, of limited duration and operates under the supervision of the insurance commissioner to provide assistance to applicants unable to obtain commercial and personal liability and property insurance. The assistance may range from identifying sources where coverage may be obtained to pooling of risks among the participating insurers.

      Although the federal government and its regulatory agencies generally do not directly regulate the business of insurance, federal initiatives often have an impact on the business in a variety of ways. Current and proposed federal measures which may significantly affect the insurance business include federal terrorism reinsurance, natural disaster reinsurance, hazardous waste removal and liability

12

measures, tort reform, expansion of the Securities and Exchange Commission’s oversight authority over public accounting firms, containment of medical costs, automobile safety, ergonomics, patients’ rights, privacy, e-commerce, international trade, financial services deregulation and the taxation of insurance companies.

      Insurance companies are also affected by a variety of state and federal legislative and regulatory measures as well as by decisions of their courts that define and extend the risks and benefits for which insurance is provided. These include redefinitions of risk exposure in areas such as product liability and commercial general liability as well as extension and protection of employee benefits, including workers’ compensation and disability benefits.

      Legislative and judicial developments pertaining to asbestos and toxic waste exposures are discussed in Item 7 of this report on pages 24 through 26.

Item 2.  Properties

      The executive offices of the Corporation and the administrative offices of the Property and Casualty Insurance Group are in Warren, New Jersey. The Property and Casualty Insurance Group maintains zone administrative and branch offices in major cities throughout the United States and also has offices in Canada, Europe, Australia, the Far East and Latin America. Office facilities are leased with the exception of buildings in Branchburg, New Jersey and Simsbury, Connecticut. Management considers its office facilities suitable and adequate for the current level of operations. See Note (15) of the notes to consolidated financial statements incorporated by reference from the Corporation’s 2001 Annual Report to Shareholders.

Item 3.  Legal Proceedings

      As previously reported, a purported class action complaint was filed in the United States District Court for the District of New Jersey on August 31, 2000 by the California Public Employees’ Retirement System. The complaint alleges that the Corporation and two of its current officers, Dean R. O’Hare and Henry B. Schram, and former officer David B. Kelso and Executive Risk Inc. and three of its former officers, Stephen J. Sills, Robert H. Kullas and Robert V. Deutsch, are liable for certain misrepresentations and omissions regarding, among other matters, disclosures made between April 27, 1999 and October 15, 1999 relating to the improved pricing in the Corporation’s standard commercial insurance business and relating to the offer of the Corporation’s securities to, and solicitation of votes from, the former shareholders of Executive Risk Inc. in connection with the Corporation’s acquisition of Executive Risk Inc. Also, the Corporation and its Directors, as previously reported, have been named as defendants in a purported shareholder derivative action, which was filed on October 18, 2001 in the United States District Court for the District of New Jersey. The derivative action alleges that the Directors breached their fiduciary duties, engaged in gross mismanagement, and failed properly to exercise control over the dissemination of information regarding the Corporation’s operations and performance, which allegations are based on substantially the same allegations made in the complaint by the California Public Employees’ Retirement System, noted above. The Corporation is defending these actions vigorously.

      On December 11, 2001, JPMorgan Chase Bank (JPM), for and on behalf of Mahonia Limited and Mahonia Natural Gas Limited, commenced legal proceedings against Federal Insurance Company and certain other non-affiliated surety bond issuers in the Supreme Court of the State of New York, which action was subsequently removed to the United States District Court for the Southern District of New York (Mahonia Action). The Mahonia Action seeks payment from the surety bond issuers, severally and not jointly, under bonds issued for two subsidiaries of Enron Corporation, as principal, and Mahonia Limited and Mahonia Natural Gas Limited, as obligees. The plaintiffs seek payment of approximately $184 million from Federal under two surety bonds under which Mahonia Limited is obligee. Federal filed its answer and counterclaim asserting, among other things, that the surety bonds were issued based upon material misrepresentations and fraud in the inducement on the part of JPM and Mahonia Limited, which were relied upon by Federal to its detriment. Federal is

13

pursuing the litigation vigorously. Because the Group recognized its maximum exposure relating to these surety bonds in the fourth quarter of 2001, any favorable development in the action would be reflected in future operating results.

      The Corporation and its subsidiaries are also defendants in various lawsuits arising out of their businesses. It is the opinion of management that the final outcome of these matters will not materially affect the consolidated financial position of the registrant.

      Information regarding certain litigation to which property and casualty insurance subsidiaries of the Corporation are a party is included in Item 7 of this report on pages 24 through 26.

Item 4.  Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of the shareholders during the last quarter of the year ended December 31, 2001.

Executive Officers of the Registrant

			Year of
	Age(a)		Election(b)
Dean R. O’Hare, Chairman of the Corporation		59		1972
Joanne L. Bober, Senior Vice President and General Counsel of the Corporation		49		1999
John J. Degnan, President of the Corporation		57		1994
George R. Fay, Executive Vice President of Chubb & Son, a division of Federal		53		1999
David S. Fowler, Senior Vice President of the Corporation		56		1989
Henry G. Gulick, Vice President and Secretary of the Corporation		58		1975
Weston M. Hicks, Executive Vice President of the Corporation		45		2001
Ralph E. Jones, III, Executive Vice President of Chubb & Son, a division of Federal		46		1999
Paul J. Krump, Executive Vice President of Chubb & Son, a division of Federal		42		2001
Charles M. Luchs, Executive Vice President of Chubb & Son, a division of Federal		62		1996
Andrew A. McElwee, Jr., Senior Vice President of the Corporation		47		1997
Glenn A. Montgomery, Senior Vice President of the Corporation		49		1997
Thomas F. Motamed, Executive Vice President of the Corporation		53		1997
Michael J. O’Neill, Jr., Senior Vice President and Counsel of the Corporation		53		1999
Michael O’Reilly, Executive Vice President of the Corporation		58		1976
Richard H. Ort, Executive Vice President of Chubb & Son, a division of Federal		60		2001
Henry B. Schram, Senior Vice President of the Corporation		55		1985

      (a) Ages listed above are as of April 30, 2002.

      (b) Date indicates year first elected or designated as an executive officer.

      All of the foregoing officers serve at the pleasure of the Board of Directors of the Corporation or listed subsidiary and have been employees of the Corporation or a subsidiary of the Corporation for more than five years except for Ms. Bober and Messrs. Hicks and Jones.

      Prior to joining the Corporation in 1999, Ms. Bober was Senior Vice President, General Counsel and Secretary of General Signal Corporation since 1997. Previously, she was a partner in the law firm of Jones, Day, Reavis & Pogue.

      Before joining Chubb in 2001, Mr. Hicks was a Managing Director of J.P. Morgan where he was responsible for its equity research coverage of the property and casualty insurance industry. Previously, Mr. Hicks was a Senior Research Analyst with Sanford C. Bernstein & Co., Inc.

      Before rejoining Chubb in 1999, Mr. Jones was a Director of Hiscox Plc and Managing Director
of Hiscox Insurance Company Ltd. since July 1997. Mr. Jones was previously President and Director
of Chubb Insurance Company of Europe, as well as a Senior Vice President and Managing Director of Chubb & Son Inc.

14

PART II.

Item 5.  Market for the Registrant’s Common Stock and Related Security Holder Matters

      Incorporated by reference from the Corporation’s 2001 Annual Report to Shareholders, page 73.

Item 6.  Selected Financial Data

      Selected financial data for the five years ended December 31, 2001 are incorporated by reference from the Corporation’s 2001 Annual Report to Shareholders, pages 44 through 47.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

      Management’s discussion and analysis of financial condition and results of operations addresses the financial condition of the Corporation and its subsidiaries as of December 31, 2001 compared with December 31, 2000 and the Corporation’s results of operations for each of the three years in the period ended December 31, 2001. The supplementary financial information and the consolidated financial statements and related notes, all of which are integral parts of the following analysis of our results and our financial position, are incorporated by reference from the Corporation’s 2001 Annual Report to Shareholders, pages 21, 22 and 48 through 71.

Cautionary Statement Regarding Forward-Looking Information

      Certain statements in this document, as well as certain statements incorporated by reference herein, may be considered to be “forward looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Words or phrases such as “will result”, “is expected to”, “will continue”, “is anticipated”, or similar expressions are intended to identify forward looking statements, although not all forward looking statements contain those identifying words. Such forward looking statements are subject to certain risks, uncertainties and assumptions about our business. The factors that could cause actual results to differ materially from those suggested by any such statements include but are not limited to those discussed or identified from time to time in the Corporation’s public filings with the Securities and Exchange Commission and specifically to risks or uncertainties associated with any one or more of the following:

•  the availability of primary and reinsurance coverage, including the implications relating to the absence of terrorism legislation;

•  global political conditions and the occurrence of any terrorist attacks, including any nuclear, biological or chemical events;

•  premium price increases and profitability or growth estimates overall or by lines of business, and related expectations with respect to the timing and terms of any required regulatory approvals;

•  our expectations with respect to cash flow projections and investment income and with respect to other income;

•  the adequacy of loss reserves including:

  –  our expectations relating to insurance losses from the September 11 attack and related reinsurance recoverables;

  –  any impact from the bankruptcy protection sought by various asbestos producers and other related businesses;

  –  any changes in judicial or legislative decisions relating to coverage and liability for asbestos and toxic waste claims;

•  Enron-related effects, including:

  –  the effects on the energy markets and the companies that participate in them;

  –  the effects on the capital markets and the markets for directors and officers and errors and omissions insurance;

  –  claims and litigation arising out of accounting disclosures by other companies;

15

  –  any legislative or regulatory proposals or changes;

•  general economic conditions including:

  –  changes in interest rates and the performance of the financial markets;

  –  changes in domestic and foreign laws, regulations and taxes;

  –  changes in competition and pricing environments;

  –  regional or general changes in asset valuations;

  –  the occurrence of significant weather-related or other natural or human-made disasters;

  –  the inability to reinsure certain risks economically;

  –  changes in the litigation environment;

  –  general market conditions.

      The Corporation assumes no obligation to update any forward looking information set forth in this document, as well as any statements incorporated by reference herein, which speak as of the respective dates thereof.

Critical Accounting Estimates and Judgments

      The consolidated financial statements include amounts based on informed estimates and judgments of management for those transactions that are not yet complete or for which the ultimate effects are uncertain. Such estimates and judgments affect the reported amounts in the financial statements. Those estimates and judgments that were most critical to the preparation of the financial statements involved the adequacy of loss reserves and, to a lesser extent, the fair value of credit derivative obligations and the recoverability of the carrying value of real estate properties. These estimates and judgments are discussed within the following analysis of our results of operations. If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements.

Earnings Summary

      Operating income, which excludes realized investment gains and losses, was $111 million in 2001 compared with $681 million in 2000 and $565 million in 1999. Operating income in 2001 was adversely affected by two large loss events. In the third quarter, we incurred net costs of $645 million, or $420 million after-tax, related to the September 11 attack in the United States. Then, in the fourth quarter, we recognized net surety bond losses of $220 million, or $143 million after-tax, arising from the bankruptcy of Enron Corp.

      Net income, which includes realized investment gains and losses, was $112 million in 2001 compared with $715 million in 2000 and $621 million in 1999.

Property and Casualty Insurance

     Overview

      Our property and casualty business incurred an operating loss before taxes of $53 million in 2001 compared with operating income of $803 million in 2000 and $626 million in 1999. Excluding the net costs of $645 million related to the September 11 attack and the net surety bond losses of $220 million related to Enron, operating income before taxes was $812 million in 2001, similar to that in 2000. The higher earnings in 2000 compared with 1999 were due primarily to an improvement in underwriting results, caused in large part by substantially lower catastrophe losses.

      A summary of our property and casualty insurance operating results for the years ended December 31, 2001, 2000 and 1999 is included in the supplementary financial data on page 21 of the Corporation’s 2001 Annual Report to Shareholders. The summary on page 17 of our property and

16

casualty insurance operating results for 2001 also presents such results excluding the impact of the September 11 attack and shows the impact of the September 11 attack separately.

									Excluding
						Impact of			Impact of
						Sept. 11			Sept. 11
			Total			Attack			Attack
			(in millions)
Underwriting
	Net premiums written		$	6,961		$	30		$	6,931
	Increase in unearned premiums			(305	)					(305	)
		Premiums earned		6,656			30			6,626
	Claims and claim expenses			5,357			665			4,692
	Operating costs and expenses			2,261						2,261
	Increase in deferred policy acquisition costs			(87	)					(87	)
	Dividends to policyholders			29						29
		Total claims and expenses		7,560			665			6,895
		Underwriting loss		(904	)		(635	)		(269	)
Investment income				903						903
Amortization of goodwill and other charges				(52	)		(10	)		(42	)
		Property and casualty income (loss) before tax	$	(53	)	$	(645	)	$	592

      The pre-tax costs of $645 million related to the September 11 attack had three components. First, in our insurance business, we incurred estimated net claims and claim expenses of $555 million plus reinsurance reinstatement costs of $50 million, for an aggregate cost of $605 million. Second, in our reinsurance business written through Chubb Re, which is included in other specialty results, we incurred estimated net claims and claim expenses of $110 million and recognized net reinstatement premium revenue of $80 million, for a net cost of $30 million. Finally, we recorded a $10 million charge, included in other charges, as our share of the losses publicly estimated by Hiscox plc, a U.K. insurer in which we have a 28% interest.

      We estimate that our gross claims and claim expenses from the September 11 attack were about $3 billion. Most of the claims were from property exposure and business interruption losses. We also had significant workers’ compensation losses. Our net claims and claim expenses of $665 million were significantly lower than the gross amount due to various reinsurance agreements. Our property exposures were protected by facultative reinsurance, a property per risk treaty that limited our net loss per risk, and our property catastrophe treaty. Our workers’ compensation losses were protected by a casualty catastrophe treaty and a casualty clash treaty. Based on our review of our reinsurance programs, we estimated the amount of reinsurance recoverable. We believe the estimate is reasonable based on information available at the present time. We have also modeled the estimated recoveries by individual reinsurer. Based on this analysis, we estimate that 98% of our reinsurance is with reinsurers or markets rated investment grade or rated A or better by A.M. Best Company.

      Business interruption claims from the September 11 attack will take some time to settle, while potential liability claims, if initiated, could take years to settle. Given that, we have no evidence of any emerging issues that would cause us to change our reserve estimates. While it is possible that our estimate of ultimate net losses related to the September 11 attack may change in the future, we do not expect that any such change would have a material effect on the Corporation’s consolidated financial condition or liquidity.

  Underwriting Results

      Underwriting results by class of business for the years ended December 31, 2001, 2000 and 1999 are presented on page 22 of the Corporation’s 2001 Annual Report to Shareholders. In 2001, we formed three strategic business units: Chubb Personal Insurance, Chubb Commercial Insurance and Chubb Specialty Insurance. In conjunction with the formation of the strategic business units, we have

17

reclassified property and marine business from our specialty insurance segment to our commercial insurance segment and also reclassified some business that was included within executive protection to multiple peril. Prior year amounts have been reclassified.

      Each of our underwriting segments was affected by the September 11 attack. However, the greatest impact by far was on our financial institutions business, which is part of our specialty insurance segment. Due to the distorting effect of the September 11 attack on our 2001 underwriting results, the remaining discussion and analysis of our underwriting results excludes the impact of the September 11 attack, unless otherwise noted. The following is a summary of our underwriting results for 2001 by class of business excluding the impact of the September 11 attack.

					Combined
			Net		Loss and
			Premiums		Expense
			Written		Ratios
			(in millions)
Personal insurance
	Automobile		$	480		98.7	%
	Homeowners			1,065		111.2
	Other			436		75.5
		Total personal		1,981		100.2
Commercial insurance
	Multiple peril			772		102.1
	Casualty			800		111.0
	Workers’ compensation			355		92.2
	Property and marine			569		112.7
		Total commercial		2,496		106.1
Specialty insurance
	Executive protection			1,349		94.0
	Financial institutions			574		94.7
	Other			531		142.9	(a)
		Total specialty		2,454		104.5	(a)
		Total	$	6,931		103.9	%(a)

(a)  Includes the effect of net surety bond losses of $220 million related to Enron. Excluding the effect of the Enron surety losses, the combined loss and expense ratio was 99.2% for other specialty, 95.3% for total specialty and 100.5% in total.

      Net premiums written were $6.9 billion in 2001, an increase of 9% over 2000. Reported net premiums written increased 11% in 2000 compared with 1999. Reported premium growth in 2000 was affected by the inclusion of premiums written by Executive Risk Inc. since July 1999, the date it was acquired by the Corporation. Executive Risk was a specialty insurance company offering primarily directors and officers and errors and omissions coverages. Excluding the effect of the acquisition of Executive Risk, premium growth was 8% in 2000.

      Substantial premium growth was achieved in 2001 and 2000 outside the United States, particularly in Europe, our largest foreign market. Non-U.S. premiums grew 16% in both 2001 and 2000 in local currencies. However, due to the strength of the U.S. dollar, particularly in 2000, reported non-U.S. premiums increased by 12% in 2001 and only 9% in 2000.

      Personal coverages accounted for $2.0 billion or 29% of 2001 net premiums written, commercial coverages for $2.5 billion or 36% and specialty coverages for $2.4 billion or 35%.

      Premium growth in personal lines was strong in both 2001 and 2000. In our commercial classes, which include multiple peril, casualty, workers’ compensation and property and marine, premiums decreased in 2000 as higher prices were more than offset by lower retention rates, the latter due in part to our pruning of underperforming accounts where we could not attain price adequacy. The marketplace continued to improve in 2001 with many of our competitors increasing rates even before

18

September 11. As a result, our commercial lines premiums began to increase in 2001, particularly in the fourth quarter, as we retained more of our business and wrote more new business. Premium growth in the specialty lines was restricted in 2001, primarily due to the lack of growth in our executive protection business caused by our writing fewer multi-year policies as well as our initiative to increase pricing and to not renew underperforming accounts.

      The tragic event of September 11 and its aftermath have accelerated changes in commercial insurance markets. In the wake of heavy insurance industry losses, many insurance companies have sought substantial price increases, raised deductibles, reduced coverage limits or declined outright to renew coverage. In this environment, we are seeing more opportunities to write new, high quality accounts and we are retaining more of our business. We are getting substantial rate increases on business we write, often with more restrictive policy terms and conditions. We expect that this trend will continue during 2002.

      At the same time, as a result of the substantial losses incurred by reinsurers, the cost of reinsurance in the marketplace is increasing significantly and reinsurance capacity for certain coverages, such as terrorism, is limited. We are operating under the assumption that our reinsurers will not cover most forms of terrorism. The insurance industry has asked for a government backstop for any future terrorist attacks. However, Congress has not enacted a legislative solution to terrorism related losses.

      We expect that reinsurers will restructure our property per risk reinsurance to limit the amount of catastrophe risk covered by these treaties. Also, in many cases, we will have to retain a larger share of a loss before property per risk reinsurance applies. We may not renew certain reinsurance programs because the terms being offered are too restrictive or because the programs have become prohibitively expensive. In fact, effective in January 2002, we did not renew a casualty catastrophe program that had substantially reduced our net workers’ compensation losses from the September 11 attack. Our current property reinsurance program expires in April 2002. The potential increase in our net risk concentrations from a catastrophic event that would result from changes to our reinsurance arrangements may be offset to some degree by changes to our gross risk profile. In particular, we are making a concerted effort to reduce terrorism risk aggregations. A shortage of reinsurance capacity could constrain our ability to respond to business opportunities and could make our future operating results more volatile.

      Underwriting results were unprofitable in 2001 due primarily to the Enron-related surety bond losses described below, compared with near breakeven results in 2000 and unprofitable results in 1999. The combined loss and expense ratio, the common measure of underwriting profitability, was 103.9% in 2001 compared with 100.4% in 2000 and 102.8% in 1999.

      The surety losses arising from the Enron bankruptcy relate to bonds issued to various obligees in connection with Enron commitments. We recognized our maximum surety exposure of $220 million, net of reinsurance, in the fourth quarter of 2001. However, certain of these bonds are the subject of litigation. Management believes there are reasonable grounds for challenging the validity of our obligations under the bonds that are the subject of the litigation and intends to pursue the litigation vigorously. If we are successful in the litigation, any favorable development would be reflected in future operating results.

      Excluding the effect of the Enron surety losses, the combined loss and expense ratio was 100.5% in 2001, similar to the 100.4% in the prior year.

      The loss ratio, excluding the effect of the Enron surety losses, was 67.7% in 2001 compared with 67.5% in 2000 and 70.3% in 1999. Catastrophe losses other than those related to the September 11 attack were $114 million in 2001 which represented 1.7 percentage points of the loss ratio compared with $72 million or 1.2 percentage points in 2000 and $225 million or 4.0 percentage points in 1999. Catastrophe losses affecting results each year resulted primarily from weather-related events in the United States, including in particular Tropical Storm Allison in the second quarter of 2001 and Hurricane Floyd in the third quarter of 1999. Other than reinsurance recoveries related to the September 11 attack, we did not have any recoveries from our catastrophe reinsurance program during the three year period since

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there were no other individual catastrophes for which our losses exceeded the initial retention. Currently, our initial retention level for each catastrophic event is approximately $100 million in the United States and generally $25 million outside the United States. Our initial retention may increase when our catastrophe reinsurance program is renewed in 2002.

      Our expense ratio was 32.8% in 2001 compared with 32.9% in 2000 and 32.5% in 1999. The increase in the expense ratio in 2000 was due to overhead expenses growing at a somewhat higher rate than written premiums.

     Personal Insurance

      Net premiums from personal insurance increased 15% in 2001 compared with a 13% increase in 2000. We continued to grow our personal lines business with the in-force policy count for all coverages increasing. During 2001, our in-force policy count increased 14% for automobile, 8% for homeowners and 10% for other coverages. Personal lines premiums outside the United States grew significantly in 2001 and 2000, although from a small base. Much of this growth was in Europe where remedial actions to increase rates and improve the profitability of this business are in progress.

      Our personal insurance business produced near breakeven underwriting results in 2001 compared with substantial profits in 2000 and 1999. The combined loss and expense ratio was 100.2% in 2001 compared with 92.9% in 2000 and 89.9% in 1999.

      Homeowners results were unprofitable in 2001 compared with near breakeven results in 2000 and profitable results in 1999. Results deteriorated significantly in 2001 due primarily to a substantial increase in the frequency and severity of water damage claims, including those related to mold, as well as rate deficiencies in several states and inadequate insurance to value. Results deteriorated in 2000 compared with 1999 due to an increase in large non-catastrophe losses that more than offset a decrease in catastrophe losses. Catastrophe losses represented 5.4 percentage points of the loss ratio for this class in 2001 compared with 7.3 percentage points in 2000 and 11.8 percentage points in 1999. Homeowners results were unprofitable in Europe in each of the past three years as we are still building the critical mass necessary to absorb the costs of operating that franchise.

      Our personal automobile business was profitable in each of the last three years. However, profitability decreased in 2000 and again in 2001 due to an increase in the frequency of losses in the liability component of this business. Results in each year benefited from stable loss severity.

      Other personal coverages, which include insurance for personal valuables and excess liability, produced highly profitable results in each of the past three years, as favorable loss experience has continued.

      In the latter part of 2001, we had homeowners rate increases approved in many of the states where rates are deficient. We are seeking a second round of rate increases and are increasing insurance to value. We saw a dramatic proliferation of water damage claims in 2001, particularly in Texas, where state mandated policy language has contributed to broader water damage coverage. We are closely monitoring the water damage issue in Texas and in other states where it is becoming a growing concern. If necessary, we will reduce our presence in states where we cannot attain rate adequacy due to regulatory constraints or adverse loss trends.

     Commercial Insurance

      Net premiums from commercial insurance increased 7% in 2001 compared with a 2% decrease in 2000. The decrease in premiums in 2000 was the result of the strategy we put in place in late 1998 to increase the pricing in these classes and to not renew underperforming business where we could not attain price adequacy. As a result, retention levels were significantly below historical levels during 2000. On the business that was renewed, however, rates increased steadily. Rate increases remained firm in 2001. Premiums began to increase in 2001 as retention levels improved, particularly in the second half of the year. In addition, new business accelerated in the fourth quarter. Exposure growth, however, was minimal in 2001 due to the weak economy.

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      Our commercial insurance business produced underwriting losses in each of the past three years, but has shown substantial improvement in each succeeding year. The improvement was due in large part to the cumulative effect of the pricing increases and more stringent risk selection in recent years. The combined loss and expense ratio was 106.1% in 2001 compared with 114.2% in 2000 and 120.4% in 1999.

      Commercial insurance results, particularly in the casualty classes, were adversely affected in each of the past three years by incurred losses related to asbestos and toxic waste claims. Such losses were $61 million in 2001, $31 million in 2000 and $47 million in 1999. The higher incurred losses in 2001 were the result of adverse trends in asbestos related exposure (see “Loss Reserves”).

      Multiple peril results were near breakeven in 2001 compared with unprofitable results in 2000 and highly unprofitable results in 1999. The improvement in 2001 was principally in the liability component of this business due to a lower frequency and severity of losses. The improvement in 2000 occurred in both the property and liability components due to a lower frequency of large losses in both the United States and overseas. Results in the property component in 2000 also benefited from an absence of catastrophe losses. Conversely, results in 1999 were adversely affected by higher catastrophe losses. Catastrophe losses represented 3.0 percentage points of the loss ratio for this class in 2001 and 9.2 percentage points in 1999. There were virtually no catastrophe losses in 2000.

      Results for our casualty business improved considerably in 2001 compared with the prior two years, but remained unprofitable. The improvement in 2001 was primarily in the automobile component of this business and, to a lesser extent, the primary liability component. Results in 2000 were similar with those in 1999, as improvement in the primary liability component was offset by deterioration in the automobile component. The automobile component was modestly unprofitable in 2001 compared with highly unprofitable results in 2000 and 1999. The significant improvement in 2001 was due to higher rates and the culling of loss prone business, which resulted in a lower frequency of losses. Results had deteriorated in 2000 due to inadequate prices and an increased frequency of losses. Results for the primary liability component were unprofitable in each of the past three years, but improved in each succeeding year. The excess liability component was somewhat more unprofitable in 2001 compared with the previous two years. The severity of the large losses that are prevalent in this class has increased in recent years. Excess liability results in each of the past three years benefited from favorable development of prior year loss reserves. As noted above, casualty results in each of the past three years were adversely affected by incurred losses related to asbestos and toxic waste claims. Casualty results outside the United States were near breakeven in 2001 compared with unprofitable results in 2000 and profitable results in 1999.

      Workers’ compensation results were highly profitable in 2001 compared with near breakeven results in 2000 and unprofitable results in 1999. The improvement each year was due to higher rates as well as a lower frequency of losses, resulting in large part from our disciplined risk selection during the past several years.

      Property and marine results remained highly unprofitable over the past three years. The positive effect of the pricing initiative and the culling of unprofitable accounts was offset each year by a high frequency of large property losses. Overseas losses were significantly higher in 2001 and 2000. Results in 1999 were adversely affected by higher catastrophe losses. Catastrophe losses represented 5.4 points of the loss ratio for this class in 2001 compared with 1.7 points in 2000 and 10.2 points in 1999.

     Specialty Insurance

      Reported net premiums from specialty commercial insurance increased by 8% in 2001 compared with a 26% increase in 2000. Excluding the effect of including only six months of Executive Risk business in 1999, premium growth was about 17% in 2000.

      Our strategy of working closely with our customers and our ability to bring new products to market and differentiate such products continue to enable us to renew a considerable percentage of our executive protection and financial institutions business. However, executive protection premium growth was only 6% in 2001. Recent claim severity trends indicated the need for higher rates and

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improved policy terms. As a result, we initiated a program to increase pricing and to not renew business that no longer meets our underwriting criteria. The low growth in 2001 was due to our writing fewer multi-year policies and the non-renewal of unprofitable business. Rates increased steadily in 2001, particularly for public company directors and officers liability business. As a result of the improved pricing, executive protection premiums increased 13% in the fourth quarter of 2001.

      Financial institutions had solid premium growth of 14% in 2001 due to both new business and higher rates. Expansion of the standard commercial component of this business may be somewhat restrained in 2002 by our management of terrorism exposure concentrations.

      Growth in our other specialty commercial business was primarily from Chubb Re, our reinsurance business that began operations in 1999. Premiums produced by Chubb Re amounted to $199 million in 2001 compared with $158 million in 2000 and $73 million in 1999. We expect reinsurance assumed business to be a significant contributor to growth in 2002.

      Our specialty commercial underwriting results were unprofitable in 2001 due to the Enron surety losses, compared with highly profitable results in 2000 and 1999. The combined loss and expense ratio was 104.5% in 2001 compared with 91.3% in 2000 and 88.5% in 1999. Excluding the effect of the Enron surety losses, underwriting results were profitable in 2001 as evidenced by a 95.3% combined loss and expense ratio.

      Executive protection results were profitable in each of the past three years due to favorable development of prior year loss reserves, particularly in the directors and officers and fiduciary liability components. However, profit margins have narrowed in the most recent accident years. Our employment practices liability business for large employers was unprofitable in each of the past three years. Overseas results were modestly unprofitable in 2001 due to several large directors and officers liability losses, compared with highly profitable results in the prior two years.

      Our financial institutions business was profitable in each of the last three years due to favorable loss experience in the fidelity component of this business. Results from our errors and omissions business were unprofitable in 2001 due to an increase in loss severity. The standard commercial business written on financial institutions produced profitable results in 2001 compared with breakeven results in 2000 and unprofitable results in 1999.

      Results in our other specialty classes were highly unprofitable in 2001 due to the Enron surety losses. Excluding the Enron surety losses, other specialty results were near breakeven in 2001 compared with unprofitable results in 2000 and profitable results in 1999. Our reinsurance assumed business generated by Chubb Re produced a modest underwriting loss in each of the past three years. Aviation results were highly unprofitable in each of these years. We have reduced our participation in aviation business which will reduce our exposure to any future losses.

      Surety results were highly profitable in 1999 and 2000 and, excluding the Enron surety losses, were highly profitable in 2001. As a result of disarray in the surety reinsurance market caused in large part by the Enron bankruptcy, the availability of surety reinsurance in the near term will be significantly reduced. As a result, our future surety results could be more volatile.

      We have in force several gas forward purchase surety bonds similar to those issued to Enron. The total amount of bonds with one principal is $570 million, which far exceeds the combined amount of all other similar surety bonds. The principals under these surety bonds continue to perform at this time and we have no reason to doubt their continued ability to perform.

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  Loss Reserves

      Loss reserves are our property and casualty subsidiaries’ largest liability. Loss reserves at December 31, 2001 included significant amounts related to the September 11 attack and to our Enron surety exposure. The components of loss reserves were as follows:

			December 31
			2001		2000		1999
			(in millions)
Gross loss reserves
	Total, per balance sheet		$	15,515	$	11,904	$	11,435
	Less:
		Related to September 11 attack		2,775
		Related to Enron surety exposure		333
	Total, as adjusted		$	12,407	$	11,904	$	11,435
Reinsurance recoverable
	Total, per balance sheet		$	4,505	$	1,853	$	1,686
	Less:
		Related to September 11 attack		2,239
		Related to Enron surety exposure		121
	Total, as adjusted		$	2,145	$	1,853	$	1,686
Net loss reserves
	Total		$	11,010	$	10,051	$	9,749
	Total, as adjusted			10,262		10,051		9,749

      Adjusted to exclude the loss reserves related to the September 11 attack and the Enron surety losses, loss reserves, net of reinsurance recoverable, increased by $211 million or 2% in 2001 compared with $302 million or 3% in 2000. Loss reserves for personal insurance and specialty insurance increased in 2001 and 2000 while loss reserves for commercial insurance decreased each year. Such decrease reflects the significant exposure reductions of the past several years and improved accident year results due to price increases and more stringent risk selection.

      During 2001, we experienced overall favorable development of $196 million on loss reserves established as of the previous year-end. This compares with favorable development of $230 million in 2000 and $206 million in 1999. Such redundancies were reflected in operating results in these respective years. Each of the past three years benefited from favorable claim experience for certain liability classes, offset in part by losses incurred related to asbestos and toxic waste claims.

      The process of establishing loss reserves is complex and imprecise as it reflects significant judgmental factors. This is true because claim settlements to be made in the future will be impacted by changing rates of inflation 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 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 effects of current developments and likely trends, is an appropriate basis for predicting future outcomes.

      Our loss reserves include amounts related to short tail and long tail classes of business. Short tail classes consist principally of homeowners, personal valuables and commercial property business. For these classes, the estimation of loss reserves is less complex because claims are generally reported and settled quickly and the claims relate to tangible property.

      Long-tail classes include directors and officers liability and other executive protection coverages, commercial excess liability and other liability classes. Most of our loss reserves relate to long tail liability classes of business. For many liability claims significant periods of time, ranging up to several years or more, may elapse between the occurrence of the loss, the reporting of the loss and the

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settlement of the claim. The longer the time span between the incidence of a loss and the settlement of the claim, the more the ultimate settlement amount can vary. For the long tail liability classes, a relatively small proportion of net losses in the more recent accident years are reported claims and an even smaller proportion are paid losses. Therefore, a relatively large proportion of our net losses for these classes are reserves for incurred but not reported (IBNR) losses — claims that had not yet been reported to us, some of which were not yet known to the insured, and future development on reported claims. In fact, approximately 60% of our aggregate net loss reserves at December 31, 2001 were for IBNR.

      In spite of the inherent imprecision in the loss reserving process, financial reporting requirements dictate that we and other insurance companies report a single amount as the estimate of loss reserves at each balance sheet date.

      Judicial decisions and legislative actions continue to broaden liability and policy definitions and to increase the severity of claim payments. As a result of this and other societal and economic developments, the uncertainties inherent in estimating ultimate claim costs on the basis of past experience have been exacerbated, further complicating the already complex loss reserving process.

      The uncertainties relating to asbestos and toxic waste claims on insurance policies written many years ago are exacerbated by inconsistent court decisions and judicial and legislative interpretations of coverage that in some cases have tended to erode the clear and express intent of such policies and in others have expanded theories of liability. The industry as a whole is engaged in extensive litigation over these coverage and liability issues and is thus confronted with a continuing uncertainty in its efforts to quantify these exposures.

      Asbestos remains the most significant and difficult mass tort for the insurance industry in terms of claims volume and dollar exposure. The continued flow of claims has pushed about a dozen manufacturers and users of asbestos products into bankruptcy since 2000. To date, approximately 50 companies have filed for bankruptcy as a result of asbestos liability. In part as a result of these bankruptcies, the volume and value of claims against viable asbestos defendants continue to increase.

      Our most significant individual asbestos exposures involve traditional defendants who manufactured, distributed or installed asbestos products for whom we wrote excess liability coverages. While these insureds are relatively few in number, such exposure has increased in recent years due to the increased volume of claims, the erosion of much of the underlying limits and the bankruptcies of target defendants.

      Our other asbestos exposures are mostly peripheral defendants, including a mix of manufacturers, distributors and installers of certain products that contain asbestos as well as premises owners. Generally, these insureds are named defendants on a regional rather than a nationwide basis. As the financial resources of traditional asbestos defendants have been depleted, plaintiffs are targeting these peripheral parties with greater frequency and, in many cases, for larger awards. In addition, the plaintiffs’ bar continues to solicit new claimants through extensive advertising and through asbestos medical screenings. Litigation is then initiated even though many of the claimants do not show any signs of asbestos-related illness. Thus, new asbestos claims and new exposures on existing claims have continued unabated despite the fact that usage of asbestos has declined since the mid-1970’s. Based on published projections, we expect that we will continue receiving asbestos claims at the current rate for at least the next several years.

      Early asbestos claims focused on the major manufacturers, distributors or installers of asbestos products under the products liability section of primary general liability policies, which typically had aggregate limits that capped an insurer’s liability. A growing number of asbestos claims by insureds are being presented as “non-products” claims, such as those by installers of asbestos products and by property owners who allegedly had asbestos on their property, under the premises or operations section of primary general liability policies. Unlike products exposures, these non-products exposures typically had no aggregate limits, creating potentially greater exposure. Further, in an effort to seek additional insurance coverage, some insureds that have substantially eroded their products coverage

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are presenting new asbestos claims as non-products premises or operations claims or attempting to reclassify old products claims. The extent to which insureds will be successful in obtaining coverage on this basis is uncertain.

      The expanded focus of asbestos litigation beyond asbestos manufacturers and distributors to installers and premises owners has created in some instances conflicts among insureds, primary insurers and excess insurers, primarily involving questions regarding allocation of indemnity and expense costs and exhaustion of policy limits. These issues are generating costly coverage litigation with the potential for inconsistent results.

      Federal legislation still appears to be the best vehicle for comprehensively addressing the asbestos problem. Any legislative solution would require the support of members of the plaintiffs’ bar.

      Significant uncertainty remains as to our ultimate liability related to asbestos related claims due to such factors as the long latency period between asbestos exposure and disease manifestation and the resulting potential for involvement of multiple policy periods for individual claims as well as the increase in the volume of claims by plaintiffs who claim exposure but who have no symptoms of asbestos-related disease and an increase in claims filed under the non-aggregate premises or operations section of general liability policies.

      Hazardous waste sites are another significant potential exposure. Under the federal “Superfund” law and similar state statutes, when potentially responsible parties (PRPs) fail to handle the clean-up at a site, regulators have the work done and then attempt to establish legal liability against the PRPs. Most PRPs named to date are parties who have been generators, transporters, past or present land owners or past or present site operators. The PRPs disposed of toxic materials at a waste dump site or transported the materials to the site. In many instances, these PRPs had proper government authorization. Most sites have multiple PRPs. Insurance policies issued to PRPs were not intended to cover the clean-up costs of pollution and, in many cases, did not intend to cover the pollution itself. Pollution was not a recognized hazard at the time many of these policies were written. In more recent years, however, policies specifically exclude such exposures.

      As the costs of environmental clean-up became substantial, PRPs and others increasingly filed claims with their insurance carriers. Litigation against insurers extends to issues of liability, coverage and other policy provisions.

      There is great uncertainty involved in estimating our liabilities related to these claims. First, the liabilities of the claimants are extremely difficult to estimate. At any given site, the allocation of remediation costs among governmental authorities and the PRPs varies greatly depending on a variety of factors. Second, different courts have addressed liability and coverage issues regarding pollution claims and have reached inconsistent conclusions in their interpretation of several issues. These significant uncertainties are not likely to be resolved definitively in the near future.

      Uncertainties also remain as to the Superfund law itself. Superfund’s taxing authority expired on December 31, 1995 and has not been re-enacted. Notwithstanding continued pressure by the insurance industry and other interested parties to achieve a legislative solution that would reform the liability provisions of the law, federal legislation appears to be at a standstill. At this time, it is not possible to predict the direction that any reforms may take, when they may occur or the effect that any changes may have on the insurance industry.

      Without federal movement on Superfund reform, the enforcement of Superfund liability is shifting to the states. States are being forced to reconsider state-level cleanup statutes and regulations. As individual states move forward, the potential for conflicting state regulation becomes greater. Significant uncertainty remains as to the cost of remediating the state sites. Because of the large number of state sites, such sites could prove even more costly in the aggregate than Superfund sites.

      Toxic waste losses appear to be developing as expected due to relatively stable claim trends. In many cases, claims are being settled for less than initially anticipated due to various factors, including more efficient site remediation efforts and increasing success with policy buy backs.

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      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.

      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 sufficient information has been developed to indicate the involvement of a specific 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 significant.

	Years Ended December 31
	2001		2000		1999
	(in millions)
Loss reserves, beginning of year	$	450	$	524	$	1,075	(a)
Incurred losses		61		31		47
Losses paid		99		105		598	(a)
Loss reserves, end of year	$	412	$	450	$	524

(a)  Includes $549 million related to asbestos claims against Fibreboard Corporation.

      Reserves for asbestos and toxic waste claims are continually reviewed and updated. Further increases in such loss reserves in 2002 and future years are possible as legal and factual issues concerning these claims continue to be clarified. The amount cannot be reasonably estimated at the present time.

      Management believes that the aggregate loss reserves of the property and casualty subsidiaries at December 31, 2001 were adequate to cover claims for losses that had 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. However, given the expansion of coverage and liability by the courts and the legislatures in the past and the possibilities 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 effect on future operating results. However, management does not expect that any such increases would have a material adverse effect on the Corporation’s consolidated financial condition or liquidity.

  Catastrophe Exposure

      The tragic event of September 11 changed the way the property and casualty insurance industry views catastrophic risk. Numerous classes of business have become exposed to terrorism related catastrophic risks in addition to the catastrophic risks related to natural occurrences. 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.

      The Corporation’s property and casualty subsidiaries also have exposure to insured losses caused by hurricanes, earthquakes, winter storms, windstorms and other natural catastrophic events. The frequency and severity of natural catastrophes are unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in an area affected by the event and the severity of the event. We continually assess our concentration of underwriting exposures in catastrophe prone areas globally and develop strategies to manage this exposure through individual risk selection, subject to regulatory constraints, and through the purchase of catastrophe reinsurance.

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In recent years, we have invested in modeling technologies and concentration management tools that enable us to better monitor and control catastrophe exposures. We also continue to explore and analyze credible scientific evidence, including the impact of global climate change, that may affect our potential exposure under insurance policies.

  Investments and Liquidity

      Property and casualty investment income after taxes increased 2% in 2001 compared with 2000 and 6% in 2000 compared with 1999. Reported growth in 2000 was due in part to the inclusion of Executive Risk investment income for only six months in 1999. Excluding the effect of the acquisition of Executive Risk, growth was about 3% in 2000. Growth in 2001 and 2000 was due to an increase in invested assets, which reflected substantial cash flow from operations over the period. Growth was dampened by lower available reinvestment rates on fixed maturities that matured in each year. The effective tax rate on our investment income was 17.0% in 2001 compared with 16.4% in 2000 and 15.7% in 1999. The effective tax rate increased each year as a result of our holding a somewhat smaller proportion of our investment portfolio in tax-exempt securities.

      Generally, premiums are received by our property and casualty subsidiaries months or even years before losses are paid under the policies purchased by such premiums. These funds are used first to make current claim and expense payments. The balance is invested to augment the investment income generated by the existing portfolio. Historically, cash receipts from operations, consisting of insurance premiums and investment income, have provided more than sufficient funds to pay losses, operating expenses and dividends to the Corporation.

      New cash available for investment by the property and casualty subsidiaries was approximately $570 million in 2001 compared with $560 million in 2000 and $940 million in 1999. New cash available in 2001 and 2000 was lower than in 1999 due primarily to paid losses growing at a higher rate than premium receipts in these years.

      In addition to the cash from operations, the Corporation contributed $750 million to the property and casualty subsidiaries in the fourth quarter of 2001, of which $250 million was used to fund the purchase of a 19% interest in Allied World Assurance Holdings, Ltd, a newly formed Bermuda-based insurer.

      In 2001, we invested new cash primarily in corporate bonds. In 2000, we invested new cash primarily in mortgage-backed securities. In 1999, new cash was invested in tax-exempt bonds and corporate bonds. During 1999, we reduced our equity securities portfolio by approximately $350 million with $145 million of the proceeds used to fund the purchase of a 28% interest in Hiscox plc, a U.K. personal and commercial specialty insurer. In each year, we tried to achieve the appropriate mix of taxable and tax-exempt securities in our portfolio to balance both investment and tax strategies.

      We have evaluated our expected cash needs related to the settlement of claims from the September 11 attack. We expect to fund our obligations related to such claims from a combination of operating cash flows, maturity of fixed maturity securities and anticipated recovery of reinsurance. The period over which the payment of claims from the September 11 attack will be made is not yet determinable. Our property and casualty subsidiaries maintain investments in highly liquid, short-term and 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

      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 2001 compared with a loss of $4 million in both 2000 and 1999. Interest expense increased each year due to the inclusion of interest expense on the debt assumed in connection with the Executive Risk acquisition in July 1999 and the issuance of short term

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and long term debt in 2001. In 2000, corporate and other included income of $10 million from a noncompete payment related to the sale of the Corporation’s 50% interest in Associated Aviation Underwriters, Inc. (AAU).

  Chubb Financial Solutions

      Chubb Financial Solutions (CFSI) was organized by the Corporation in 2000 to engage in developing and providing risk-financing services through the capital and insurance markets. Since its inception, CFSI’s non-insurance operations have been primarily in the credit derivatives business, principally as a counterparty to credit default swaps. The Corporation guarantees all of these obligations. Income before taxes from the non-insurance business of CFSI was $7 million in 2001 and $3 million in 2000, which amounts are included in the corporate and other results. Revenues from this business, consisting of earned fees, were $27 million and $12 million in 2001 and 2000, respectively.

      In a typical credit default swap, CFSI participates in the senior or super senior layer of a structure designed to replicate the performance of a portfolio of securities, loans or other debt obligations. The structure of these credit default swaps generally requires CFSI to make payment to counterparties to the extent cumulative losses, related to numerous credit events, exceed a specified attachment point.

      Credit default swaps are derivatives and are carried at estimated fair value in the financial 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 significant uncertainty. The fair value of our credit default swaps is subject to fluctuations arising from, among other factors, observable changes in credit spreads and interest rates. Increases in the fair value of obligations, which would result in a charge to income, could be material upon the occurrence of an extreme, widespread or persistent economic event that suggests an actual loss is possible. The market risks associated with our obligations under credit default swaps are discussed under “Market Risk — Credit Derivatives”.

      The insurance and reinsurance solutions that CFSI develops to meet the risk management needs of its customers are written by our property and casualty subsidiaries. Results from this business are included within our insurance results. A property and casualty subsidiary issued a reinsurance contract to an insurer that provides financial guarantees on asset-backed transactions. At December 31, 2001, the amount of aggregate principal commitments related to the contract was approximately $400 million, all of which expire by 2023.

  Real Estate

      Real estate operations resulted in a loss before taxes of $4 million in each of the past three years, which amounts are included in the corporate and other results. In each year, we sold selected commercial properties as well as residential properties. Real estate revenues were $87 million in 2001, $75 million in 2000 and $97 million in 1999.

      We own approximately $310 million of land that we expect will be developed in the future. In addition, we own approximately $185 million of commercial properties and land parcels under lease. We are continuing to explore the sale of certain of our remaining properties.

      Loans receivable, which amounted to $98 million at December 31, 2001, are primarily purchase money mortgages. Such loans, which were issued in connection with our joint venture activities and other property sales, are generally collateralized by buildings and, in some cases, land. We continually evaluate the ultimate collectibility of such loans and establish appropriate reserves.

      The recoverability of the carrying value of our real estate assets is assessed based on our ability to fully recover costs through a future revenue stream. The assumptions used reflect a continued improvement in demand for office space, an increase in rental rates and the ability and intent to obtain financing in order to hold and develop such remaining properties and protect our interests over the long term. Management believes that it has made adequate provisions for impairment of real estate assets. However, if the assets are not sold or developed as presently contemplated, it is possible that additional impairment losses may be recognized.

28

Investment Gains and Losses

      Net investment gains realized by the Corporation and its property and casualty subsidiaries were as follows:

	Years Ended
	December 31
	2001			2000			1999
	(in millions)
Equity securities	$	2		$	(1	)	$	63
Fixed maturities		(1	)		8			24
Sale of AAU		—			45			—
Realized investment gains before tax	$	1		$	52		$	87
Realized investment gains after tax	$	1		$	34		$	56

      Decisions to sell securities are governed principally by considerations of investment opportunities and tax consequences. Thus, realized investment gains and losses on the sale of investments may vary significantly from year to year.

      We periodically review the value of our invested assets for other than temporary impairment. If a decline in the fair value of an individual security is deemed to be other than temporary, the difference between cost and estimated fair value is charged to income as a realized investment loss.

      In 2001, realized gains on sales of equity securities and fixed maturities of $46 million and $34 million, respectively, were substantially offset by writedowns due to the recognition of other than temporary impairment on certain securities. Sales of equity securities in 1999 resulted in net realized investment gains due primarily to the significant appreciation in United States equity markets. A primary reason for the sale of fixed maturities in each of the last three years has been to improve our after-tax portfolio return without sacrificing quality where market opportunities have existed to do so.

      Fixed maturity securities which the Corporation and its insurance subsidiaries have the ability and intent to hold to maturity are classified as held-to-maturity. The remaining fixed maturities, which may be sold prior to maturity to support our investment strategies, such as in response to changes in interest rates and the yield curve or to maximize after-tax returns, are classified as available-for-sale. Fixed maturities classified as held-to-maturity are carried at amortized cost, while fixed maturities classified as available-for-sale are carried at market value. At December 31, 2001, 8% of the fixed maturity portfolio was classified as held-to-maturity compared with 10% at December 31, 2000 and 12% at December 31, 1999.

      The unrealized appreciation or depreciation of investments carried at market value, which includes equity securities and fixed maturities classified as available-for-sale, is reflected in a separate component of other comprehensive income, net of applicable deferred income tax.

      The unrealized market appreciation before tax of those fixed maturities carried at amortized cost was $64 million, $69 million and $59 million at December 31, 2001, 2000 and 1999, respectively. Such unrealized appreciation was not reflected in the consolidated financial statements.

      Changes in unrealized market appreciation or depreciation of fixed maturities were due primarily to fluctuations in interest rates.

Market Risk

      Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. Our primary exposure to market risks relates to our investment portfolio, which exposes the Corporation and its property and casualty subsidiaries to risks related to interest rates and, to a lesser extent, credit quality, prepayment, foreign currency exchange rates and equity prices. We also have exposure to market risks through our credit derivatives business and our debt obligations. Analytical tools and monitoring systems are in place to assess each of these elements of market risk.

29

  Investments

      The main objectives in managing the investment portfolios of the Corporation and its property and casualty subsidiaries are to maximize after-tax investment income and total investment returns while minimizing credit risks in order to provide maximum support to the insurance underwriting operations. Investment strategies are developed based on many factors including underwriting results and our resulting tax position, regulatory requirements, fluctuations in interest rates and consideration of other market risks. Investment decisions are centrally managed by investment professionals based on guidelines established by management and approved by the boards of directors.

      Interest rate risk is the price sensitivity of a security that promises a fixed return to changes in interest rates. Changes in market interest rates directly affect the market value of our fixed income securities. We view the potential changes in price of our fixed income investments within the overall context of asset and liability management. Our actuaries estimate the payout pattern of our liabilities, primarily our property and casualty loss reserves, to determine their duration, which is the present value of the weighted average payments expressed in years. We set duration targets for our fixed income investment portfolios after consideration of the duration of these liabilities and other factors, which we believe mitigates the overall effect of interest rate risk for the Corporation and its property and casualty subsidiaries.

      The following table provides information about our fixed maturity investments which are sensitive to changes in interest rates. The table presents cash flows of principal amounts and related weighted average interest rates by expected maturity dates at December 31, 2001 and 2000. The cash flows are based on the earlier of the call date or the maturity date or, for mortgage-backed securities, expected payment patterns. Actual cash flows could differ from the expected amounts.

		At December 31, 2001
																				Total
																						Estimated
																	There-			Amortized		Market
		2002			2003			2004			2005			2006			after			Cost		Value
		(in millions)
Tax-exempt		$	753		$	528		$	826		$	1,308		$	737		$	5,120		$	9,272	$	9,656
	Average interest rate		6.2	%		5.9	%		5.8	%		5.6	%		5.5	%		5.3	%		—		—
Taxable — other than mortgage-backed securities			295			353			407			550			459			2,233			4,297		4,395
	Average interest rate		6.5	%		6.2	%		6.5	%		6.4	%		6.4	%		6.2	%		—		—
Mortgage-backed securities			310			337			226			142			126			971			2,112		2,130
	Average interest rate		7.1	%		6.8	%		6.4	%		6.4	%		6.5	%		7.0	%		—		—
Total		$	1,358		$	1,218		$	1,459		$	2,000		$	1,322		$	8,324		$	15,681	$	16,181

		At December 31, 2000
																				Total
																						Estimated
																	There-			Amortized		Market
		2001			2002			2003			2004			2005			after			Cost		Value
												(in m			illions	)
Tax-exempt		$	662		$	620		$	586		$	921		$	1,308		$	5,453		$	9,550	$	9,945
	Average interest rate		6.8	%		6.1	%		5.9	%		5.8	%		5.6	%		5.3	%		—		—
Taxable — other than mortgage-backed securities			281			336			390			377			550			1,619			3,553		3,584
	Average interest rate		6.2	%		6.4	%		6.5	%		6.7	%		6.6	%		6.2	%		—		—
Mortgage-backed securities			286			367			281			192			126			862			2,114		2,104
	Average interest rate		7.2	%		7.3	%		7.2	%		7.2	%		7.3	%		7.4	%		—		—
Total		$	1,229		$	1,323		$	1,257		$	1,490		$	1,984		$	7,934		$	15,217	$	15,633

30

      The Corporation and its property and casualty subsidiaries have consistently invested in high quality marketable securities. As a result, we believe that we have minimal credit quality risk. Taxable bonds in our domestic portfolio comprise U.S. Treasury, government agency, mortgage-backed and corporate securities. Approximately 55% of our taxable bonds are issued by the U.S. Treasury or U.S. government agencies or rated AA or better by Moody’s or Standard and Poor’s. Of the tax-exempt bonds, more than 90% are rated AA or better, with more than 60% rated AAA. Less than 3% of our bond portfolio is below investment grade. Our taxable bonds have an average maturity of six years, while our tax-exempt bonds mature on average in eight years.

      Prepayment risk refers to the changes in prepayment patterns related to decreases and increases in interest rates that can either shorten or lengthen the expected timing of the principal repayments and thus the average life and the effective yield of a security. Such risk exists primarily within our portfolio of mortgage-backed securities. We monitor such risk regularly and invest primarily in those classes of mortgage-backed securities that are less subject to prepayment risk.

      Mortgage-backed securities comprised 33% and 37% of our taxable bond portfolio at year-end 2001 and 2000, respectively. About 50% of our mortgage-backed securities holdings at December 31, 2001 related to residential mortgages consisting of government agency pass-through securities, government agency collateralized mortgage obligations (CMOs) and AAA rated non-agency CMOs backed by government agency collateral or by single family home mortgages. The majority of the CMOs are actively traded in liquid markets and market value information is readily available from broker/dealers. An additional 30% of our mortgage-backed securities were call protected AAA rated commercial securities. The remaining mortgage-backed holdings were all in investment grade commercial mortgage-backed securities.

      Foreign currency risk is the sensitivity to foreign exchange rate fluctuations of the market value and investment income related to foreign currency denominated financial instruments. The functional currency of our foreign operations is generally the currency of the local operating environment since their business is transacted primarily in such local currency. We reduce the risks relating to currency fluctuations by maintaining investments in those foreign currencies in which our property and casualty subsidiaries have loss reserves and other liabilities. Such investments have characteristics similar to our liabilities in those currencies. At December 31, 2001, the property and casualty subsidiaries held non-U.S. investments of $1.6 billion supporting their international operations. These investments have quality and maturity characteristics similar to our domestic portfolio. The principal currencies creating foreign exchange rate risk for the property and casualty subsidiaries are the euro, the Canadian dollar and the British pound sterling. The following table provides information about those fixed maturity investments that are denominated in these currencies. The table presents cash flows of principal amounts in U.S. dollar equivalents by expected maturity dates at December 31, 2001 and 2000. Actual cash flows could differ from the expected amounts.

	At December 31, 2001
													Total
															Estimated
											There-		Amortized		Market
	2002		2003		2004		2005		2006		after		Cost		Value
	(in millions)
Euro	$	7	$	20	$	40	$	20	$	40	$	284	$	411	$	417
Canadian dollar		24		21		48		49		53		203		398		415
British pound sterling		1		9		21		54		38		176		299		302

31

	At December 31, 2000
													Total
															Estimated
											There-		Amortized		Market
	2001		2002		2003		2004		2005		after		Cost		Value
	(in millions)
Euro	$	9	$	24	$	25	$	28	$	14	$	213	$	313	$	317
Canadian dollar		23		21		29		26		31		232		362		377
British pound sterling		—		13		26		30		34		134		237		240

      Equity price risk is the potential loss arising from adverse changes in the value of equity securities. In general, equities have more year-to-year price variability than intermediate term high grade bonds. However, equity returns over longer time frames have been consistently higher. Our publicly traded equity securities are high quality, diversified across industries and readily marketable. Our portfolio also includes alternative investments, primarily investment partnerships. These investments by their nature are less liquid than our other investments. We actively manage our risk by allocating a comparatively small amount of funds to alternative investments, perform extensive research prior to investing in a new investment and monitor the performance of the entities in which we have invested. A hypothetical decrease of 10% in the market price of each of the equity securities held at December 31, 2001 and 2000 would have resulted in a decrease of $71 million and $83 million, respectively, in the fair value of the equity securities portfolio.

      All of the above risks are monitored on an ongoing basis. A combination of in-house systems and proprietary models and externally licensed software are used to analyze individual securities as well as each portfolio. These tools provide the portfolio managers with information to assist them in the evaluation of the market risks of the portfolio.

  Credit Derivatives

      CFSI’s obligations with respect to its credit derivatives business are carried at estimated fair value. The fair value of our credit default swaps is subject to fluctuations arising from, among other factors, changes in credit spreads and interest rates. At December 31, 2001, the fair value of future obligations under CFSI’s credit derivatives business was approximately $48 million, which is included in accrued expenses and other liabilities. For any particular credit default swap, an increase in the estimated fair value of our obligation may occur as a result of changing market conditions even when the probability of an actual loss to CFSI remains unlikely. The occurrence of an extreme, widespread or persistent economic event that suggests an actual loss is possible could result in a material increase in the fair value of our obligations.

      We review credit default swaps using quantitative analysis. When we enter into a credit default swap, we believe the credit quality in most instances is at least equal to the upper end of the investment grade credit spectrum. At December 31, 2001, CFSI’s aggregate exposure or retained risk, referred to as notional amounts, from its open credit default swaps was approximately $14.3 billion. The notional amounts are used to express the extent of involvement in swap transactions. The notional amounts are not a quantification of market risk or credit risk and are not recorded on the balance sheet. These amounts are used to calculate the exchange of contractual cash flows and are not necessarily representative of the potential for gain or loss. Since our position is senior to other subordinated interests and exposure to a single default within a referenced portfolio is limited, the severity of loss from our credit default swaps is likely to be lower than that of a similarly rated debt security portfolio valued at $14.3 billion.

  Debt

      We also have interest rate risk on our debt obligations. The table on page 33 provides information about our long term debt obligations and related interest rate swap at December 31, 2001. For debt obligations, the table presents expected cash flows of principal amounts and related weighted average

32

interest rates by maturity date. For the interest rate swap, the table presents the notional amount and related interest rates by maturity date.

			At December 31, 2001
																					Estimated
																There-					Market
			2002			2003			2004		2005			2006		after			Total		Value
			(in millions)
Long-term debt
	Expected cash flows of principal amounts		$	8		$	101		$	—	$	301		$	—	$	941		$	1,351	$	1,387
		Average interest rate		3.6	%		6.9	%		—		6.2	%		—		6.8	%
Interest rate swap
	Notional amount		$	—		$	—		$	—	$	—		$	—	$	125		$	125	$	—
		Variable pay rate															4.3	%(a)
		Fixed receive rate															8.7	%

(a) 3-month LIBOR rate plus 204 basis points

Capital Resources

      In July 1998, the Board of Directors authorized the repurchase of up to 12,500,000 shares of the Corporation’s common stock. In June 2001, the Board of Directors authorized the repurchase of up to an additional 16,000,000 shares. The 1998 authorization has no expiration while the 2001 authorization will expire on June 30, 2003. As of December 31, 2001, 3,287,100 shares remained under the 1998 share repurchase authorization and 10,366,300 shares remained under the 2001 authorization. In the aggregate, the Corporation repurchased 7,971,600 shares in open-market transactions in 2001 at a cost of $556 million, 3,783,400 shares in 2000 at a cost of $242 million and 2,596,700 shares in 1999 at a cost of $145 million.

      The Corporation’s financial strength provides the capacity and flexibility to raise funds in the capital markets. The Corporation filed a shelf registration statement in December 2001. When it is declared effective by the Securities and Exchange Commission, up to $1 billion of various types of securities may be issued by the Corporation.

      In November 2001, the Corporation sold $400 million of unsecured 6% notes due in 2011 and $200 million of unsecured 6.8% debentures due in 2031 under a previously filed shelf registration. The proceeds were used for general corporate purposes.

      The Corporation also has outstanding $300 million of unsecured 6.15% notes due in 2005 and $100 million of unsecured 6.60% debentures due in 2018. Chubb Capital Corporation, a wholly owned subsidiary, has outstanding $100 million of unsecured 6 7/8% notes due in 2003. The Chubb Capital notes are guaranteed by the Corporation.

      The long term debt obligations of Executive Risk remained in place subsequent to its acquisition in 1999. Chubb Executive Risk Inc., a wholly owned subsidiary of the Corporation, has outstanding $75 million of unsecured 7 1/8% notes due in 2007. Executive Risk Capital Trust, wholly owned by Chubb Executive Risk, has outstanding $125 million of 8.675% capital securities. The sole assets of the Trust are debentures issued by Chubb Executive Risk. The capital securities are subject to mandatory redemption in 2027 upon repayment of the debentures. The capital securities are also subject to mandatory redemption under certain circumstances beginning in 2007. The Corporation has guaranteed the unsecured notes and the capital securities.

      In August 2001, the Corporation entered into a cancelable interest rate swap in order to monetize the value of the call option embedded in the $125 million 8.675% capital securities. Under the terms of the interest rate swap, the Corporation receives 8.675% and pays the counterparty the 3-month LIBOR rate plus 204 basis points. As a result of entering into the swap, interest costs related to this portion of our debt will float with short term interest rates.

      The Corporation has two credit agreements with a group of banks that provide for unsecured borrowings of up to $500 million in the aggregate. The $200 million short term revolving credit facility,

33

which was to have terminated on July 4, 2001, was extended to July 2, 2002. The $300 million medium term revolving credit facility terminates on July 11, 2002. On the respective termination dates, any loans then outstanding become payable. There have been no borrowings under these agreements. Management anticipates that similar credit agreements will replace these agreements. These facilities are available for general corporate purposes and to support the Corporation’s commercial paper borrowing arrangement.

Change in Accounting Principles

      In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. The Statement addresses how intangible assets should be accounted for upon their acquisition and how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Under SFAS No. 142, goodwill will no longer be amortized but rather will be tested at least annually for impairment. The provisions of SFAS No. 142 are effective for the Corporation for the year beginning January 1, 2002. The Statement will be applied to goodwill recognized in the Corporation’s financial statements at that date. SFAS No. 142 may not be applied retroactively to financial statements of prior periods. The elimination of goodwill amortization is expected to result in an increase in net income in 2002 of approximately $20 million. The Corporation is in the process of assessing the effect, if any, that the implementation of the other provisions of SFAS No. 142 will have on its consolidated financial position or results of operations.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

      Quantitative and qualitative disclosures about market risk are included in Item 7, pages 29 through 33 of this report.

Item 8.  Consolidated Financial Statements and Supplementary Data

      Consolidated financial statements of the Corporation at December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 and the Report of Independent Auditors thereon and the Corporation’s unaudited quarterly financial data for the two-year period ended December 31, 2001 are incorporated by reference from the Corporation’s 2001 Annual Report to Shareholders, pages 48 through 73.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      None.

34

PART III.

Item 10.  Directors and Executive Officers of the Registrant

      Information regarding the Corporation’s Directors is incorporated by reference from the Corporation’s definitive Proxy Statement for the Annual Meeting of Shareholders on April 30, 2002, pages 2 through 5. Information regarding the executive officers is included in Part I of this report.

Item 11.  Executive Compensation

      Incorporated by reference from the Corporation’s definitive Proxy Statement for the Annual Meeting of Shareholders on April 30, 2002, pages 9 through 22 other than the Performance Graph and the Organization and Compensation Committee Report appearing on pages 16 through 20.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

      Incorporated by reference from the Corporation’s definitive Proxy Statement for the Annual Meeting of Shareholders on April 30, 2002, pages 6 through 8.

Item 13.  Certain Relationships and Related Transactions

      Incorporated by reference from the Corporation’s definitive Proxy Statement for the Annual Meeting of Shareholders on April 30, 2002, page 24.

35

PART IV.

Item 14.  Exhibits, Financial Statements, Schedules and Reports on Form 8-K

      (a) 1.  Financial statements and 2.  Schedules

      The financial statements and schedules listed in the accompanying index to financial statements and financial statement schedules are filed as part of this report.

      3.  Exhibits

      The exhibits listed in the accompanying index to exhibits are filed as part of this report.

      (b) Reports on Form 8-K

      There were no reports on Form 8-K filed for the three months ended December 31, 2001.

      For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant’s Registration Statements on Form S-8 Nos. 33-29185 (filed June 7, 1989), 33-30020 (filed July 18, 1989), 33-49230 (filed July 2, 1992), 33-49232 (filed July 2, 1992), 333-09273 (filed July 31, 1996), 333-09275 (filed July 31, 1996), 333-58157 (filed June 30, 1998), 333-67347 (filed November 16, 1998), 333-36530 (filed May 8, 2000) and Post-Effective Amendment No. 2 to Form S-4 on Form S-8 No. 333-73073 (filed July 19, 1999):

     Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

36

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

THE CHUBB CORPORATION

(Registrant)

March 8, 2002

     By  DEAN R. O’HARE

(Dean R. O’Hare, Chairman and

Chief Executive Officer)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature	Title	Date
DEAN R. O’HARE (Dean R. O’Hare)	Chairman, Chief Executive Officer and Director	March 8, 2002
ZOË BAIRD (Zoë Baird)	Director	March 8, 2002
JOHN C. BECK (John C. Beck)	Director	March 8, 2002
SHEILA P. BURKE (Sheila P. Burke)	Director	March 8, 2002
JAMES I. CASH, JR. (James I. Cash, Jr.)	Director	March 8, 2002
PERCY CHUBB, III (Percy Chubb, III)	Director	March 8, 2002
JOEL J. COHEN (Joel J. Cohen)	Director	March 8, 2002
JAMES M. CORNELIUS (James M. Cornelius)	Director	March 8, 2002
DAVID H. HOAG (David H. Hoag)	Director	March 8, 2002

37

Signature	Title	Date
KLAUS J. MANGOLD (Klaus J. Mangold)	Director	March 8, 2002
WARREN B. RUDMAN (Warren B. Rudman)	Director	March 8, 2002
DAVID G. SCHOLEY (David G. Scholey)	Director	March 8, 2002
(Raymond G.H. Seitz)	Director	March 8, 2002
LAWRENCE M. SMALL (Lawrence M. Small)	Director	March 8, 2002
(Karen Hastie Williams)	Director	March 8, 2002
JAMES M. ZIMMERMAN (James M. Zimmerman)	Director	March 8, 2002
ALFRED W. ZOLLAR (Alfred W. Zollar)	Director	March 8, 2002
WESTON M. HICKS (Weston M. Hicks)	Executive Vice President and Chief Financial Officer	March 8, 2002
HENRY B. SCHRAM (Henry B. Schram)	Senior Vice President and Chief Accounting Officer	March 8, 2002

38

THE CHUBB CORPORATION

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

COVERED BY REPORT OF INDEPENDENT AUDITORS

(Item 14(a))

		Annual Report to
		Shareholders		Form 10-K
		Page		Page
Report of Independent Auditors			72		—
Consolidated Balance Sheets at December 31, 2001 and 2000			49		—
Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and 1999			48		—
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2001, 2000 and 1999			50		—
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999			51		—
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2001, 2000 and 1999			51		—
Notes to Consolidated Financial Statements			52		—
Supplementary Information (unaudited)
Quarterly Financial Data			73		—
Schedules:
I —	Consolidated Summary of Investments — Other than Investments in Related Parties at December 31, 2001		—		41
II —	Condensed Financial Information of Registrant at December 31, 2001 and 2000 and for the Years Ended December 31, 2001, 2000 and 1999		—		42
III —	Consolidated Supplementary Insurance Information at and for the Years Ended December 31, 2001, 2000 and 1999		—		45
IV —	Consolidated Reinsurance for the Years Ended December 31, 2001, 2000 and 1999		—		46
VI —	Consolidated Supplementary Property and Casualty Insurance Information for the Years Ended December 31, 2001, 2000 and 1999		—		46

      All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto.

      The consolidated financial statements and supplementary information listed in the above index, which are included in the Annual Report to Shareholders of The Chubb Corporation for the year ended December 31, 2001, are hereby incorporated by reference.

39

CONSENT OF INDEPENDENT AUDITORS

      We consent to the incorporation by reference in this Annual Report (Form 10-K) of The Chubb Corporation of our report dated February 28, 2002 included in the 2001 Annual Report to Shareholders of The Chubb Corporation.

      Our audits also included the financial statement schedules of The Chubb Corporation listed in Item 14(a). These schedules are the responsibility of the Corporation’s management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

      We also consent to the incorporation by reference in the Registration Statements (Form S-3: No. 333-67445, No. 333-74912 and Form S-8: No. 33-29185, No. 33-30020, No. 33-49230, No. 33-49232, No. 333-09273, No. 333-09275, No. 333-58157, No. 333-67347, No. 333-36530 and Post-Effective Amendment No. 2 to Form S-4 on Form S-8 No. 333-73073) of our report dated February 28, 2002, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) of The Chubb Corporation.

ERNST & YOUNG LLP

New York, New York

March 28, 2002

40

THE CHUBB CORPORATION

Schedule I

CONSOLIDATED SUMMARY OF INVESTMENTS — OTHER THAN INVESTMENTS IN RELATED PARTIES

(in millions)

December 31, 2001

								Amount
								at Which
				Cost or				Shown in
				Amortized		Market		the
Type of Investment				Cost		Value		Balance Sheet
Short term investments				$	956.8	$	956.8	$	956.8
Fixed maturities
	Bonds
		United States Government and government agencies and authorities			1,187.9		1,217.1		1,215.8
		States, municipalities and political subdivisions			9,236.8		9,618.6		9,555.9
		Foreign			1,581.9		1,625.6		1,625.6
		Public utilities			330.1		334.7		334.7
		All other corporate bonds			3,298.7		3,338.5		3,338.5
			Total bonds		15,635.4		16,134.5		16,070.5
	Redeemable preferred stocks				45.1		46.2		46.2
			Total fixed maturities		15,680.5		16,180.7		16,116.7
Equity securities
	Common stocks
		Public utilities			2.3		2.3		2.3
		Banks, trusts and insurance companies			7.4		8.3		8.3
		Industrial, miscellaneous and other			708.5		657.1		657.1
			Total common stocks		718.2		667.7		667.7
	Non-redeemable preferred stocks				39.7		42.7		42.7
			Total equity securities		757.9		710.4		710.4
			Total invested assets	$	17,395.2	$	17,847.9	$	17,783.9

41

THE CHUBB CORPORATION

Schedule II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEETS — PARENT COMPANY ONLY

(in millions)

December 31

				2001			2000
Assets
	Invested Assets
		Short Term Investments		$	22.5		$	172.3
		Taxable Fixed Maturities — Available-for-Sale (cost $281.6 and $329.2)			279.5			324.8
		Equity Securities (cost $107.9 and $104.3)			97.6			118.3
			TOTAL INVESTED ASSETS		399.6			615.4
	Cash				—			.1
	Investment in Consolidated Subsidiaries				6,935.6			6,436.3
	Net Receivable from Consolidated Subsidiary				—			208.5
	Other Assets				294.7			274.3
			TOTAL ASSETS	$	7,629.9		$	7,534.6
Liabilities
	Long Term Debt			$	1,000.0		$	400.0
	Dividend Payable to Shareholders				57.8			57.8
	Net Payable to Consolidated Subsidiaries				10.0			—
	Accrued Expenses and Other Liabilities				36.8			95.1
			TOTAL LIABILITIES		1,104.6			552.9
Shareholders’ Equity
	Preferred Stock — Authorized 4,000,000 Shares; $1 Par Value; Issued — None				—			—
	Common Stock — Authorized 600,000,000 Shares; $1 Par Value; Issued 180,131,238 and 178,833,278 Shares				180.1			178.8
	Paid-In Surplus				527.0			466.0
	Retained Earnings				6,369.3			6,492.6
	Accumulated Other Comprehensive Income
		Unrealized Appreciation of Investments, Net of Tax			252.6			220.1
		Foreign Currency Translation Losses, Net of Tax			(73.0	)		(68.5	)
	Receivable from Employee Stock Ownership Plan				(48.9	)		(62.5	)
	Treasury Stock, at Cost — 10,059,857 and 3,914,105 Shares				(681.8	)		(244.8	)
			TOTAL SHAREHOLDERS’ EQUITY		6,525.3			6,981.7
			TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	7,629.9		$	7,534.6

      The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Corporation’s 2001 Annual Report to Shareholders.

42

THE CHUBB CORPORATION

Schedule II

(continued)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF INCOME — PARENT COMPANY ONLY

(in millions)

Years Ended December 31

		2001			2000			1999
Investment Income		$	41.6		$	41.7		$	41.9
Realized Investment Gains			21.2			29.4			18.1
Investment Expenses			(1.8	)		(2.1	)		(2.1	)
Corporate Expenses			(62.1	)		(52.6	)		(41.2	)
			(1.1	)		16.4			16.7
Federal and Foreign Income Tax (Credit)			(19.1	)		3.0			6.9
			18.0			13.4			9.8
Equity in Net Income of Consolidated Subsidiaries			93.5			701.2			611.3
	NET INCOME	$	111.5		$	714.6		$	621.1

      The Corporation and its domestic subsidiaries file a consolidated federal income tax return. The Corporation’s federal income tax represents its allocation of federal income tax under the Corporation’s tax allocation agreements with its subsidiaries.

      The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Corporation’s 2001 Annual Report to Shareholders.

43

THE CHUBB CORPORATION

Schedule II

(continued)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF CASH FLOWS — PARENT COMPANY ONLY

(in millions)

Years Ended December 31

				2001			2000			1999
Cash Flows from Operating Activities
	Net Income			$	111.5		$	714.6		$	621.1
	Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
		Equity in Net Income of Consolidated Subsidiaries			(93.5	)		(701.2	)		(611.3	)
		Realized Investment Gains			(21.2	)		(29.4	)		(18.1	)
		Other, Net			25.6			11.9			16.3
			NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		22.4			(4.1	)		8.0
Cash Flows from Investing Activities
	Proceeds from Sales of Fixed Maturities				229.2			68.7			105.5
	Proceeds from Maturities of Fixed Maturities				11.9			3.5			30.4
	Proceeds from Sales of Equity Securities				100.4			101.4			68.7
	Purchases of Fixed Maturities				(195.3	)		(69.2	)		(83.8	)
	Purchases of Equity Securities				(81.1	)		(53.4	)		(67.7	)
	Decrease (Increase) in Short Term Investments, Net				149.8			(65.6	)		(8.5	)
	Capital Contributions to Consolidated Subsidiaries				(750.5	)		—			—
	Dividends and Other Distributions Received from Consolidated Subsidiaries				385.9			320.0			300.0
	Other, Net				(52.7	)		40.8			(9.8	)
			NET CASH PROVIDED (USED IN) BY INVESTING ACTIVITIES		(202.4	)		346.2			334.8
Cash Flows from Financing Activities
	Proceeds from Issuance of Long Term Debt				600.0			—			—
	Repayment of Long Term Debt				—			—			(30.0	)
	Proceeds from Issuance of Common Stock Under Incentive and Purchase Plans				146.8			119.3			22.7
	Repurchase of Shares				(555.6	)		(242.3	)		(145.0	)
	Dividends Paid to Shareholders				(234.8	)		(229.0	)		(210.6	)
	Change in Amounts Due from or to Consolidated Subsidiaries				218.5			(6.8	)		6.4
	Other, Net				5.0			16.3			14.2
			NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		179.9			(342.5	)		(342.3	)
Net Increase (Decrease) in Cash					(.1	)		(.4	)		.5
Cash at Beginning of Year					.1			.5			—
			CASH AT END OF YEAR	$	—		$	.1		$	.5

      In 1999, the Corporation acquired all of the outstanding common shares of Executive Risk Inc. in exchange for common stock of the Corporation. This noncash transaction has been excluded from the statements of cash flows.

      The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Corporation’s 2001 Annual Report to Shareholders.

44

THE CHUBB CORPORATION

Schedule III

CONSOLIDATED SUPPLEMENTARY INSURANCE INFORMATION

(in millions)

			December 31						Year Ended December 31
			Deferred
			Policy								Net
			Acquisition		Unpaid		Unearned		Premiums		Investment			Insurance
Segment			Costs		Claims		Premiums		Earned		Income			Claims
2001
	Property and Casualty Insurance
		Personal	$	270.1	$	948.9	$	1,031.4	$	1,847.9				$	1,268.2
		Commercial		331.3		6,119.5		1,299.1		2,366.3					1,761.7
		Specialty		327.4		8,446.5		1,585.7		2,442.2					2,327.5
		Investments									$	902.6	*
			$	928.8	$	15,514.9	$	3,916.2	$	6,656.4	$	902.6		$	5,357.4
2000
	Property and Casualty Insurance
		Personal	$	234.8	$	803.5	$	890.2	$	1,620.6				$	963.7
		Commercial		299.9		5,822.8		1,153.8		2,353.7					1,823.2
		Specialty		307.3		5,278.3		1,472.3		2,171.6					1,340.8
		Investments									$	879.2	*
			$	842.0	$	11,904.6	$	3,516.3	$	6,145.9	$	879.2		$	4,127.7
1999
	Property and Casualty Insurance
		Personal	$	201.7	$	778.8	$	784.1	$	1,447.5				$	836.8
		Commercial		294.0		5,905.7		1,170.3		2,495.2					2,098.2
		Specialty		284.0		4,750.2		1,368.7		1,709.3					1,007.0
		Investments									$	821.0	*
			$	779.7	$	11,434.7	$	3,323.1	$	5,652.0	$	821.0		$	3,942.0

[Additional columns below]

[Continued from above table, first column(s) repeated]

			Year Ended December 31
			Amortization		Other
			of Deferred		Insurance
			Policy		Operating
			Acquisition		Costs and		Premiums
Segment			Costs		Expenses**		Written
2001
	Property and Casualty Insurance
		Personal	$	504.9	$	106.8	$	1,981.1
		Commercial		675.8		187.6		2,490.8
		Specialty		590.7		136.7		2,489.6
		Investments
			$	1,771.4	$	431.1	$	6,961.5
2000
	Property and Casualty Insurance
		Personal	$	446.7	$	96.4	$	1,722.8
		Commercial		677.6		173.7		2,340.6
		Specialty		521.1		126.3		2,269.8
		Investments
			$	1,645.4	$	396.4	$	6,333.2
1999
	Property and Casualty Insurance
		Personal	$	401.3	$	73.1	$	1,524.5
		Commercial		716.6		188.5		2,380.6
		Specialty		411.8		97.5		1,796.0
		Investments
			$	1,529.7	$	359.1	$	5,701.1

  *  Property and casualty assets are available for payment of claims and expenses for all classes of business; therefore, such assets and the related investment income have not been allocated to the underwriting segments.

**  Other insurance operating costs and expenses does not include amortization of goodwill and other charges.

The Consolidated Supplementary Insurance Information for 2000 and 1999 include certain reclassifications to conform with the 2001 presentation, which more closely reflects the way the property and casualty business is now managed. The total amounts are not affected.

45

THE CHUBB CORPORATION

Schedule IV

CONSOLIDATED REINSURANCE

(in millions)

Years Ended December 31

	Property and Casualty Insurance Premiums Earned
									Percentage of
			Ceded		Assumed				Amount
	Direct		to Other		from Other		Net		Assumed
	Amount		Companies		Companies		Amount		to Net
2001	$	7,125.8	$	1,003.3	$	533.9	$	6,656.4		8.0
2000	$	6,550.2	$	786.9	$	382.6	$	6,145.9		6.2
1999	$	6,037.1	$	631.6	$	246.5	$	5,652.0		4.4

THE CHUBB CORPORATION

Schedule VI

CONSOLIDATED SUPPLEMENTARY PROPERTY AND CASUALTY INSURANCE INFORMATION

(in millions)

Years Ended December 31

	Claims and Claim
	Adjustment
	Expenses Incurred
	Related to
						Paid Claims and
	Current		Prior			Claim Adjustment
	Year		Years			Expenses
2001	$	5,552.9	$	(195.5	)	$	4,399.0
2000	$	4,357.7	$	(230.0	)	$	3,825.2
1999	$	4,147.6	$	(205.6	)	$	3,848.9

46

THE CHUBB CORPORATION

EXHIBITS

(Item 14(a))

	Description
(2)       —	Plan of acquisition, reorganization, arrangement, liquidation or succession
	Agreement and Plan of Merger dated as of February 6, 1999 among Executive Risk Inc., the registrant and Excalibur Acquisition, Inc. incorporated by reference to Exhibit (99.2) of the registrant’s Report to the Securities and Exchange Commission on Form 8-K dated February 6, 1999.
(3)       —	Articles of incorporation and by-laws
	Restated Certificate of Incorporation. Incorporated by reference to Exhibit (3) of the registrant’s Report to the Securities and Exchange Commission on Form 10-Q for the six months ended June 30, 1996.
	Certificate of Amendment to the Restated Certificate of Incorporation. Incorporated by reference to Exhibit (3) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1998.
	Certificate of Correction of Certificate of Amendment to the Restated Certificate of Incorporation. Incorporated by reference to Exhibit (3) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1998.
	Restated By-Laws. Incorporated by reference to Exhibit (3) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2000.
(4)       —	Instruments defining the rights of security holders, including indentures
	The registrant is not filing any instruments evidencing any indebtedness since the total amount of securities authorized under any single instrument does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. Copies of such instruments will be furnished to the Securities and Exchange Commission upon request.
	Rights Agreement dated as of March 12, 1999 between The Chubb Corporation and First Chicago Trust Company of New York as Rights Agent. Incorporated by reference to Exhibit 99.1 of the registrant’s Report to the Securities and Exchange Commission on Form 8-K dated March 12, 1999.
(10)       —	Material contracts
	The Chubb Corporation Producer Stock Incentive Program incorporated by reference to Exhibit (4.3) of the registrant’s Report to the Securities and Exchange Commission on Amendment No. 2 to Form S-3 No. 333-67445 dated January 25, 1999.
	Executive Compensation Plans and Arrangements.
		The Chubb Corporation Annual Incentive Compensation Plan (2001) incorporated by reference to Exhibit B of the registrant’s definitive proxy statement for the Annual Meeting of Shareholders held on April 24, 2001.
		The Chubb Corporation Stock Option Plan for Non-Employee Directors (2001) incorporated by reference to Exhibit C of the registrant’s definitive proxy statement for the Annual Meeting of Shareholders held on April 24, 2001.
		The Chubb Corporation Long-Term Stock Incentive Plan (2000) incorporated by reference to Exhibit A of the registrant’s definitive proxy statement for the Annual Meeting of Shareholders held on April 25, 2000.
		The Chubb Corporation Annual Incentive Compensation Plan (1996) incorporated by reference to Exhibit A of the registrant’s definitive proxy statement for the Annual Meeting of Shareholders held on April 23, 1996.

47

	Description
		The Chubb Corporation Long-Term Stock Incentive Plan (1996), as amended, incorporated by reference to Exhibit (10) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1998.
		The Chubb Corporation Stock Option Plan for Non-Employee Directors (1996), as amended, incorporated by reference to Exhibit (10) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1998.
		The Chubb Corporation Long-Term Stock Incentive Plan (1992), as amended, incorporated by reference to Exhibit (10) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1998.
		The Chubb Corporation Stock Option Plan for Non-Employee Directors (1992), as amended, incorporated by reference to Exhibit (10) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1998.
		The Chubb Corporation Deferred Compensation Plan for Directors, as amended, incorporated by reference to Exhibit (10) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1998.
		The Chubb Corporation Executive Deferred Compensation Plan incorporated by reference to Exhibit (10) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1998.
		The Chubb Corporation Estate Enhancement Program incorporated by reference to Exhibit (10) of the registrant’s Report to the Securities and Exchange Commission on Form 10-Q for the three months ended March 31, 1999.
		The Chubb Corporation Estate Enhancement Program for Non-Employee Directors incorporated by reference to Exhibit (10) of the registrant’s Report to the Securities and Exchange Commission on Form 10-Q for the three months ended March 31, 1999.
		Executive Severance Agreement filed herewith.
		Executive Severance Agreement incorporated by reference to Exhibit (10) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1998.
		Executive Severance Agreement incorporated by reference to Exhibit (10) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1997.
		Executive Severance Agreement incorporated by reference to Exhibit (10) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1995.
		Executive Severance Agreement, as amended, incorporated by reference to Exhibit (10) of the registrant’s Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1994.
(11)    —	Computation of earnings per share incorporated by reference from Note (17) of the notes to consolidated financial statements of the 2001 Annual Report to Shareholders.
(13)    —	Pages 21, 22 and 44 through 73 of the 2001 Annual Report to Shareholders.
(21)    —	Subsidiaries of the registrant filed herewith.
(23)    —	Consent of Independent Auditors (see page 40 of this report).

48 EX-10 3 y55626ex10.htm EX-10: EXECUTIVE SEVERANCE AGREEMENT

March 7, 2002

Mr. Weston M. Hicks
56 Twin Oak Road
Short Hills, NJ 07078

Dear Weston:

     In order to induce you to remain in the employ of The Chubb Corporation (the “Company”) and in consideration of your continuing in the Company’s employ, the Company agrees to provide the severance benefits specified below on the terms and subject to the conditions stated. However, in the absence of a Change in Control of the Company, as defined below, nothing in this Agreement shall affect the Company’s normal right to terminate your employment or your right to leave its employ.

     1.     Change in Control. For purposes of this Agreement a Change in Control will be deemed to have occurred

        (A)     if following (i) a tender or exchange offer for voting securities of the Company, (ii) a proxy contest for the election of Directors of the Company or (iii) a merger or consolidation or sale of all or substantially all of the business or assets of the Company, the Directors of the Company immediately prior to the initiation of such event cease to constitute a majority of the Board of Directors of the Company upon the occurrence of such event or within one year after such event, or

        (B)      if any “person” or “group” (as defined under the beneficial ownership rules of Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934 and Rule 13d-3 thereunder) acquires ownership or control, or power to control, 25% or more of the outstanding voting securities of the Company without prior approval or ratification by a majority of the Company’s Directors in office at the time of such event.

     2.     Conditions to Severance Benefits. The benefits provided for in Section 5 shall be payable or accrue to you if (a) a Change in Control has occurred and (b) your employment with the Company has terminated within two years after the Change in Control, other than termination by reason of (i) your death, (ii) your retirement at normal retirement age (“Retirement”) under the Company’s pension plan as in effect immediately prior to the Change in Control, (iii) your voluntary termination other than for Good Reason, (iv) your retirement for Disability or (v) your discharge for Cause.

Mr. Weston M. Hicks
March 7, 2002
Page 2

     Termination by you of your employment for “Good Reason” shall mean termination by you of your employment, subsequent to a Change in Control, because of:

      (A)      the assignment to you, without your express written consent, of any duties inconsistent with your positions, duties, responsibilities, authority and status with the Company and its principal subsidiaries immediately prior to such Change in Control, or a change in your reporting responsibilities, titles or offices as in effect immediately prior to the Change in Control, or any removal of you from or any failure to re-elect you to any of such positions, except in connection with the termination of your employment for Cause, Disability, Retirement, as a result of your death or by you without Good Reason;

     (B)      a reduction by the Company in your base salary as in effect at the time of such Change in Control;

     (C)      a failure by the Company to continue (or to replace with equivalent plans) the Performance Share Plan, the Annual Incentive Compensation Plan or any other Bonus Plan in which you participated for the year immediately preceding such Change in Control (the “Bonus Plans”) which are in effect at the time of such Change in Control or a failure by the Company to continue you as a participant in such Bonus Plans (or equivalent plans) on a basis which would entitle you to receive under such Bonus Plans (or equivalent plans) amounts at least equal to the average amounts you received pursuant to such Bonus Plans for the three years preceding such Change in Control;

     (D)      the Company’s requiring you to maintain your principal office or conduct your principal activities anywhere other than at the Company’s principal executive offices in the New York Metropolitan area, including Somerset County, New Jersey;

     (E)      the failure by the Company to continue in effect (or to replace with equivalent plans) the Company’s Capital Accumulation Plan or any other compensation plan, any stock ownership plan, stock purchase plan, stock option plan, life insurance plan, health and accident plan, financial services plan, hospital-medical plan, dental plan, or disability plan in which you are participating or eligible to participate at the time of such Change in Control, or the taking of any action by the Company which would adversely affect your participation in or materially reduce your benefits under any such plans (or equivalent plans) or deprive you of any material fringe benefit enjoyed or to be enjoyed by you at the time of such Change in Control;

     (F)      the failure by the Company to obtain the assumption of the agreement to perform this Agreement by any successor as contemplated in Section 7 hereof;

     (G)      any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the applicable requirements with respect to such Notice; or

Mr. Weston M. Hicks
March 7, 2002
Page 3

     (H)      a determination made by you in good faith, whether before or after the date you are eligible for early retirement under the Company’s pension plan, that as a result of such Change in Control you are not able to discharge your duties effectively; or

     (I)      any termination of this Agreement pursuant to Section 6 prior to the expiration of two years from the occurrence of the Change in Control.

     Termination of your employment for “Cause” shall mean termination because of (A) the willful and continued failure by you substantially to perform your duties with the Company and its principal subsidiaries (other than any such failure resulting from your incapacity due to physical or mental illness), after a demand for substantial performance is delivered to you by the Chief Executive Officer of the Company, which specifically identifies the manner in which such executive believes that you have not substantially performed your duties, or (B) the willful engaging by you in misconduct which is materially injurious to the Company, monetarily or otherwise. For purposes of this paragraph, no act, or failure to act, on your part shall be considered “willful” unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in or not opposed to the best interests of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a Notice of Termination from the Chief Executive Officer of the Company after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board of Directors, and a finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this paragraph and specifying the particulars thereof in detail.

     Termination of your employment for Disability shall mean termination in accordance with the provisions of the Company’s Long Term Disability Plan as in effect immediately preceding the Change in Control.

     3.     Notice of Termination. Any purported termination of your employment shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. No purported termination of your employment by the Company shall be effective if it is not effected pursuant to a Notice of Termination satisfying the requirements of this Section 3.

     4.      Date of Termination. “Date of Termination” shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the performance of your duties on a full-time basis during such 30-day period) and (B) if your employment is terminated for any other reason, the date on which a Notice of Termination is given.

Mr. Weston M. Hicks
March 7, 2002
Page 4

     5.     Severance Benefits. Subject to the conditions in Section 2, on termination of your employment you shall be entitled to the following benefits:

     (A)      you shall be entitled to an amount (the “Severance Compensation”) equal to two times the sum of (i) one year’s salary at the annual rate in effect at the time of the Change in Control and (ii) the average for the three calendar years preceding such Change in Control of your bonuses under the Annual Incentive Compensation Plan (1984) (or successor plan), provided, however, that your Severance Compensation shall not be greater than the amount you would have received as salary and such bonuses from the Company had you remained in the employ of the Company from the Date of Termination until your normal retirement date under the Company’s pension plan (on the assumption that your salary would remain at the same annual rate as in effect at the time of Change in Control and that your annual bonuses would be the average for the three calendar years preceding such Change in Control of such bonuses). The Severance Compensation will be payable in full on the Date of Termination;

     (B)      the Company shall also pay to you an amount equal to all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce or retain any right or benefit provided by this Agreement);

     (C)      the Company shall maintain in full force and effect, for your continued benefit until the earlier of (a) two years after the Date of Termination or, (b) your commencement of full time employment with a new employer, all life insurance, hospital-medical, dental, health and accident, and disability plans in which you were entitled to participate immediately prior to such Change in Control, provided that your continued participation is possible under the general terms and provisions of such plans and programs. In the event that your participation in any such plan or program is barred for any reason whatsoever, the Company shall arrange to provide you with benefits substantially similar to those which you are entitled to receive under such plan or program;

     (D)      you shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section 5 be reduced by any compensation earned by you as the result of employment by another employer after the Date of Termination or otherwise.

     6.      Term of Agreement. This Agreement shall have an initial term of two (2) years from the date hereof and shall be automatically extended at the expiration of said two-year period for successive two (2) year periods unless the Company gives you one year’s prior written notice that it is terminating this Agreement at the expiration of the then current two year period.

Mr. Weston M. Hicks
March 7, 2002
Page 5

     7.     Successors; Binding Agreement.

     (A)      The Company will require any purchaser of all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to you to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such purchase had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business or assets as aforesaid which executes and delivers the agreement provided for in this Section 7(A) or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

     (B)      This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such designee, to your estate.

     8.     Notices. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Chairman of the Company, with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

     9.     Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and such officer as may be specifically designated by the Board of Directors of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement; provided, however, that this Agreement shall not supersede or in any way affect the rights, duties or obligations you may have under any other written agreement with the Company. This Agreement shall be governed by, and construed in accordance with, the laws (other than principles of conflicts of laws) of the State of New York.

     10.    Validity. The invalidity or unenforceability of any provision of this Agreement in any respect shall not affect the validity or enforceability of such provision in any other respect or of any other provision of this Agreement, all of which shall remain in full force and effect.

Mr. Weston M. Hicks
March 7, 2002
Page 6

     If the forgoing correctly sets forth our understanding on the subject matter hereof, kindly sign and return to the Company the enclosed copy hereof, which will thereupon become our binding agreement.

Sincerely,
THE CHUBB CORPORATION
By:
	Dean R. O’Hare   Chairman

Agreed to this            day

of March 2002

Weston M. Hicks

EX-13 4 y55626ex13.htm EX-13: PAGES 21,22,44-73 OF 2001 ANNUAL REPORT

SUPPLEMENTARY FINANCIAL DATA

			In Millions
			Years Ended December 31
			2001(a)			2000			1999
Property and Casualty Insurance
	Underwriting
		Net Premiums Written	$	6,961.5		$	6,333.2		$	5,701.1
		Increase in Unearned Premiums		(305.1	)		(187.3	)		(49.1	)
		Premiums Earned		6,656.4			6,145.9			5,652.0
		Claims and Claim Expenses		5,357.4			4,127.7			3,942.0
		Operating Costs and Expenses		2,260.8			2,076.6			1,841.5
		Decrease (Increase) in Deferred Policy Acquisition Costs		(86.8	)		(62.3	)		4.2
		Dividends to Policyholders		28.5			27.5			43.1
		Underwriting Loss		(903.5	)		(23.6	)		(178.8	)
	Investments
		Investment Income Before Expenses		914.7			890.8			832.6
		Investment Expenses		12.1			11.6			11.6
		Investment Income		902.6			879.2			821.0
	Amortization of Goodwill and Other Charges			(52.3	)		(52.2	)		(16.0	)
	Property and Casualty Income			(53.2	)		803.4			626.2
Corporate and Other				(13.6	)		(3.9	)		(3.5	)
CONSOLIDATED OPERATING INCOME (LOSS) BEFORE INCOME TAX				(66.8	)		799.5			622.7
Federal and Foreign Income Tax (Credit)				(177.8	)		118.4			57.4
CONSOLIDATED OPERATING INCOME				111.0			681.1			565.3
Realized Investment Gains After Income Tax				.5			33.5			55.8
CONSOLIDATED NET INCOME			$	111.5		$	714.6		$	621.1
Property and Casualty Investment Income After Income Tax			$	749.1		$	735.2		$	691.9
Diluted Earnings Per Share Data
	Consolidated Operating Income		$	.63		$	3.82		$	3.33
	Consolidated Net Income			.63			4.01			3.66

(a)  Results for 2001 include net costs of $645.0 million ($420.0 million after-tax or $2.39 per share) related to the September 11 attack and net surety bond losses of $220.0 million ($143.0 million after-tax or $0.81 per share) related to the bankruptcy of Enron Corp.

21

PROPERTY AND CASUALTY UNDERWRITING RESULTS

Net Premiums Written (In Millions of Dollars)

			2001(a)		2000		1999		1998		1997
Personal Insurance
	Automobile		$	480.2	$	403.3	$	346.1	$	309.4	$	298.6
	Homeowners			1,065.4		927.6		826.7		735.1		697.4
	Other			435.5		391.9		351.7		320.2		310.4
		Total Personal		1,981.1		1,722.8		1,524.5		1,364.7		1,306.4
Commercial Insurance
	Multiple Peril			767.4		734.8		754.5		817.8		843.7
	Casualty			799.8		781.3		828.2		900.5		915.8
	Workers’ Compensation			355.1		320.9		299.5		320.8		296.7
	Property and Marine			568.5		503.6		498.4		524.0		583.0
		Total Commercial		2,490.8		2,340.6		2,380.6		2,563.1		2,639.2
Specialty Insurance
	Executive Protection			1,348.7		1,274.7		1,038.0		916.5		861.3
	Financial Institutions			534.2		504.9		385.8		391.6		384.3
	Other			606.7		490.2		372.2		267.6		256.8
		Total Specialty		2,489.6		2,269.8		1,796.0		1,575.7		1,502.4
		Total	$	6,961.5	$	6,333.2	$	5,701.1	$	5,503.5	$	5,448.0

Combined Loss and Expense Ratios

Personal Insurance
	Automobile		99.8	%	95.9	%	91.8	%	89.2	%	86.6	%
	Homeowners		112.6		100.8		97.9		90.8		88.9
	Other		75.8		71.4		69.4		70.2		66.9
		Total Personal	101.3		92.9		89.9		85.6		83.1
Commercial Insurance
	Multiple Peril		109.6		114.5		130.4		122.7		117.1
	Casualty		114.9		118.7		119.3		114.6		113.5
	Workers’ Compensation		92.9		99.8		112.6		111.5		105.0
	Property and Marine		115.8		115.0		111.3		116.5		105.5
		Total Commercial	110.5		114.2		120.4		117.2		112.0
Specialty Insurance
	Executive Protection		94.0		86.2		84.2		75.3		74.5
	Financial Institutions		187.7		90.6		95.5		86.7		91.5
	Other		146.2		105.5		92.9		100.9		85.0
		Total Specialty	125.5		91.3		88.5		82.5		80.7
		Total	113.4	%	100.4	%	102.8	%	99.8	%	96.9	%

(a) Underwriting results for 2001 excluding the effects of the September 11 attack are presented on page 26.

The combined loss and expense ratio, expressed as a percentage, is the key measure of underwriting profitability traditionally used in the property and casualty insurance business. It is the sum of the ratio of losses to premiums earned plus the ratio of underwriting expenses to premiums written after reducing both premium amounts by dividends to policyholders.

The underwriting results for prior years include certain reclassifications to conform with the 2001 presentation, which more closely reflects the way the property and casualty business is now managed. The total net premiums written and combined loss and expense ratios are not affected.

22

TEN YEAR FINANCIAL SUMMARY

(in millions except for per share amounts)

FOR THE YEAR			2001			2000			1999
Income
	Property and Casualty Insurance
		Underwriting Income (Loss)	$	(903.5	)(a)	$	(23.6	)	$	(178.8	)
		Investment Income		902.6			879.2			821.0
		Amortization of Goodwill and Other Charges		(52.3	)(a)		(52.2	)		(16.0	)
	Property and Casualty Insurance Income (Loss)			(53.2	)		803.4			626.2
	Corporate and Other			(13.6	)		(3.9	)		(3.5	)
	Operating Income (Loss) from Continuing Operations Before Income Tax			(66.8	)		799.5			622.7
	Federal and Foreign Income Tax (Credit)			(177.8	)		118.4			57.4
	Operating Income from Continuing Operations			111.0			681.1			565.3
	Realized Investment Gains from Continuing Operations			.5			33.5			55.8
	Income from Continuing Operations			111.5			714.6			621.1
	Income from Discontinued Operations (1)			—			—			—
	Net Income			111.5			714.6			621.1
	Property and Casualty Investment Income After Income Tax			749.1			735.2			691.9
Dividends Declared on Common Stock				234.8			230.6			216.5
Net Change in Unrealized Appreciation or Depreciation of Investments, Net of Tax (2)				32.5			332.7			(527.3	)
Per Share
	Operating Income from Continuing Operations			.63	(a)		3.82			3.33
	Income from Continuing Operations			.63			4.01			3.66
	Income from Discontinued Operations (1)			—			—			—
	Net Income			.63			4.01			3.66
	Dividends Declared on Common Stock			1.36			1.32			1.28
Average Common and Potentially Dilutive Shares				175.8			178.3			169.8

(1)

In May 1997, the Corporation sold its life and health insurance operations, which have been classified as discontinued operations.

(2)

Amounts prior to 1994 do not reflect the accounting changes prescribed by Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, as restatement of prior year amounts was not permitted. The change in unrealized appreciation or depreciation of investments for 1994 excludes a $220.5 million increase in unrealized appreciation, as of January 1, 1994, resulting from the change in accounting principle.

44

1998			1997			1996			1995			1994			1993			1992
$	(6.6	)	$	141.1		$	54.3		$	111.7		$	.4		$	(528.9	)(b)	$	(46.3	)
	748.9			711.2			646.1			603.0			560.5			533.7			493.5
	(57.4	)(c)		(24.1	)		(24.0	)		(17.5	)		(8.7	)		(6.2	)		(4.3	)
	684.9			828.2			676.4			697.2			552.2			(1.4	)		442.9
	22.9			40.7			(209.3	)(d)		31.0			5.0			24.5			43.8
	707.8			868.9			467.1			728.2			557.2			23.1			486.7
	93.0			167.8			32.9			144.5			84.4			(107.0	)		49.4
	614.8			701.1			434.2			583.7			472.8			130.1			437.3
	92.2			68.4			52.0			70.7			35.1			137.3			114.8
	707.0			769.5			486.2			654.4			507.9			267.4			552.1
	—			—			26.5			42.2			20.6			76.8			65.0
	707.0			769.5			512.7			696.6			528.5			324.2	(e)		617.1
	634.1			592.3			544.2			507.2			475.0			455.4			422.8
	204.7			198.3			188.7			170.6			161.1			150.8			139.6
	14.6			161.4			(107.2	)		470.2			(487.9	)		46.5			(82.1	)
	3.65	(c)		4.00			2.44	(d)		3.27			2.66			.77	(b)		2.47
	4.19			4.39			2.73			3.67			2.85			1.52			3.10
	—			—			.15			.23			.11			.42			.36
	4.19			4.39			2.88			3.90			2.96			1.83	(e)		3.46
	1.24			1.16			1.08			.98			.92			.86			.80
	168.6			176.2			181.6			180.9			181.6			182.2			181.4

(a)	Underwriting income has been reduced by net costs of $635.0 million and other charges include costs of $10.0 million (in the aggregate, $420.0 million after-tax or $2.39 per share) related to the September 11 attack. Underwriting income also has been reduced by net surety bond losses of $220.0 million ($143.0 million after-tax or $0.81 per share) related to the bankruptcy of Enron Corp.
(b)	Underwriting income has been reduced by $550.0 million ($357.5 million after-tax or $1.96 per share) for the net effect of a $675.0 million increase in unpaid claims related to an agreement for the settlement of asbestos-related litigation and a $125.0 million return premium related to the commutation of a medical malpractice reinsurance agreement.
(c)	Property and casualty insurance other charges includes a restructuring charge of $40.0 million ($26.0 million after-tax or $0.15 per share).
(d)	Real estate income has been reduced by a charge of $255.0 million ($160.0 million after-tax or $0.89 per share) for the writedown of the carrying value of certain real estate assets to their estimated fair value.
(e)	Net income has been reduced by a one-time charge of $20.0 million or $0.11 per share for the cumulative effect of changes in accounting principles resulting from the Corporation’s adoption of Statements of Financial Accounting Standards No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, and No. 109, Accounting for Income Taxes. Income before the cumulative effect of changes in accounting principles was $344.2 million or $1.94 per share.

45

TEN YEAR FINANCIAL SUMMARY

(in millions except for per share amounts)

FOR THE YEAR				2001		2000		1999
Revenues
	Property and Casualty Insurance
		Premiums Earned		$	6,656.4	$	6,145.9	$	5,652.0
		Investment Income			914.7		890.8		832.6
	Corporate Investment Income				68.1		66.4		60.8
	Real Estate and Other				114.0		96.9		96.8
	Realized Investment Gains				.8		51.5		87.4
			Total Revenues		7,754.0		7,251.5		6,729.6
AT YEAR END
Total Assets					29,449.0		25,026.7		23,537.0
Invested Assets
	Property and Casualty Insurance				16,853.3		15,804.5		14,869.9
	Corporate				930.6		1,196.1		1,149.5
Unpaid Claims and Claim Expenses					15,514.9		11,904.6		11,434.7
Long Term Debt					1,351.0		753.8		759.2
Total Shareholders’ Equity					6,525.3		6,981.7		6,271.8
	Per Common Share				38.37		39.91		35.74
	Per Common Share, with Available-for-Sale Fixed Maturities at Amortized Cost				36.60		38.60		36.58
Actual Common Shares Outstanding					170.1		174.9		175.5

Amounts prior to 1994 do not reflect the accounting changes prescribed by Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, as restatement of prior year amounts was not permitted.

46

1998		1997		1996		1995		1994		1993			1992
$	5,303.8	$	5,157.4	$	4,569.3	$	4,147.2	$	3,776.3	$	3,504.8	(a)	$	3,163.3
	760.0		721.4		656.2		613.3		570.5		541.7			501.1
	61.9		63.9		55.4		54.4		49.4		52.7			57.2
	82.2		616.1		319.8		287.8		204.9		160.6			150.0
	141.9		105.2		79.8		108.8		54.1		210.6			174.1
	6,349.8		6,664.0		5,680.5		5,211.5		4,655.2		4,470.4			4,045.7
	20,746.0		19,615.6		19,938.9		19,636.3		17,761.0		16,729.5			15,197.6
	13,715.0		12,777.3		11,190.7		10,013.6		8,938.8		8,403.1			7,767.5
	1,040.3		1,272.3		890.4		906.6		879.5		965.7			955.8
	10,356.5		9,772.5		9,523.7		9,588.2		8,913.2		8,235.4			7,220.9
	607.5		398.6		1,070.5		1,150.8		1,279.6		1,267.2			1,065.6
	5,644.1		5,657.1		5,462.9		5,262.7		4,247.0		4,196.1			3,954.4
	34.78		33.53		31.24		30.14		24.46		23.92			22.59
	32.59		31.69		30.27		28.51		25.30		23.92			22.59
	162.3		168.7		174.9		174.6		173.6		175.4			175.0

(a) Premiums earned have been increased by a $125.0 million return premium to the Corporation’s property and casualty insurance subsidiaries related to the commutation of a medical malpractice reinsurance agreement.

47

THE CHUBB CORPORATION

Consolidated Statements of Income

			In Millions
			Years Ended December 31
			2001			2000		1999
Revenues
	Premiums Earned		$	6,656.4		$	6,145.9	$	5,652.0
	Investment Income			982.8			957.2		893.4
	Real Estate and Other Revenues			114.0			96.9		96.8
	Realized Investment Gains			.8			51.5		87.4
		TOTAL REVENUES		7,754.0			7,251.5		6,729.6
Claims and Expenses
	Insurance Claims and Claim Expenses			5,357.4			4,127.7		3,942.0
	Amortization of Deferred Policy Acquisition Costs			1,771.4			1,645.4		1,529.7
	Other Insurance Operating Costs and Expenses			483.4			448.6		375.1
	Real Estate and Other Expenses			110.1			87.9		100.3
	Investment Expenses			14.1			13.7		13.7
	Corporate Expenses			83.6			77.2		58.7
		TOTAL CLAIMS AND EXPENSES		7,820.0			6,400.5		6,019.5
		INCOME (LOSS) BEFORE FEDERAL AND FOREIGN INCOME TAX		(66.0	)		851.0		710.1
Federal and Foreign Income Tax (Credit)				(177.5	)		136.4		89.0
		NET INCOME	$	111.5		$	714.6	$	621.1
Net Income Per Share
		Basic	$	.65		$	4.10	$	3.70
		Diluted		.63			4.01		3.66

See accompanying notes.

48

THE CHUBB CORPORATION

Consolidated Balance Sheets

					In Millions
					December 31
					2001			2000
Assets
	Invested Assets
		Short Term Investments			$	956.8		$	605.6
		Fixed Maturities
			Held-to-Maturity — Tax Exempt (market $1,282.5 and $1,564.7)			1,218.5			1,496.1
			Available-for-Sale
				Tax Exempt (cost $8,053.8 and $8,053.8)		8,372.9			8,380.5
				Taxable (cost $6,408.2 and $5,666.6)		6,525.3			5,687.8
		Equity Securities (cost $757.9 and $839.8)				710.4			830.6
			TOTAL INVESTED ASSETS			17,783.9			17,000.6
	Cash					25.8			22.4
	Securities Lending Collateral					417.5			451.1
	Accrued Investment Income					247.7			246.8
	Premiums Receivable					1,692.8			1,409.8
	Reinsurance Recoverable on Unpaid Claims and Claim Expenses					4,505.2			1,853.3
	Prepaid Reinsurance Premiums					340.8			246.0
	Deferred Policy Acquisition Costs					928.8			842.0
	Real Estate Assets					646.6			677.1
	Investments in Partially Owned Companies					386.2			122.9
	Deferred Income Tax					674.8			501.0
	Goodwill					467.4			487.3
	Other Assets					1,331.5			1,166.4
			TOTAL ASSETS		$	29,449.0		$	25,026.7
Liabilities
	Unpaid Claims and Claim Expenses				$	15,514.9		$	11,904.6
	Unearned Premiums					3,916.2			3,516.3
	Securities Lending Payable					417.5			451.1
	Short Term Debt					199.0			—
	Long Term Debt					1,351.0			753.8
	Dividend Payable to Shareholders					57.8			57.8
	Accrued Expenses and Other Liabilities					1,467.3			1,361.4
			TOTAL LIABILITIES			22,923.7			18,045.0
Commitments and Contingent Liabilities (Notes 9, 15 and 16)
Shareholders’ Equity
	Preferred Stock — Authorized 4,000,000 Shares; $1 Par Value; Issued — None					—			—
	Common Stock — Authorized 600,000,000 Shares; $1 Par Value; Issued 180,131,238 and 178,833,278 Shares					180.1			178.8
	Paid-In Surplus					527.0			466.0
	Retained Earnings					6,369.3			6,492.6
	Accumulated Other Comprehensive Income
		Unrealized Appreciation of Investments, Net of Tax				252.6			220.1
		Foreign Currency Translation Losses, Net of Tax				(73.0	)		(68.5	)
	Receivable from Employee Stock Ownership Plan					(48.9	)		(62.5	)
	Treasury Stock, at Cost — 10,059,857 and 3,914,105 Shares					(681.8	)		(244.8	)
			TOTAL SHAREHOLDERS’ EQUITY			6,525.3			6,981.7
			TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	29,449.0		$	25,026.7

See accompanying notes.

49

THE CHUBB CORPORATION

Consolidated Statements of Shareholders’ Equity

			In Millions
			Years Ended December 31
			2001			2000			1999
Preferred Stock
	Balance, Beginning and End of Year		$	—		$	—		$	—
Common Stock
	Balance, Beginning of Year			178.8			177.3			176.0
	Share Activity Related to Acquisition of Executive Risk			—			—			.6
	Share Activity under Option and Incentive Plans			1.3			1.5			.7
		Balance, End of Year		180.1			178.8			177.3
Paid-In Surplus
	Balance, Beginning of Year			466.0			418.4			546.7
	Share Activity Related to Acquisition of Executive Risk			—			—			(126.3	)
	Share Activity under Option and Incentive Plans			61.0			47.6			(2.0	)
		Balance, End of Year		527.0			466.0			418.4
Retained Earnings
	Balance, Beginning of Year			6,492.6			6,008.6			5,604.0
	Net Income			111.5			714.6			621.1
	Dividends Declared (per share $1.36, $1.32 and $1.28)			(234.8	)		(230.6	)		(216.5	)
		Balance, End of Year		6,369.3			6,492.6			6,008.6
Unrealized Appreciation (Depreciation) of Investments
	Balance, Beginning of Year			220.1			(112.6	)		414.7
	Change During Year, Net of Tax			32.5			332.7			(527.3	)
		Balance, End of Year		252.6			220.1			(112.6	)
Foreign Currency Translation Losses
	Balance, Beginning of Year			(68.5	)		(44.8	)		(36.0	)
	Change During Year, Net of Tax			(4.5	)		(23.7	)		(8.8	)
		Balance, End of Year		(73.0	)		(68.5	)		(44.8	)
Receivable from Employee Stock Ownership Plan
	Balance, Beginning of Year			(62.5	)		(74.9	)		(86.3	)
	Principal Repayments			13.6			12.4			11.4
		Balance, End of Year		(48.9	)		(62.5	)		(74.9	)
Treasury Stock, at Cost
	Balance, Beginning of Year			(244.8	)		(100.2	)		(975.0	)
	Repurchase of Shares			(555.6	)		(242.3	)		(145.0	)
	Share Activity Related to Acquisition of Executive Risk			—			—			957.2
	Share Activity under Option and Incentive Plans			118.6			97.7			62.6
		Balance, End of Year		(681.8	)		(244.8	)		(100.2	)
		TOTAL SHAREHOLDERS’ EQUITY	$	6,525.3		$	6,981.7		$	6,271.8

See accompanying notes.

50

THE CHUBB CORPORATION

Consolidated Statements of Cash Flows

				In Millions
				Years Ended December 31
				2001			2000			1999
Cash Flows from Operating Activities
	Net Income			$	111.5		$	714.6		$	621.1
	Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
		Increase in Unpaid Claims and Claim Expenses, Net			958.4			302.5			93.1
		Increase in Unearned Premiums, Net			305.1			187.3			49.1
		Decrease (Increase) in Premiums Receivable			(283.0	)		(175.1	)		14.9
		Decrease in Funds Held for Asbestos-Related Settlement			—			—			607.4
		Decrease (Increase) in Deferred Policy Acquisition Costs			(86.8	)		(62.3	)		4.2
		Deferred Income Tax (Credit)			(189.9	)		(25.3	)		5.3
		Depreciation			95.1			84.4			68.4
		Realized Investment Gains			(.8	)		(51.5	)		(87.4	)
		Other, Net			101.1			(10.3	)		(37.2	)
			NET CASH PROVIDED BY OPERATING ACTIVITIES		1,010.7			964.3			1,338.9
Cash Flows from Investing Activities
	Proceeds from Sales of Fixed Maturities — Available-for-Sale				4,581.5			2,180.8			1,427.5
	Proceeds from Maturities of Fixed Maturities				1,246.2			741.6			860.3
	Proceeds from Sales of Equity Securities				458.1			453.5			1,030.6
	Proceeds from Sale of Interest in Associated Aviation Underwriters, Inc.				—			55.0			—
	Purchases of Fixed Maturities				(6,307.2	)		(3,463.3	)		(3,252.2	)
	Purchases of Equity Securities				(374.6	)		(579.4	)		(590.7	)
	Purchase of Investments in Partially Owned Companies				(276.5	)		—			(145.3	)
	Decrease (Increase) in Short Term Investments, Net				(351.2	)		125.5			(190.9	)
	Purchases of Property and Equipment, Net				(185.2	)		(138.7	)		(98.4	)
	Other, Net				44.0			1.5			1.6
			NET CASH USED IN INVESTING ACTIVITIES		(1,164.9	)		(623.5	)		(957.5	)
Cash Flows from Financing Activities
	Increase in Short Term Debt, Net				199.0			—			—
	Proceeds from Issuance of Long Term Debt				600.0			—			—
	Repayment of Long Term Debt				(2.8	)		(5.4	)		(48.3	)
	Proceeds from Issuance of Common Stock Under Incentive and Purchase Plans				146.8			119.3			22.7
	Repurchase of Shares				(555.6	)		(242.3	)		(145.0	)
	Dividends Paid to Shareholders				(234.8	)		(229.0	)		(210.6	)
	Other, Net				5.0			16.3			14.2
			NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		157.6			(341.1	)		(367.0	)
Net Increase (Decrease) in Cash					3.4			(.3	)		14.4
Cash at Beginning of Year					22.4			22.7			8.3
			CASH AT END OF YEAR	$	25.8		$	22.4		$	22.7
Consolidated Statements of Comprehensive Income
Net Income				$	111.5		$	714.6		$	621.1
Other Comprehensive Income (Loss)
	Change in Unrealized Appreciation or Depreciation of
		Investments, Net of Tax			32.5			332.7			(527.3	)
	Foreign Currency Translation Losses, Net of Tax				(4.5	)		(23.7	)		(8.8	)
					28.0			309.0			(536.1	)
			COMPREHENSIVE INCOME	$	139.5		$	1,023.6		$	85.0

See accompanying notes.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Summary of Significant Accounting Policies

(a) Basis of Presentation

   The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of The Chubb Corporation (Corporation) and its subsidiaries. Significant intercompany transactions have been eliminated in consolidation.

   The consolidated financial statements include amounts based on informed estimates and judgments of management for those transactions that are not yet complete or for which the ultimate effects cannot be precisely determined. Such estimates and judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

   The Corporation is a holding company with subsidiaries principally engaged in the property and casualty insurance business. The property and casualty insurance subsidiaries underwrite most lines of property and casualty insurance in the United States, Canada, Europe, Australia and parts of Latin America and the Far East. The geographic distribution of property and casualty business in the United States is broad with a particularly strong market presence in the Northeast. Chubb Financial Solutions (CFSI) was organized by the Corporation in 2000 to engage in developing and providing risk-financing services through the capital and insurance markets. Since its inception, CFSI’s non-insurance operations have been primarily in the credit derivatives business, principally as a counterparty to credit default swaps. Insurance and reinsurance solutions developed by CFSI are written by the Corporation’s property and casualty insurance subsidiaries.

   Certain amounts in the consolidated financial statements for prior years have been reclassified to conform with the 2001 presentation.

(b) Invested Assets

   Short term investments, which have an original maturity of one year or less, are carried at amortized cost.

   Fixed maturities, which include bonds and redeemable preferred stocks, are purchased to support the investment strategies of the Corporation and its insurance subsidiaries. These strategies are developed based on many factors including rate of return, maturity, credit risk, tax considerations and regulatory requirements. Fixed maturities which may be sold prior to maturity to support the investment strategies of the Corporation and its insurance subsidiaries are classified as available-for-sale and carried at market value as of the balance sheet date. Those fixed maturities that the Corporation and its insurance subsidiaries have the ability and positive intent to hold to maturity are classified as held-to-maturity and carried at amortized cost.

   Premiums and discounts arising from the purchase of mortgage-backed securities are amortized using the interest method over the estimated remaining term of the securities, adjusted for anticipated prepayments.

   Equity securities include common stocks, non-redeemable preferred stocks and alternative investments, primarily investment partnerships. Common and non-redeemable preferred stocks are carried at market value as of the balance sheet date. Investment partnerships are carried at the equity in the estimated market value of the investments held by the partnerships.

   Unrealized appreciation or depreciation of investments carried at market value is excluded from net income and credited or charged, net of applicable deferred income tax, directly to a separate component of comprehensive income.

   Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold and are credited or charged to net income. When the market value of any investment is lower than its cost and such decline is determined to be other than temporary, the cost of the investment is written down to market value and the amount of the writedown is charged to net income as a realized investment loss.

   The Corporation engages in securities lending whereby certain securities from its portfolio are loaned to other institutions for short periods of time. Cash collateral from the borrower, equal to the market value of the loaned securities plus accrued interest, is deposited with a lending agent and retained and invested by the lending agent in accordance with the Corporation’s guidelines to generate additional income for the Corporation. The Corporation maintains full ownership rights to the securities loaned and, accordingly, such securities are included in invested assets. The securities lending collateral is recognized as an asset with a corresponding liability for the obligation to return the collateral.

(c) Investments in Partially Owned Companies

   Investments in partially owned companies include the Corporation’s minority ownership interest in entities where its ownership interest is greater than 20% but less than 50% and in corporate joint ventures. At December 31, 2001, investments in partially owned companies included the Corporation’s 28% interest in Hiscox plc and 19% interest in Allied World Assurance Holdings, Ltd. The equity method of accounting is used for investments in partially owned companies.

52

(d) Premium Revenues and Related Expenses

   Premiums are earned on a monthly pro rata basis over the terms of the policies and include estimates of audit premiums and premiums on retrospectively rated policies. Unearned premiums represent the portion of premiums written applicable to the unexpired terms of policies in force.

   Ceded premiums are charged to income over the terms of the reinsurance contracts. Prepaid reinsurance premiums represent the portion of insurance premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts in force.

   Acquisition costs that vary with and are primarily related to the production of business are deferred by major product groups and amortized over the period in which the related premiums are earned. Such costs include commissions, premium taxes and certain other underwriting and policy issuance costs. Commissions received related to reinsurance premiums ceded are considered in determining net acquisition costs eligible for deferral. Deferred policy acquisition costs are reviewed to determine that they do not exceed recoverable amounts, after considering anticipated investment income.

(e) Unpaid Claims and Claim Expenses

   Liabilities for unpaid claims and claim expenses include the accumulation of individual case estimates for claims reported as well as estimates of incurred but not reported claims and estimates of claim settlement expenses, less estimates of anticipated salvage and subrogation recoveries.

   Reinsurance recoverable on unpaid claims and claim expenses represent estimates of the portion of such liabilities that will be recovered from reinsurers. Amounts recoverable from reinsurers are recognized as assets at the same time and in a manner consistent with the unpaid claims liabilities associated with the reinsured policies.

   Estimates are based upon past claim experience modified for current trends as well as prevailing economic, legal and social conditions. Such estimates are continually reviewed and updated. Any changes in estimates are reflected in operating results in the period in which the estimates are changed.

(f) Credit Derivatives

   Credit derivatives, principally credit default swaps, are carried at estimated fair value as of the balance sheet date. Changes in fair value are credited or charged to net income.

(g) Real Estate

   Real estate properties are carried at cost, net of writedowns for impairment. Real estate taxes, interest and other carrying costs incurred prior to completion of the assets for their intended use are capitalized. Also, costs incurred during the initial leasing of income producing properties are capitalized until the project is substantially complete, subject to a maximum time period subsequent to completion of major construction activity.

   Real estate properties are reviewed for impairment whenever events or circumstances indicate that the carrying value of such properties may not be recoverable. In performing the review for recoverability of carrying value, estimates are made of the future undiscounted cash flows from each of the properties during the period the property will be held and upon its eventual disposition. If the expected future undiscounted cash flows are less than the carrying value of any property, an impairment loss is recognized, resulting in a writedown of the carrying value of the property. Measurement of such impairment is based on the fair value of the property.

   Real estate mortgages and notes receivable are carried at unpaid principal balances less an allowance for uncollectible amounts. A loan is considered impaired when it is probable that all principal and interest amounts will not be collected according to the contractual terms of the loan agreement. An allowance for uncollectible amounts is established to recognize any such impairment. Measurement of impairment is based on the discounted expected future cash flows of the loan, subject to the estimated fair value of the underlying collateral. These cash flows are discounted at the loan’s effective interest rate.

   Rental revenues are recognized on a straight-line basis over the term of the lease. Profits on land, townhome unit and commercial building sales are recognized at closing, subject to compliance with applicable accounting guidelines.

(h) Goodwill

   Goodwill, which represents the excess of the purchase price over the fair value of net assets of subsidiaries acquired, is being amortized using the straight-line method over 26 years. The carrying value of goodwill is periodically reviewed for impairment. If it became probable that projected future undiscounted cash flows were not sufficient to recover the carrying value of the goodwill, an impairment loss would be recognized, resulting in a writedown of the carrying value of the goodwill. Effective January 1, 2002, the accounting for goodwill will change (see Note (1)(n)).

(i) Property and Equipment

   Property and equipment used in operations, including certain costs incurred to develop or obtain computer software for internal use, are capitalized and carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets.

53

(j) Stock-Based Compensation

   The intrinsic value method of accounting is used for stock-based compensation plans. Under the intrinsic value method, compensation cost is measured as the excess, if any, of the quoted market price of the stock at the measurement date over the amount an employee must pay to acquire the stock.

(k) Income Taxes

   The Corporation and its domestic subsidiaries file a consolidated federal income tax return.

   Deferred income tax assets and liabilities are recognized for the expected future tax effects attributable to temporary differences between the financial reporting and tax bases of assets and liabilities, based on enacted tax rates and other provisions of tax law. The effect of a change in tax laws or rates is recognized in net income in the period in which such change is enacted.

   U.S. federal income taxes are accrued on undistributed earnings of foreign subsidiaries.

(l) Foreign Exchange

   Assets and liabilities relating to foreign operations are translated into U.S. dollars using current exchange rates; revenues and expenses are translated into U.S. dollars using the average exchange rates for each year.

   The functional currency of foreign operations is generally the currency of the local operating environment since their business is primarily transacted in such local currency. Translation gains and losses, net of applicable income tax, are excluded from net income and are credited or charged directly to a separate component of comprehensive income.

(m)  Cash Flow Information

   In the statement of cash flows, short term investments are not considered to be cash equivalents. The effect of changes in foreign exchange rates on cash balances was immaterial.

   In 1999, the Corporation acquired all of the outstanding common shares of Executive Risk Inc. in exchange for common stock of the Corporation (see Note (3)(a)). The details of the acquisition were as follows: fair value of assets acquired, including goodwill, $2,459 million; fair value of liabilities assumed, $1,627 million; and fair value of common stock issued and options assumed, $832 million. This noncash transaction has been excluded from the consolidated statements of cash flows.

(n) Accounting Pronouncements Not Yet Adopted

   In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. The Statement addresses how intangible assets should be accounted for upon their acquisition and how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Under SFAS No. 142, goodwill will no longer be amortized but rather will be tested at least annually for impairment. The provisions of SFAS No. 142 are effective for the Corporation for the year beginning January 1, 2002. The Statement shall be applied to goodwill recognized in the Corporation’s financial statements at that date. SFAS No. 142 may not be applied retroactively to financial statements of prior periods. The elimination of goodwill amortization is expected to result in an increase in net income in 2002 of approximately $20 million. The Corporation is in the process of assessing the effect, if any, that the implementation of the other provisions of SFAS No. 142 will have on its financial position or results of operations.

(2) Adoption of New Accounting Pronouncements

   Effective January 1, 2001, the Corporation adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities and SFAS No. 138 provides additional guidance related to accounting and reporting for certain derivative instruments and hedging activities. SFAS No. 133 requires that all derivatives be recognized in the balance sheet as assets or liabilities and be measured at fair value. Changes in the fair value of a derivative are reported in net income or other comprehensive income, depending on the intended use of the derivative and whether it qualifies for hedge accounting. The Statements may not be applied retroactively to financial statements of prior periods. The Corporation’s use of derivatives has not been significant. Thus, the adoption of SFAS No. 133 and SFAS No. 138 did not have a significant effect on the Corporation’s financial position or results of operations.

   Effective April 1, 2001, the Corporation adopted the Emerging Issues Task Force (EITF) consensus on Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets. EITF Issue No. 99-20 requires that investors in certain asset-backed securities recognize changes in a security’s estimated yield prospectively. EITF Issue No. 99-20 also requires that if the carrying value of any such asset-backed security exceeds its current fair value, a determination should be made as to whether the excess represents an other than temporary decline in value and any such decline should be recognized as a loss in the income statement. The adoption of EITF Issue No. 99-20 did not have a significant effect on the Corporation’s financial position or results of operations.

54

(3) Acquisitions and Dispositions

   (a) In July 1999, the Corporation completed its acquisition of Executive Risk Inc., a specialty insurance company offering directors and officers, errors and omissions and professional liability coverages.

   Executive Risk shareholders received 1.235 shares of the Corporation’s common stock for each outstanding common share of Executive Risk. In addition, outstanding Executive Risk stock options were assumed and adjusted as options to purchase common stock of the Corporation. Approximately 14.3 million shares of common stock of the Corporation were issued to Executive Risk shareholders and an additional 1.8 million shares of common stock of the Corporation were reserved for issuance upon exercise of the assumed Executive Risk stock options.

   The acquisition has been accounted for using the purchase method of accounting. Therefore, the results of operations of Executive Risk are included in the Corporation’s consolidated results of operations from the date of acquisition. The assets and liabilities of Executive Risk were recorded at their estimated fair values at the date of acquisition. The value of the stock options assumed by the Corporation was included in the purchase price. The total purchase price was approximately $832 million. The excess of the purchase price over the estimated fair value of the net assets acquired, amounting to approximately $517 million, has been recorded as goodwill and is being amortized using an expected useful life of 26 years. Beginning in 2002, the remaining goodwill will no longer be amortized (see Note (1)(n)).

   Pro forma results of operations showing the effects on the Corporation’s operations prior to the date of acquisition have not been presented due to immateriality.

   (b) In March 1999, the Corporation purchased a 28% interest in Hiscox plc, a U.K. personal and commercial specialty insurer, for approximately $145 million.

   (c) In November 2001, the Corporation acquired a 19% interest in Allied World Assurance Holdings, Ltd, a newly formed Bermuda-based company, for approximately $250 million. Allied World Assurance was established to underwrite insurance and reinsurance business worldwide.

   (d) In September 2000, the Corporation sold its 50% interest in Associated Aviation Underwriters, Inc. (AAU). The consideration from the sale was $65 million, consisting of a base purchase price of $55 million and a non-compete payment of $10 million.

(4)  Significant Losses

   (a) In the third quarter of 2001, net costs of $645 million were incurred related to the September 11 attack in the United States. The net costs consisted of estimated net claims and claim expenses of $665 million less net reinsurance reinstatement premium revenue of $30 million plus a $10 million charge for the Corporation’s share of the losses publicly estimated by Hiscox.

   Gross claims and claim expenses of the property and casualty insurance subsidiaries from the September 11 attack are estimated at about $3 billion. Most of the claims were from property exposure and business interruption losses. There were also significant workers’ compensation losses. The net claims and claim expenses of $665 million were significantly lower than the gross amount due to various reinsurance agreements. The property exposures were protected by facultative reinsurance, a property per risk treaty that limited the net loss per risk, and a property catastrophe treaty. Workers’ compensation losses were protected by a casualty catastrophe treaty and a casualty clash treaty.

   While it is possible that the estimated ultimate net losses related to the September 11 attack may change in the future, management does not expect that any such change would have a material effect on the Corporation’s financial condition.

   (b) In the fourth quarter of 2001, surety bond losses of $220 million, net of reinsurance, were recognized related to the bankruptcy of Enron Corp. The surety losses represent the maximum exposure of the property and casualty insurance subsidiaries relating to bonds issued to various obligees in connection with Enron commitments. However, certain of these bonds are the subject of litigation. Management believes there are reasonable grounds for challenging the validity of the obligations under the bonds that are the subject of the litigation and intends to pursue the litigation vigorously. If the Corporation is successful in the litigation, any favorable development would be reflected in future operating results.

55

(5) Invested Assets and Related Income

   (a) The amortized cost and estimated market value of fixed maturities were as follows:

				December 31
				2001								2000
						Gross		Gross		Estimated				Gross		Gross		Estimated
				Amortized		Unrealized		Unrealized		Market		Amortized		Unrealized		Unrealized		Market
				Cost		Appreciation		Depreciation		Value		Cost		Appreciation		Depreciation		Value
				(in millions)
Held-to-maturity — Tax exempt				$	1,218.5	$	64.0	$	—	$	1,282.5	$	1,496.1	$	68.6	$	—	$	1,564.7
Available-for-sale
	Tax exempt				8,053.8		334.0		14.9		8,372.9		8,053.8		337.5		10.8		8,380.5
	Taxable
		U.S. Government and government agency and authority obligations			660.0		24.9		—		684.9		613.3		14.9		.3		627.9
		Corporate bonds			2,009.4		57.5		28.7		2,038.2		1,564.7		14.3		23.9		1,555.1
		Foreign bonds			1,581.9		44.3		.6		1,625.6		1,267.1		32.3		5.1		1,294.3
		Mortgage-backed securities			2,111.8		35.6		17.0		2,130.4		2,113.6		19.2		29.3		2,103.5
		Redeemable preferred stocks			45.1		1.1		—		46.2		107.9		—		.9		107.0
					6,408.2		163.4		46.3		6,525.3		5,666.6		80.7		59.5		5,687.8
			Total available-for-sale		14,462.0		497.4		61.2		14,898.2		13,720.4		418.2		70.3		14,068.3
			Total fixed maturities	$	15,680.5	$	561.4	$	61.2	$	16,180.7	$	15,216.5	$	486.8	$	70.3	$	15,633.0

   The amortized cost and estimated market value of fixed maturities at December 31, 2001 by contractual maturity were as follows:

				Estimated
		Amortized		Market
		Cost		Value
		(in millions)
Held-to-maturity
	Due in one year or less	$	65.0	$	66.3
	Due after one year through five years		600.9		629.3
	Due after five years through ten years		364.4		384.6
	Due after ten years		188.2		202.3
		$	1,218.5	$	1,282.5
Available-for-sale
	Due in one year or less	$	320.0	$	326.9
	Due after one year through five years		2,772.5		2,892.1
	Due after five years through ten years		5,056.2		5,245.5
	Due after ten years		4,201.5		4,303.3
			12,350.2		12,767.8
	Mortgage-backed securities		2,111.8		2,130.4
		$	14,462.0	$	14,898.2

Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations.

   (b) The components of unrealized appreciation or depreciation of investments carried at market value were as follows:

		December 31
		2001			2000
		(in millions)
Equity securities
	Gross unrealized appreciation	$	20.7		$	51.9
	Gross unrealized depreciation		68.2			61.1
			(47.5	)		(9.2	)
Fixed maturities
	Gross unrealized appreciation		497.4			418.2
	Gross unrealized depreciation		61.2			70.3
			436.2			347.9
			388.7			338.7
Deferred income tax liability			136.1			118.6
		$	252.6		$	220.1

56

   The change in unrealized appreciation or depreciation of investments carried at market value was as follows:

	Years Ended December 31
	2001			2000			1999
	(in millions)
Change in unrealized appreciation or depreciation of equity securities	$	(38.3	)	$	(63.4	)	$	(35.4	)
Change in unrealized appreciation or depreciation of fixed maturities		88.3			514.7			(715.2	)
		50.0			451.3			(750.6	)
Deferred income tax (credit)		17.5			158.0			(262.7	)
Increase (decrease) in valuation allowance		—			(39.4	)		39.4
	$	32.5		$	332.7		$	(527.3	)

   The unrealized appreciation of fixed maturities carried at amortized cost is not reflected in the financial statements. The change in unrealized appreciation of fixed maturities carried at amortized cost was a decrease of $4.6 million, an increase of $9.5 million and a decrease of $78.9 million for the years ended December 31, 2001, 2000 and 1999, respectively.

   (c) The sources of net investment income were as follows:

		Years Ended December 31
		2001		2000			1999
		(in millions)
Fixed maturities		$	921.8	$	895.4		$	816.9
Equity securities			25.6		23.5			31.2
Short term investments			34.8		38.5			43.8
Other			.6		(.2	)		1.5
	Gross investment income		982.8		957.2			893.4
Investment expenses			14.1		13.7			13.7
		$	968.7	$	943.5		$	879.7

   (d) Realized investment gains and losses were as follows:

		Years Ended December 31
		2001		2000		1999
		(in millions)
Gross realized investment gains
	Fixed maturities	$	56.9	$	48.2	$	38.2
	Equity securities		81.6		94.0		172.9
	Sale of AAU		—		44.9		—
			138.5		187.1		211.1
Gross realized investment losses
	Fixed maturities		57.7		40.5		14.3
	Equity securities		80.0		95.1		109.4
			137.7		135.6		123.7
Realized investment gains			.8		51.5		87.4
Income tax			.3		18.0		31.6
		$	.5	$	33.5	$	55.8

(6) Deferred Policy Acquisition Costs

   Policy acquisition costs deferred and the related amortization charged against income were as follows:

		Years Ended December 31
		2001			2000			1999
		(in millions)
Balance, beginning of year		$	842.0		$	779.7		$	728.7
Increase related to acquisition of Executive Risk			—			—			55.2
Costs deferred during year
	Commissions and brokerage		950.9			869.0			784.4
	Premium taxes and assessments		163.8			138.3			132.8
	Salaries and operating costs		743.5			700.4			608.3
			1,858.2			1,707.7			1,525.5
Amortization during year			(1,771.4	)		(1,645.4	)		(1,529.7	)
Balance, end of year		$	928.8		$	842.0		$	779.7

(7)  Real Estate

   The components of real estate assets were as follows:

	December 31
	2001		2000
	(in millions)
Mortgages and notes receivable (net of allowance for uncollectible amounts of $.7 and $2.1)	$	97.7	$	89.7
Income producing properties		186.9		192.8
Construction in progress		51.8		69.0
Land under development and unimproved land		310.2		325.6
	$	646.6	$	677.1

   Substantially all mortgages and notes receivable are secured by buildings and land. Mortgages and notes receivable had an estimated aggregate fair value of $89.0 million and $81.9 million at December 31, 2001 and 2000, respectively. The fair value amounts represent point-in-time estimates that are not relevant in predicting future earnings or cash flows related to such receivables.

   Depreciation expense related to income producing properties was $4.2 million, $4.0 million and $3.5 million for 2001, 2000 and 1999, respectively.

(8) Property and Equipment

   Property and equipment included in other assets were as follows:

	December 31
	2001		2000
	(in millions)
Cost	$	727.0	$	599.8
Accumulated depreciation		279.8		235.9
	$	447.2	$	363.9

   Depreciation expense related to property and equipment was $90.9 million, $80.4 million and $64.9 million for 2001, 2000 and 1999, respectively.

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(9) Unpaid Claims and Claim Expenses

   The process of establishing loss reserves is complex and imprecise as it reflects significant judgmental factors. This is true because claim settlements to be made in the future will be impacted by changing rates of inflation and other economic conditions, changing legislative, judicial and social environments and changes in the property and casualty insurance subsidiaries’ claim handling procedures.

   Most of the property and casualty insurance subsidiaries’ loss reserves relate to long tail liability classes of business. For many liability claims significant periods of time, ranging up to several years or more, may elapse between the occurrence of the loss, the reporting of the loss and the settlement of the claim. The longer the time span between the incidence of a loss and the settlement of the claim, the more the ultimate settlement amount can vary.

   Judicial decisions and legislative actions continue to broaden liability and policy definitions and to increase the severity of claim payments. As a result of this and other societal and economic developments, the uncertainties inherent in estimating ultimate claim costs on the basis of past experience have been exacerbated, further complicating the already complex loss reserving process.

   The uncertainties relating to asbestos and toxic waste claims on insurance policies written many years ago are exacerbated by inconsistent court decisions and judicial and legislative interpretations of coverage that in some cases have tended to erode the clear and express intent of such policies and in others have expanded theories of liability. The industry as a whole is engaged in extensive litigation over these coverage and liability issues and is thus confronted with a continuing uncertainty in its efforts to quantify these exposures.

   Asbestos remains the most significant and difficult mass tort for the insurance industry in terms of claims volume and dollar exposure.

   The property and casualty insurance subsidiaries’ most significant individual asbestos exposures involve traditional defendants who manufactured, distributed or installed asbestos products for whom excess liability coverages were written. While these insureds are relatively few in number, such exposure has increased in recent years due to the increased volume of claims, the erosion of much of the underlying limits and the bankruptcies of target defendants.

   Other asbestos exposures are mostly peripheral defendants, including a mix of manufacturers, distributors and installers of certain products that contain asbestos as well as premises owners. Generally, these insureds are named defendants on a regional rather than a nationwide basis. As the financial resources of traditional asbestos defendants have been depleted, plaintiffs are targeting these peripheral parties with greater frequency and, in many cases, for larger awards. In addition, the plaintiffs’ bar continues to solicit new claimants through extensive advertising and through asbestos medical screenings. Litigation is then initiated even though many of the claimants do not show any signs of asbestos-related illness. Thus, new asbestos claims and new exposures on existing claims have continued unabated despite the fact that usage of asbestos has declined since the mid-1970’s. Based on published projections, it is expected that the property and casualty insurance subsidiaries will continue receiving asbestos claims at the current rate for at least the next several years.

   Early asbestos claims focused on the major manufacturers, distributors or installers of asbestos products under the products liability section of primary general liability policies, which typically had aggregate limits that capped an insurer’s liability. A growing number of asbestos claims by insureds are being presented as “non-products” claims, such as those by installers of asbestos products and by property owners who allegedly had asbestos on their property, under the premises or operations section of primary general liability policies. Unlike products exposures, these non-products exposures typically had no aggregate limits, creating potentially greater exposure. Further, in an effort to seek additional insurance coverage, some insureds that have substantially eroded their products coverage are presenting new asbestos claims as non-products premises or operations claims or attempting to reclassify old products claims. The extent to which insureds will be successful in obtaining coverage on this basis is uncertain.

   The expanded focus of asbestos litigation beyond asbestos manufacturers and distributors to installers and premises owners has created in some instances conflicts among insureds, primary insurers and excess insurers, primarily involving questions regarding allocation of indemnity and expense costs and exhaustion of policy limits. These issues are generating costly coverage litigation with the potential for inconsistent results.

   Significant uncertainty remains as to the ultimate liability of the property and casualty insurance subsidiaries related to asbestos related claims due to such factors as the long latency period between asbestos exposure and disease manifestation and the resulting potential for involvement of multiple policy periods for individual claims as well as the increase in the volume of claims by plaintiffs who claim exposure but who have no symptoms of asbestos-related disease and an increase in claims filed under the non-aggregate premises or operations section of general liability policies.

58

   Hazardous waste sites are another significant potential exposure. Under the federal “Superfund” law and similar state statutes, when potentially responsible parties (PRPs) fail to handle the clean-up at a site, regulators have the work done and then attempt to establish legal liability against the PRPs. Most PRPs named to date are parties who have been generators, transporters, past or present land owners or past or present site operators. The PRPs disposed of toxic materials at a waste dump site or transported the materials to the site. Insurance policies issued to PRPs were not intended to cover the clean-up costs of pollution and, in many cases, did not intend to cover the pollution itself.

   As the costs of environmental clean-up became substantial, PRPs and others increasingly filed claims with their insurance carriers. Litigation against insurers extends to issues of liability, coverage and other policy provisions.

   There is great uncertainty involved in estimating the property and casualty insurance subsidiaries’ liabilities related to these claims. First, the liabilities of the claimants are extremely difficult to estimate. At any given site, the allocation of remediation costs among governmental authorities and the PRPs varies greatly depending on a variety of factors. Second, different courts have addressed liability and coverage issues regarding pollution claims and have reached inconsistent conclusions in their interpretation of several issues. These significant uncertainties are not likely to be resolved definitively in the near future.

   Uncertainties also remain as to the Superfund law itself. Superfund’s taxing authority expired on December 31, 1995 and has not been re-enacted. At this time, it is not possible to predict the direction that any reforms may take, when they may occur or the effect that any changes may have on the insurance industry.

   Without federal movement on Superfund reform, the enforcement of Superfund liability is shifting to the states. States are being forced to reconsider state-level cleanup statutes and regulations. As individual states move forward, the potential for conflicting state regulation becomes greater. Significant uncertainty remains as to the cost of remediating the state sites. Because of the large number of state sites, such sites could prove even more costly in the aggregate than Superfund sites.

   Reserves for asbestos and toxic waste claims cannot be estimated with traditional loss reserving techniques that rely on historical accident year loss development factors. Case reserves and expense reserves for costs of related litigation have been established where sufficient information has been developed to indicate the involvement of a specific insurance policy. In addition, incurred but not reported reserves have been established to cover additional exposures on both known and unasserted claims. Reserves for asbestos and toxic waste claims are continually reviewed and updated. Further increases in such loss reserves in future years are possible as legal and factual issues concerning these claims continue to be clarified. The amount cannot be reasonably estimated at the present time.

   A reconciliation of the beginning and ending liability for unpaid claims and claim expenses, net of reinsurance recoverable, and a reconciliation of the net liability to the corresponding liability on a gross basis is as follows:

		2001			2000			1999
		(in millions)
Gross liability, beginning of year		$	11,904.6		$	11,434.7		$	10,356.5
Reinsurance recoverable, beginning of year			1,853.3			1,685.9			1,306.6
Net liability, beginning of year			10,051.3			9,748.8			9,049.9
Increase related to acquisition of Executive Risk (net of reinsurance recoverable of $339.5)			—			—			605.8
Net incurred claims and claim expenses related to
	Current year		5,552.9			4,357.7			4,147.6
	Prior years		(195.5	)		(230.0	)		(205.6	)
			5,357.4			4,127.7			3,942.0
Net payments for claims and claim expenses related to
	Current year		1,605.3			1,342.5			1,278.9
	Prior years		2,793.7			2,482.7			2,570.0
			4,399.0			3,825.2			3,848.9
Net liability, end of year			11,009.7			10,051.3			9,748.8
Reinsurance recoverable, end of year			4,505.2			1,853.3			1,685.9
Gross liability, end of year		$	15,514.9		$	11,904.6		$	11,434.7

   At December 31, 2001, the gross liability for unpaid claims and claim expenses and reinsurance recoverable included $2,775.2 million and $2,238.8 million, respectively, related to the September 11 attack.

   During 2001, the property and casualty insurance subsidiaries experienced overall favorable development of $195.5 million on net unpaid claims and claim expenses established as of the previous year-end. This compares with favorable development of $230.0 million and $205.6 million in 2000 and 1999, respectively. Such redundancies were reflected in operating results in these respective years. Each of the past three years benefited from favorable claim experience for certain liability classes, offset in part by losses related to asbestos and toxic waste claims.

   Management believes that the aggregate loss reserves of the property and casualty insurance subsidiaries at December 31, 2001 were adequate to cover claims for losses that had occurred, including both those known 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. However, given the expansion of coverage and liability by the courts and the legislatures in the past and the possibilities 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 effect on future operating results. However, management does not expect that any such increases would have a material adverse effect on the Corporation’s financial condition.

59

(10) Debt and Credit Arrangements

   (a) Short term debt consists of commercial paper issued by Chubb Capital Corporation (Chubb Capital), a wholly owned subsidiary of the Corporation, and is fully and unconditionally guaranteed by the Corporation. Borrowings are unsecured and are on terms and at interest rates generally extended to prime borrowers. The weighted average interest rate on short term debt approximated 1.9% at December 31, 2001.

   (b) Long term debt consisted of the following:

	December 31
	2001				2000
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
	(in millions)
Term loan	$	7.5	$	7.5	$	10.0	$	10.0
Mortgages		43.5		52.5		43.8		49.0
6% notes		400.0		393.5		—		—
6.15% notes		300.0		311.8		300.0		294.3
6.60% debentures		100.0		97.8		100.0		90.3
6.80% debentures		200.0		198.2		—		—
6 7/8% notes		100.0		104.4		100.0		100.8
7 1/8% notes		75.0		79.4		75.0		75.6
8.675% capital securities		125.0		142.0		125.0		125.8
	$	1,351.0	$	1,387.1	$	753.8	$	745.8

   The term loan and mortgages are obligations of the real estate subsidiaries. The term loan matures in 2002. The mortgages payable are due in varying amounts monthly through 2010. At December 31, 2001, the interest rate on the term loan was 3.6% and the interest rate for the mortgages payable approximated 8 1/2%. The term loan and mortgages payable are secured by real estate assets with a net book value of $179.4 million at December 31, 2001.

   In November 2001, the Corporation sold $400.0 million of unsecured 6% notes due November 15, 2011 and $200 million of unsecured 6.80% debentures due November 15, 2031, the aggregate net proceeds from which were $591.8 million.

   The Corporation also has outstanding $300.0 million of unsecured 6.15% notes due August 15, 2005 and $100.0 million of unsecured 6.60% debentures due August 15, 2018.

   Chubb Capital has outstanding $100.0 million of unsecured 6 7/8% notes due February 1, 2003. These notes are fully and unconditionally guaranteed by the Corporation.

   Chubb Executive Risk Inc., a wholly owned subsidiary of the Corporation, has outstanding $75.0 million of unsecured 7 1/8% notes due December 15, 2007. These notes are fully and unconditionally guaranteed by the Corporation.

   Executive Risk Capital Trust, wholly owned by Chubb Executive Risk, has outstanding $125.0 million of 8.675% capital securities. The Trust in turn used the proceeds from the issuance of the capital securities to acquire $125.0 million of Chubb Executive Risk 8.675% junior subordinated deferrable interest debentures due February 1, 2027. The sole assets of the Trust are the debentures. The debentures and the related income effects are eliminated in the consolidated financial statements. The capital securities are subject to mandatory redemption on February 1, 2027, upon repayment of the debentures. The capital securities are also subject to mandatory redemption in certain other specified circumstances beginning in 2007 at a redemption price that includes a make whole premium through 2017 and at par thereafter. Chubb Executive Risk has the right, at any time, to defer payments of interest on the debentures and hence distributions on the capital securities for a period not exceeding ten consecutive semi-annual periods up to the maturity dates of the respective securities. During any such period, interest will continue to accrue and Chubb Executive Risk may not declare or pay any dividends to the Corporation. The capital securities are unconditionally and on a subordinated basis guaranteed by the Corporation.

   In August 2001, the Corporation entered into a cancelable interest rate swap agreement with a notional amount of $125 million that replaces the fixed rate of the capital securities with the 3-month LIBOR rate plus 204 basis points. The swap agreement provides only for the exchange of interest on the notional amount. The interest rate swap matures in February 2027. The fair value of the swap at December 31, 2001 was not significant.

   The Corporation filed a shelf registration statement with the Securities and Exchange Commission in December 2001. When the registration statement is declared effective, up to $1.0 billion of various types of securities may be issued by the Corporation.

   The amounts of long term debt due annually during the five years subsequent to December 31, 2001 are as follows:

Years Ending	Term Loan
December 31	and Mortgages		Notes		Total
	(in millions)
2002	$	7.9	$	—	$	7.9
2003		.4		100.0		100.4
2004		.4		—		.4
2005		.6		300.0		300.6
2006		.6		—		.6

60

   (c) Interest costs of $55.0 million, $52.9 million and $48.5 million were incurred in 2001, 2000 and 1999, respectively. Interest paid was $55.5 million, $52.7 million and $48.0 million in 2001, 2000 and 1999, respectively.

   (d) The Corporation has two credit agreements with a group of banks that provide for unsecured borrowings of up to $500.0 million in the aggregate. The $200.0 million short term revolving credit facility, which was to have terminated on July 4, 2001, was extended to July 2, 2002, and may be renewed or replaced. The $300.0 million medium term revolving credit facility terminates on July 11, 2002. On the respective termination dates for these agreements, any loans then outstanding become payable. There have been no borrowings under these agreements. Various interest rate options are available to the Corporation, all of which are based on market rates. The Corporation pays a fee to have these credit facilities available. Unused credit facilities are available for general corporate purposes and to support Chubb Capital’s commercial paper borrowing arrangement.

(11) Reinsurance

   In the ordinary course of business, the Corporation’s insurance subsidiaries assume and cede reinsurance with other insurance companies and are members of various pools and associations. Reinsurance is ceded to provide greater diversification of risk and to limit the maximum net loss potential arising from large or concentrated risks. A large portion of the reinsurance is effected under contracts known as treaties and in some instances by negotiation on individual risks. Certain of these arrangements consist of excess of loss and catastrophe contracts that protect against losses over stipulated amounts arising from any one occurrence or event. Ceded reinsurance contracts do not relieve the Corporation’s insurance subsidiaries of their primary obligation to the policyholders. Thus, a credit exposure exists with respect to reinsurance ceded to the extent that any reinsurer is unable to meet the obligations assumed under the reinsurance contracts. The Corporation evaluates the financial condition of its reinsurers on an ongoing basis.

   Premiums earned and insurance claims and claim expenses are reported net of reinsurance in the consolidated statements of income.

   The effect of reinsurance on the premiums written and earned of the property and casualty insurance subsidiaries was as follows:

		Years Ended December 31
		2001			2000			1999
		(in millions)
Direct premiums written		$	7,534.3		$	6,741.6		$	6,042.6
Reinsurance assumed			525.2			384.4			275.2
Reinsurance ceded			(1,098.0	)		(792.8	)		(616.7	)
	Net premiums written	$	6,961.5		$	6,333.2		$	5,701.1
Direct premiums earned		$	7,125.8		$	6,550.2		$	6,037.1
Reinsurance assumed			533.9			382.6			246.5
Reinsurance ceded			(1,003.3	)		(786.9	)		(631.6	)
	Net premiums earned	$	6,656.4		$	6,145.9		$	5,652.0

   Assumed reinsurance premiums earned and written and ceded reinsurance premiums earned and written for 2001 included reinstatement premiums of $95.0 million and $65.0 million, respectively, related to the September 11 attack.

   Reinsurance recoveries by the property and casualty insurance subsidiaries that have been deducted from insurance claims and claim expenses were $3,367.4 million, $791.0 million and $501.2 million in 2001, 2000 and 1999, respectively. The 2001 amount included recoveries of $2,385.2 million related to the September 11 attack.

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(12) Federal and Foreign Income Tax

      (a) Income tax expense (credit) consisted of the following components:

		Years Ended December 31
		2001			2000			1999
		(in millions)
Current tax (credit)
	United States	$	(8.3	)	$	152.1		$	41.0
	Foreign		20.7			9.6			42.7
Deferred tax (credit), principally United States			(189.9	)		(25.3	)		5.3
		$	(177.5	)	$	136.4		$	89.0

      Federal and foreign income taxes paid were $53.4 million, $159.7 million and $83.5 million in 2001, 2000 and 1999, respectively.

      (b) The provision for federal and foreign income tax gives effect to permanent differences between income for financial reporting purposes and taxable income. Accordingly, the effective income tax rate is different than the statutory federal corporate tax rate. The reasons for the different effective tax rate were as follows:

		Years Ended December 31
		2001						2000						1999
					% of						% of						% of
					Pre-Tax						Pre-Tax						Pre-Tax
		Amount			Income			Amount			Income			Amount			Income
		(in millions)
Income (loss) before federal and foreign income tax		$	(66.0	)				$	851.0					$	710.1
Tax (credit) at statutory federal income tax rate		$	(23.1	)		(35.0	)%	$	297.9			35.0	%	$	248.5			35.0	%
Tax exempt interest income			(149.3	)		(226.2	)		(153.9	)		(18.1	)		(150.6	)		(21.2	)
Other, net			(5.1	)		(7.7	)		(7.6	)		(.9	)		(8.9	)		(1.3	)
	Actual tax (credit)	$	(177.5	)		(268.9	)%	$	136.4			16.0	%	$	89.0			12.5	%

      (c) The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities were as follows:

				December 31
				2001		2000
				(in millions)
Deferred income tax assets
	Unpaid claims and claim expenses			$	560.3	$	528.6
	Unearned premiums				219.9		201.6
	Postretirement benefits				79.8		77.8
	Alternative minimum tax credit carryforward				141.4		62.9
	Other, net				163.7		81.5
		Total			1,165.1		952.4
Deferred income tax liabilities
	Deferred policy acquisition costs				285.4		258.5
	Real estate assets				68.8		74.3
	Unrealized appreciation of investments				136.1		118.6
		Total			490.3		451.4
			Net deferred income tax asset	$	674.8	$	501.0

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(13) Stock-Based Compensation Plans

      (a) In 2000, the Corporation adopted the Long-Term Stock Incentive Plan (2000), which succeeded the Long-Term Stock Incentive Plan (1996). The Long-Term Stock Incentive Plan (2000), which is similar to the 1996 plan, provides for the granting of stock options, performance shares, restricted stock and other stock-based awards to key employees. The maximum number of shares of the Corporation’s common stock in respect to which stock-based awards may be granted under the 2000 Plan is 13,000,000. At December 31, 2001, 9,075,809 shares were available for grant under the 2000 Plan.

      Stock options are granted at exercise prices not less than the fair market value of the Corporation’s common stock on the date of grant. The terms and conditions upon which options become exercisable may vary among grants. Options expire no later than ten years from the date of grant.

      Information concerning stock options is as follows:

	2001					2000					1999
	Number			Weighted Average		Number			Weighted Average		Number			Weighted Average
	of Shares			Exercise Price		of Shares			Exercise Price		of Shares			Exercise Price
Outstanding, beginning of year		16,683,741		$	55.66		14,565,584			$55.58		9,765,090			$54.78
Exchanged for Executive Risk options		—			—		—			—		1,809,885			36.77
Granted		3,760,311			72.60		5,833,616			50.88		4,761,683			60.31
Exercised		(1,740,701	)		47.80		(3,242,900	)		46.05		(1,359,855	)		39.50
Forfeited		(327,047	)		67.51		(472,559	)		60.13		(411,219	)		64.20
Outstanding, end of year		18,376,304			59.66		16,683,741			55.66		14,565,584			55.58
Exercisable, end of year		12,215,260			57.86		8,787,173			57.80		9,187,352			51.09

	December 31, 2001
	Options Outstanding						Options Exercisable
					Weighted Average
Range of	Number		Weighted Average		Remaining		Number		Weighted Average
Option Exercise Prices	Outstanding		Exercise Price		Contractual Life		Exercisable		Exercise Price
$ 3.95 — $46.84		1,437,650	$	39.75		2.4		1,437,650	$	39.75
47.06 —  59.97		9,243,089		52.95		6.7		6,782,637		54.31
60.25 —  78.97		7,695,565		71.44		6.7		3,994,973		70.41
		18,376,304		59.66		6.4		12,215,260		57.86

      Performance share awards are based on the achievement of various goals over performance cycle periods and are payable in cash, in shares of the Corporation’s common stock or in a combination of both. Restricted stock awards consist of shares of common stock of the Corporation granted at no cost. Shares of restricted stock become outstanding when granted, receive dividends and have voting rights. The shares are subject to forfeiture and to restrictions that limit the sale or transfer during the restriction period.

      The Corporation uses the intrinsic value based method of accounting for stock-based compensation, under which compensation cost is measured as the excess, if any, of the quoted market price of the stock at the measurement date over the amount an employee must pay to acquire the stock. Since the exercise price of stock options granted under the Long-Term Stock Incentive Plans is not less than the market price of the underlying stock on the date of grant, no compensation cost is recognized for such grants. The cost of performance share awards is expensed over the performance cycle. An amount equal to the fair market value of restricted share awards at the date of grant is expensed over the restriction period. The aggregate amount charged against income with respect to performance share and restricted stock awards was $13.5 million in 2001, $11.5 million in 2000 and $5.2 million in 1999.

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      The following pro forma net income and earnings per share information has been determined as if the Corporation had accounted for stock-based compensation awarded under the Long-Term Stock Incentive Plans using the fair value based method. Under the fair value based method, the estimated fair value of awards at the grant date would be charged against income on a straight-line basis over the vesting period.

	2001				2000				1999
	As		Pro		As		Pro		As		Pro
	Reported		Forma		Reported		Forma		Reported		Forma
	(in millions except for per share amounts)
Net income	$	111.5	$	65.7	$	714.6	$	669.6	$	621.1	$	585.6
Diluted earnings per share		.63		.37		4.01		3.76		3.66		3.45

      The weighted average fair value of options granted under the Long-Term Stock Incentive Plans during 2001, 2000 and 1999 was $18.22, $11.98 and $13.77, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions. The risk-free interest rates for 2001, 2000 and 1999 were 4.7%, 6.7% and 5.4%, respectively. The expected volatility of the market price of the Corporation’s common stock for 2001, 2000 and 1999 grants was 25.7%, 21.9% and 19.0%, respectively. The expected average term of the granted options was 5 1/2 years for 2001, 2000 and 1999. The dividend yield was 1.9% for 2001, 2.7% for 2000 and 2.1% for 1999.

      (b) The Corporation has a leveraged Employee Stock Ownership Plan (ESOP) in which substantially all employees are eligible to participate. At its inception in 1989, the ESOP used the proceeds of a $150.0 million loan from the Corporation to purchase 7,792,204 newly issued shares of the Corporation’s common stock. The loan is due in September 2004 and bears interest at 9%. The Corporation has recorded the receivable from the ESOP as a separate reduction of shareholders’ equity on the consolidated balance sheets. This balance is reduced as repayments are made on the loan principal.

      The Corporation and its participating subsidiaries make semi-annual contributions to the ESOP in amounts determined at the discretion of the Corporation’s Board of Directors. The contributions, together with the dividends on the shares of common stock in the ESOP, are used by the ESOP to make loan interest and principal payments to the Corporation. As interest and principal are paid, a portion of the common stock is allocated to eligible employees.

      The Corporation uses the cash payment method of recognizing ESOP expense. In 2001, 2000 and 1999, cash contributions to the ESOP of $11.3 million, $11.0 million and $11.2 million, respectively, were charged against income. Dividends on shares of common stock in the ESOP used for debt service were $7.7 million for 2001, 2000 and 1999.

      The number of allocated and unallocated shares held by the ESOP at December 31, 2001 were 4,008,152 and 1,558,444, respectively. All such shares are considered outstanding for the computation of earnings per share.

      (c) The Corporation has a Stock Purchase Plan under which substantially all employees are eligible to purchase shares of the Corporation’s common stock based on compensation. In March 2001, approximately 1,100,000 shares were issued under the plan at a price of $53.89 per share. At December 31, 2001, there were no subscribed shares.

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(14)  Employee Benefits

   (a) The Corporation and its subsidiaries have several non-contributory defined benefit pension plans covering substantially all employees. Prior to 2001, benefits were generally based on an employee’s years of service and average compensation during the last five years of employment. Effective January 1, 2001, the Corporation changed the formula for providing pension benefits from the final average pay formula to a cash balance formula, which credits employees semi-annually with an amount equal to a percentage of eligible compensation based on age and years of service as well as an interest credit based on individual account balances. Employees hired prior to 2001 will generally be eligible to receive vested benefits based on the higher of the final average pay or cash balance formulas. This change in the pension benefit formula did not have a significant effect on the Corporation’s financial position or results of operations.

   The Corporation’s policy is to make annual contributions that meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.

   The components of net pension cost were as follows:

		Years Ended December 31
		2001			2000			1999
		(in millions)
Service cost of current period		$	28.6		$	26.4		$	22.2
Interest cost on projected benefit obligation			43.9			40.2			37.6
Expected return on plan assets			(53.5	)		(49.9	)		(44.5	)
Other gains			(5.0	)		(6.3	)		(2.5	)
	Net pension cost	$	14.0		$	10.4		$	12.8

   The following table sets forth the plans’ funded status and amounts recognized in the balance sheets:

		December 31
		2001			2000
		(in millions)
Actuarial present value of projected benefit obligation for service rendered to date		$	665.2		$	589.2
Plan assets at fair value			538.8			594.1
Projected benefit obligation in excess of (less than) plan assets			126.4			(4.9	)
Unrecognized net gain from past experience different from that assumed			4.0			115.8
Unrecognized prior service costs			(19.7	)		(10.9	)
Unrecognized net asset at January 1, 1985, being recognized principally over 19 years			.6			2.1
	Pension liability included in other liabilities	$	111.3		$	102.1

   The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation at December 31, 2001 and 2000 was 7 1/4% and 7 1/2%, respectively, and the rate of increase in future compensation levels was 4 1/2% for both years. The expected long term rate of return on assets was 9% for both years. Plan assets are principally invested in publicly traded stocks and bonds.

   (b) The Corporation and its subsidiaries provide certain other postretirement benefits, principally health care and life insurance, to retired employees and their beneficiaries and covered dependents. Substantially all employees hired before January 1, 1999 may become eligible for these benefits upon retirement if they meet minimum age and years of service requirements. The expected cost of these benefits is accrued during the years that the employees render the necessary service.

   The Corporation does not fund these benefits in advance. Benefits are paid as covered expenses are incurred. Health care coverage is contributory. Retiree contributions vary based upon a retiree’s age, type of coverage and years of service with the Corporation. Life insurance coverage is non-contributory.

   The components of net postretirement benefit cost were as follows:

		Years Ended December 31
		2001			2000			1999
		(in millions)
Service cost of current period		$	5.0		$	4.8		$	4.5
Interest cost on accumulated benefit obligation			9.2			8.7			8.6
Net amortization and deferral			(1.4	)		(1.5	)		(1.0	)
	Net postretirement benefit cost	$	12.8		$	12.0		$	12.1

   The components of the accumulated postretirement benefit obligation were as follows:

		December 31
		2001		2000
		(in millions)
Accumulated postretirement benefit obligation		$	137.0	$	126.3
Unrecognized net gain from past experience different from that assumed			31.7		35.6
	Postretirement benefit liability included in other liabilities	$	168.7	$	161.9

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   The weighted average discount rate used in determining the actuarial present value of the accumulated postretirement benefit obligation at December 31, 2001 and 2000 was 7 1/4% and 7 1/2%, respectively. At December 31, 2001, the weighted average health care cost trend rate used to measure the accumulated postretirement cost for medical benefits was 10% for 2002 and was assumed to decrease gradually to 5% for the year 2009 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amount of the accumulated postretirement benefit obligation and the net postretirement benefit cost reported. To illustrate, a one percent increase or decrease in the trend rate for each year would increase or decrease the accumulated postretirement benefit obligation at December 31, 2001 by approximately $22 million and the aggregate of the service and interest cost components of net postretirement benefit cost for the year ended December 31, 2001 by approximately $3 million.

   (c) The Corporation and its subsidiaries have a savings plan, the Capital Accumulation Plan, in which substantially all employees are eligible to participate. Under this plan, the employer makes a matching contribution equal to 100% of each eligible employee’s pre-tax elective contributions, up to 4% of the employee’s compensation. Contributions are invested at the election of the employee in the Corporation’s common stock or in various other investment funds. Employer contributions of $18.6 million, $17.1 million and $15.1 million were charged against income in 2001, 2000 and 1999, respectively.

(15) Leases

   The Corporation and its subsidiaries occupy office facilities under lease agreements that expire at various dates through 2019; such leases are generally renewed or replaced by other leases. In addition, the Corporation’s subsidiaries lease data processing, office and transportation equipment.

   Most leases contain renewal options for increments ranging from three to five years; certain lease agreements provide for rent increases based on price-level factors. All leases are operating leases.

   Rent expense was as follows:

	Years Ended
	December 31
	2001		2000		1999
	(in millions)
Office facilities	$	82.3	$	75.2	$	71.0
Equipment		15.5		14.6		13.4
	$	97.8	$	89.8	$	84.4

   At December 31, 2001, future minimum rental payments required under non-cancellable operating leases were as follows:

Years Ending
December 31
	(in millions)
2002	$	91.3
2003		82.1
2004		73.4
2005		65.0
2006		58.6
After 2006		349.8
	$	720.2

(16) Commitments and Contingent Liabilities

   (a) CFSI participates in the credit derivatives business, principally as a counterparty to credit default swaps. The Corporation has issued unconditional guarantees with respect to all obligations of CFSI arising from these transactions.

   Obligations with respect to credit default swaps are carried at estimated fair value. At December 31, 2001, the fair value of future obligations under credit default swaps was $47.9 million. At that date, the aggregate exposure or retained risk, referred to as notional amounts, from open credit default swaps was approximately $14.3 billion. The notional amounts are used to express the extent of involvement in swap transactions. Notional amounts are not a quantification of market risk or credit risk and are not recorded on the balance sheet. The notional amounts are used to calculate the exchange of contractual cash flows and are not necessarily representative of the potential for gain or loss.

   (b) A property and casualty insurance subsidiary issued a reinsurance contract to an insurer that provides financial guarantees on asset-backed transactions. At December 31, 2001, the aggregate principal commitments related to the contract for which the subsidiary was contingently liable amounted to approximately $400 million, all of which expire by 2023.

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(17) Earnings Per Share

      Basic earnings per common share is based on net income divided by the weighted average number of common shares outstanding during each year. Diluted earnings per share includes the maximum dilutive effect of awards under stock-based compensation plans.

      The following table sets forth the computation of basic and diluted earnings per share:

		Years Ended December 31
		2001		2000		1999
		(in millions except for per
		share amounts)
Basic earnings per share:
	Net income	$	111.5	$	714.6	$	621.1
	Weighted average number of common shares outstanding		172.2		174.3		167.7
	Basic earnings per share	$	.65	$	4.10	$	3.70
Diluted earnings per share:
	Net income	$	111.5	$	714.6	$	621.1
	Weighted average number of common shares outstanding		172.2		174.3		167.7
	Additional shares from assumed exercise of stock-based compensation awards		3.6		4.0		2.1
	Weighted average number of common shares and potential common shares assumed outstanding for computing diluted earnings per share		175.8		178.3		169.8
	Diluted earnings per share	$	.63	$	4.01	$	3.66

      In 2001, 2000 and 1999, options to purchase 4.0 million shares, 3.5 million shares and 5.2 million shares of common stock with weighted average exercise prices of $76.27 per share, $68.81 per share and $67.71 per share, respectively, were excluded from the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the Corporation’s common stock.

      For additional disclosure regarding the stock-based compensation awards, see Note (13).

(18) Segments Information

   The property and casualty operations include three reportable underwriting segments and the investment function. The underwriting segments are personal insurance, commercial insurance and specialty insurance. The personal segment targets the personal insurance market. The personal classes include automobile, homeowners and other personal coverages. The commercial segment includes those classes of business that are generally available in broad markets and are of a more commodity nature. Commercial classes include multiple peril, casualty, workers’ compensation and property and marine. The specialty segment includes those classes of business that are available in more limited markets since they require specialized underwriting and claim settlement. Specialty classes include executive protection, financial institutions and other specialty coverages.

   The property and casualty underwriting segments were changed in 2001 to present results in a manner more consistent with the way the business is now managed. The property and marine business was reclassified from the specialty insurance segment to the commercial insurance segment and some business that was included within executive protection was reclassified to multiple peril. Prior period amounts have been reclassified to conform to the new presentation.

   Corporate and other includes investment income earned on corporate invested assets, corporate expenses and the results of CFSI and the Corporation’s real estate and other non-insurance subsidiaries.

   The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note (1). Performance of the property and casualty underwriting segments is based on underwriting results before deferred policy acquisition costs, amortization of goodwill and certain charges. Investment income performance is based on investment income net of investment expenses, excluding realized investment gains.

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      Distinct investment portfolios are not maintained for each underwriting segment. Property and casualty invested assets are available for payment of claims and expenses for all classes of business. Therefore, such assets and the related investment income are not allocated to underwriting segments.

      Revenues, income before income tax and assets of each operating segment were as follows:

				Years Ended December 31
				2001			2000			1999
Revenues				(in millions)
	Property and casualty insurance
		Premiums earned
			Personal insurance	$	1,847.9		$	1,620.6		$	1,447.5
			Commercial insurance		2,366.3			2,353.7			2,495.2
			Specialty insurance		2,442.2			2,171.6			1,709.3
					6,656.4			6,145.9			5,652.0
		Investment income			914.7			890.8			832.6
			Total property and casualty insurance		7,571.1			7,036.7			6,484.6
	Corporate and other
		Corporate investment income			68.1			66.4			60.8
		Real estate and other			114.0			96.9			96.8
	Realized investment gains				.8			51.5			87.4
			Total revenues	$	7,754.0		$	7,251.5		$	6,729.6
Income (loss) before income tax
	Property and casualty insurance
		Underwriting
			Personal insurance	$	(67.3	)	$	80.7		$	121.1
			Commercial insurance		(290.2	)		(326.7	)		(464.1	)
			Specialty insurance		(632.8	)		160.1			168.4
					(990.3	)		(85.9	)		(174.6	)
			Increase (decrease) in deferred policy acquisition costs		86.8			62.3			(4.2	)
		Underwriting loss			(903.5	)		(23.6	)		(178.8	)
		Investment income			902.6			879.2			821.0
		Amortization of goodwill and other charges			(52.3	)		(52.2	)		(16.0	)
			Total property and casualty insurance		(53.2	)		803.4			626.2
	Corporate and other income (loss)				(13.6	)		(3.9	)		(3.5	)
	Realized investment gains				.8			51.5			87.4
			Total income (loss) before income tax	$	(66.0	)	$	851.0		$	710.1

			December 31
			2001			2000			1999
			(in millions)
Assets
	Property and casualty insurance		$	27,767.0		$	23,066.1		$	21,628.1
	Corporate and other			1,752.9			2,030.4			1,976.9
	Adjustments and eliminations			(70.9	)		(69.8	)		(68.0	)
		Total assets	$	29,449.0		$	25,026.7		$	23,537.0

      Property and casualty results for 2001 included an underwriting loss of $635.0 million from the September 11 attack, comprising $20.0 million in personal insurance, $103.2 million in commercial insurance and $511.8 million in specialty insurance, as well as other charges of $10.0 million. Specialty insurance underwriting results in 2001 also included net surety bond losses of $220.0 million related to the bankruptcy of Enron Corp.

      The international business of the property and casualty insurance segment is conducted primarily through subsidiaries that operate solely outside of the United States. Their assets and liabilities are located principally in the countries where the insurance risks are written. International business is also written by branch offices of certain domestic subsidiaries.

      Revenues of the property and casualty insurance subsidiaries by geographic area were as follows:

			Years Ended December 31
			2001		2000		1999
			(in millions)
Revenues
	United States		$	6,331.9	$	5,914.9	$	5,452.1
	International			1,239.2		1,121.8		1,032.5
		Total	$	7,571.1	$	7,036.7	$	6,484.6

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(19) Fair Values of Financial Instruments

   Fair values of financial instruments are based on quoted market prices where available. Fair values of financial instruments for which quoted market prices are not available are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. In such instances, the derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that could be realized in immediate settlement of the instrument. Certain financial instruments, particularly insurance contracts, are excluded from fair value disclosure requirements.

   The methods and assumptions used to estimate the fair value of financial instruments are as follows:

   (i) The carrying value of short term investments approximates fair value due to the short maturities of these investments.

   (ii) Fair values of fixed maturities with active markets are based on quoted market prices. For fixed maturities that trade in less active markets, fair values are obtained from independent pricing services. Fair values of fixed maturities are principally a function of current interest rates. Care should be used in evaluating the significance of these estimated market values which can fluctuate based on such factors as interest rates, inflation, monetary policy and general economic conditions.

   (iii) Fair values of equity securities with active markets are based on quoted market prices. For other equity securities, fair values are estimates of value.

   (iv) Fair values of real estate mortgages and notes receivable are estimated individually as the value of the discounted future cash flows of the loan, subject to the estimated fair value of the underlying collateral. The cash flows are discounted at rates based on a U.S. Treasury security with a maturity similar to the loan, adjusted for credit risk.

   (v) The carrying value of short term debt approximates fair value due to the short maturities of this debt.

   (vi) Long term debt consists of a term loan, mortgages payable, long term notes and capital securities. The fair value of the term loan approximates the carrying value because such loan consists of variable-rate debt that reprices frequently. Fair values of mortgages payable are estimated using discounted cash flow analyses. Fair values of the long term notes and capital securities are based on prices quoted by dealers.

   (vii) Fair values of credit derivatives, principally credit default swaps, are determined using an internal valuation model that is similar to external valuation models. The fair value of a credit default swap is subject to fluctuations arising from, among other factors, observable changes in credit spreads and interest rates.

   The carrying values and fair values of financial instruments were as follows:

				December 31
				2001				2000
				Carrying		Fair		Carrying		Fair
				Value		Value		Value		Value
				(in millions)
Assets
	Invested assets
		Short term investments		$	956.8	$	956.8	$	605.6	$	605.6
		Fixed maturities (Note 5)
			Held-to-maturity		1,218.5		1,282.5		1,496.1		1,564.7
			Available-for-sale		14,898.2		14,898.2		14,068.3		14,068.3
		Equity securities			710.4		710.4		830.6		830.6
	Real estate mortgages and notes receivable (Note 7)				97.7		89.0		89.7		81.9
Liabilities
	Short term debt (Note 10)				199.0		199.0		—		—
	Long term debt (Note 10)				1,351.0		1,387.1		753.8		745.8
	Credit derivatives (Note 16)				47.9		47.9		6.2		6.2

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(20) Comprehensive Income

      Comprehensive income is defined as all changes in shareholders’ equity, except those arising from transactions with shareholders. Comprehensive income includes net income and other comprehensive income, which for the Corporation consists of changes in unrealized appreciation or depreciation of investments carried at market value and changes in foreign currency translation gains or losses.

      The components of other comprehensive income or loss were as follows:

		Years Ended December 31
		2001									2000									1999
					Income									Income									Income
		Before			Tax						Before			Tax						Before			Tax
		Tax			(Credit)			Net			Tax			(Credit)			Net			Tax			(Credit)			Net
		(in millions)
Unrealized holding gains (losses) arising during the year		$	50.8		$	17.8		$	33.0		$	502.8		$	136.6	*	$	366.2		$	(663.2	)	$	(191.7	)*	$	(471.5	)
Less: reclassification adjustment for realized gains included in net income			.8			.3			.5			51.5			18.0			33.5			87.4			31.6			55.8
Net unrealized gains (losses) recognized in other comprehensive income			50.0			17.5			32.5			451.3			118.6			332.7			(750.6	)		(223.3	)		(527.3	)
Foreign currency translation losses			(6.7	)		(2.2	)		(4.5	)		(36.6	)		(12.9	)		(23.7	)		(14.2	)		(5.4	)		(8.8	)
	Total other comprehensive income (loss)	$	43.3		$	15.3		$	28.0		$	414.7		$	105.7		$	309.0		$	(764.8	)	$	(228.7	)	$	(536.1	)

* Reflects a decrease of $39.4 million and an increase of $39.4 million in a valuation allowance in 2000 and 1999, respectively.

(21) Shareholders’ Equity

      (a) The authorized but unissued preferred shares may be issued in one or more series and the shares of each series shall have such rights as fixed by the Board of Directors.

      (b) The activity of the Corporation’s common stock was as follows:

			Years Ended December 31
			2001			2000			1999
			(number of shares)
Common stock issued
	Balance, beginning of year			178,833,278			177,272,322			175,989,202
	Share activity related to acquisition of Executive Risk			—			—			641,474
	Share activity under option and incentive plans			1,297,960			1,560,956			641,646
		Balance, end of year		180,131,238			178,833,278			177,272,322
Treasury stock
	Balance, beginning of year			3,914,105			1,782,489			13,722,376
	Share activity related to acquisition of Executive Risk			—			—			(13,651,028	)
	Repurchase of shares			7,971,600			3,783,400			2,596,700
	Share activity under option and incentive plans			(1,825,848	)		(1,651,784	)		(885,559	)
		Balance, end of year		10,059,857			3,914,105			1,782,489
		Common stock outstanding, end of year		170,071,381			174,919,173			175,489,833

      (c) The Corporation has a shareholders rights plan under which each shareholder has one right for each share of common stock of the Corporation held. Each right entitles the holder to purchase from the Corporation one one-thousandth of a share of Series B Participating Cumulative Preferred Stock at an exercise price of $240. The rights are attached to all outstanding shares of common stock and trade with the common stock until the rights become exercisable. The rights are subject to adjustment to prevent dilution of the interests represented by each right.

      The rights will become exercisable and will detach from the common stock ten days after a person or group either acquires 20% or more of the outstanding shares of the Corporation’s common stock or announces a tender or exchange offer which, if consummated, would result in that person or group owning 20% or more of the outstanding shares of the Corporation’s common stock.

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      In the event that any person or group acquires 20% or more of the outstanding shares of the Corporation’s common stock, each right will entitle the holder, other than such person or group, to purchase that number of shares of the Corporation’s common stock having a market value of two times the exercise price of the right. In the event that, following the acquisition of 20% or more of the Corporation’s outstanding common stock by a person or group, the Corporation is acquired in a merger or other business combination transaction or 50% or more of the Corporation’s assets or earning power is sold, each right will entitle the holder to purchase common stock of the acquiring company having a value equal to two times the exercise price of the right.

      At any time after any person or group acquires 20% or more of the Corporation’s common stock, but before such person or group acquires 50% or more of such stock, the Corporation may exchange all or part of the rights, other than the rights owned by such person or group, for shares of the Corporation’s common stock at an exchange ratio of one share of common stock per right.

      The rights do not have the right to vote or to receive dividends. The rights may be redeemed in whole, but not in part, at a price of $.01 per right by the Corporation at any time until the tenth day after the acquisition of 20% or more of the Corporation’s outstanding common stock by a person or group. The rights will expire at the close of business on March 12, 2009, unless previously exchanged or redeemed by the Corporation.

      (d) The Corporation’s insurance subsidiaries are required to file annual statements with insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis). For such subsidiaries, generally accepted accounting principles (GAAP) differ in certain respects from statutory accounting practices. Effective January 1, 2001, the Corporation’s U.S. domiciled insurance subsidiaries adopted the National Association of Insurance Commissioners’ Codification of Statutory Accounting Principles (Codification). Codification is intended to standardize regulatory reporting to state insurance departments. The adoption of Codification increased the statutory basis policyholders’ surplus of the Corporation’s insurance subsidiaries at December 31, 2001 by approximately $295 million.

      A comparison of shareholders’ equity on a GAAP basis and policyholders’ surplus on a statutory basis is as follows:

	December 31
	2001					2000
	GAAP			Statutory		GAAP		Statutory
	(in millions)
Property and casualty insurance subsidiaries	$	6,566.6		$	3,814.8	$	5,974.6	$	3,483.7
Corporate and other		(41.3	)				1,007.1
	$	6,525.3				$	6,981.7

      A comparison of GAAP and statutory net income (loss) is as follows:

	Years Ended December 31
	2001					2000				1999
	GAAP		Statutory			GAAP		Statutory		GAAP		Statutory
	(in millions)
Property and casualty insurance subsidiaries	$	95.0	$	(239.2	)	$	711.3	$	622.2	$	610.6	$	609.3
Corporate and other		16.5					3.3				10.5
	$	111.5				$	714.6			$	621.1

      (e) The Corporation’s ability to continue to pay dividends to shareholders and interest on debt obligations relies on the availability of liquid assets in the Corporation, which is dependent on the dividend paying ability of its property and casualty insurance subsidiaries. Various state insurance laws restrict the Corporation’s property and casualty insurance subsidiaries as to the amount of dividends they may pay to the Corporation without the prior approval of regulatory authorities. The restrictions are generally based on net income and on certain levels of policyholders’ surplus as determined in accordance with statutory accounting practices. Dividends in excess of such thresholds are considered “extraordinary” and require prior regulatory approval. During 2001, these subsidiaries paid cash dividends to the Corporation totaling $240 million.

      The maximum dividend distribution that may be made by the property and casualty insurance subsidiaries to the Corporation during 2002 without prior approval is approximately $350 million.

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REPORT OF INDEPENDENT AUDITORS

ERNST & YOUNG LLP
787 Seventh Avenue
New York, New York 10019

The Board of Directors and Shareholders
The Chubb Corporation

      We have audited the accompanying consolidated balance sheets of The Chubb Corporation as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders’ equity, cash flows and comprehensive income for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Chubb Corporation at December 31, 2001 and 2000 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

February 28, 2002

72

QUARTERLY FINANCIAL DATA

      Summarized unaudited quarterly financial data for 2001 and 2000 are shown below. In management’s opinion, the interim financial data contain all adjustments, consisting of normal recurring items, necessary to present fairly the results of operations for the interim periods.

			Three Months Ended
			March 31						June 30						September 30						December 31
			2001			2000			2001			2000			2001(a)			2000			2001(b)			2000
			(in millions except for per share amounts)
Revenues			$	1,891.5		$	1,767.0		$	1,914.5		$	1,774.0		$	1,956.3		$	1,858.5		$	1,991.7		$	1,852.0
Claims and expenses				1,682.1			1,592.9			1,748.3			1,549.8			2,383.7			1,601.4			2,005.9			1,656.4
Federal and foreign income tax (credit)				34.4			20.4			19.4			39.6			(188.4	)		49.2			(42.9	)		27.2
		Net income (loss)	$	175.0		$	153.7		$	146.8		$	184.6		$	(239.0	)	$	207.9		$	28.7		$	168.4
Basic earnings (loss) per share			$	1.00		$	.88		$	.84		$	1.05		$	(1.40	)	$	1.20		$	.17		$	.97
Diluted earnings (loss) per share			$	.97		$	.87		$	.83		$	1.02		$	(1.40	)	$	1.17		$	.16		$	.95
Underwriting ratios
	Losses to premiums earned			67.0	%		69.2	%		70.0	%		65.9	%		105.7	%		66.9	%		79.9	%		67.9	%
	Expenses to premiums written			32.9			32.7			33.5			32.7			32.1			32.5			32.0			33.8
		Combined		99.9	%		101.9	%		103.5	%		98.6	%		137.8	%		99.4	%		111.9	%		101.7	%

(a)  In the third quarter of 2001, revenues included reinstatement premiums of $30.0 million and claims and expenses included costs of $675.0 million related to the September 11 attack. Net income for the quarter was reduced by $420.0 million or $2.46 per basic and diluted share for the after-tax effect of the net costs. Excluding the impact of the September 11 attack, the losses to premiums earned ratio was 67.2%, the expenses to premiums written ratio was 32.7% and the combined ratio was 99.9%.

(b)  In the fourth quarter of 2001, claims and expenses included net surety bond losses of $220.0 million related to the bankruptcy of Enron Corp., resulting in an after-tax charge to net income of $143.0 million or $0.83 per diluted share ($0.85 per basic share). Excluding the effect of the Enron surety losses, the losses to premiums earned ratio for the quarter was 67.0% and the combined ratio was 99.0%.

COMMON STOCK DATA

      The common stock of the Corporation is listed and principally traded on the New York Stock Exchange (NYSE). The following are the high and low closing sale prices as reported on the NYSE Composite Tape and the quarterly dividends declared for each quarter of 2001 and 2000.

		2001
		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
Common stock prices
	High	$	83.44	$	79.00	$	76.89	$	77.66
	Low		65.27		64.32		58.59		66.02
Dividends declared			.34		.34		.34		.34

		2000
		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
Common stock prices
	High	$	67.56	$	72.38	$	82.00	$	90.00
	Low		44.75		59.63		62.75		72.25
Dividends declared			.33		.33		.33		.33

      At March 11, 2002, there were approximately 6,300 common shareholders of record.

73

EX-10

EX-10: EXECUTIVE SEVERANCE AGREEMENT

EX-13

EX-13: PAGES 21,22,44-73 OF 2001 ANNUAL REPORT

EX-21

THE CHUBB CORPORATION

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

     Significant subsidiaries at December 31, 2001 of The Chubb Corporation, a New Jersey Corporation, and their subsidiaries (indented), together with the percentages of ownership, are set forth below.

				Percentage
			Place of	of Securities
Company			Incorporation	Owned
Federal Insurance Company			Indiana		100	%
	Vigilant Insurance Company		New York		100
	Pacific Indemnity Company		Wisconsin		100
		Northwestern Pacific Indemnity Company	Oregon		100
		Texas Pacific Indemnity Company	Texas		100
	Great Northern Insurance Company		Minnesota		100
	Chubb Insurance Company of New Jersey		New Jersey		100
	Chubb Custom Insurance Company		Delaware		100
	Chubb National Insurance Company		Indiana		100
	Chubb Indemnity Insurance Company		New York		100
	Executive Risk Indemnity Inc.		Delaware		100
		Executive Risk Specialty Insurance Company	Connecticut		100
		Quadrant Indemnity Company	Connecticut		100
	CC Canada Holdings Ltd.		Canada		100
		Chubb Insurance Company of Canada	Canada		100
	Chubb Insurance Company of Europe, S.A.		Belgium		100
	Chubb Insurance Company of Australia Limited		Australia		100
	Chubb Argentina de Seguros, S.A.		Argentina		100
Chubb Atlantic Indemnity Ltd.			Bermuda		100
	DHC Corporation		Delaware		100
		Chubb do Brasil Companhia de Seguros	Brazil		99
Bellemead Development Corporation			Delaware		100
Chubb Capital Corporation			New Jersey		100
Chubb Financial Solutions, Inc.			Delaware		100

      Certain other subsidiaries of the Corporation and its consolidated subsidiaries have been omitted since, in the aggregate, they would not constitute a significant subsidiary.

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