Edgar Filing: CHUBB CORP

e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended JUNE 30, 2010


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 number 1-8661

THE CHUBB CORPORATION

(Exact name of registrant as specified in its charter)


NEW JERSEY		13-2595722

(State or other jurisdiction of		(I. R. S. Employer
incorporation or organization)		Identification No.)

15 MOUNTAIN VIEW ROAD, WARREN, NEW JERSEY		07059

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (908) 903-2000

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 þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

The number of shares of common stock outstanding as of June 30, 2010 was 314,549,426.

THE CHUBB CORPORATION
INDEX


	Page Number
Part I. Financial Information:

Item 1 — Financial Statements:

Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2010 and 2009		1

Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009		2

Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2010 and 2009		3

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009		4

Notes to Consolidated Financial Statements		5

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

Item 4 — Controls and Procedures		43

Part II. Other Information:

Item 1A — Risk Factors		44

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		44

Item 6 — Exhibits		45

Signatures		45
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Page 1

Part I. FINANCIAL INFORMATION

Item 1 — Financial Statements

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
PERIODS ENDED JUNE 30


	Second Quarter						Six Months
	2010			2009			2010			2009
				(in millions)
Revenues
Premiums Earned	$	2,799		$	2,828		$	5,581		$	5,654
Investment Income		426			408			836			810
Other Revenues		3			3			7			6
Realized Investment Gains (Losses), Net
Total Other-Than-Temporary Impairment Losses on Investments		(6	)		(34	)		(6	)		(93	)
Other-Than-Temporary Impairment Losses on Investments Recognized in Other Comprehensive Income		(2	)		15			(3	)		15
Other Realized Investment Gains (Losses), Net		98			46			226			(161	)

Total Realized Investment Gains (Losses), Net		90			27			217			(239	)


Total Revenues		3,318			3,266			6,641			6,231


Losses and Expenses
Losses and Loss Expenses		1,660			1,572			3,390			3,187
Amortization of Deferred Policy Acquisition Costs		765			757			1,505			1,485
Other Insurance Operating Costs and Expenses		107			102			222			205
Investment Expenses		8			7			18			16
Other Expenses		4			4			8			7
Corporate Expenses		72			71			148			148


Total Losses and Expenses		2,616			2,513			5,291			5,048


Income Before Federal and Foreign Income Tax		702			753			1,350			1,183
Federal and Foreign Income Tax		184			202			368			291


Net Income	$	518		$	551		$	982		$	892


Net Income Per Share

Basic	$	1.60		$	1.55		$	2.99		$	2.51
Diluted		1.59			1.54			2.97			2.49

Dividends Declared Per Share		.37			.35			.74			.70

See Notes to Consolidated Financial Statements.

Page 2

THE CHUBB CORPORATION

CONSOLIDATED BALANCE SHEETS


	June 30,			Dec. 31,
	2010			2009
	(in millions)
Assets

Invested Assets
Short Term Investments	$	2,211		$	1,918
Fixed Maturities
Tax Exempt (cost $18,615 and $18,720)		19,629			19,587
Taxable (cost $15,836 and $16,470)		16,652			16,991
Equity Securities (cost $1,230 and $1,215)		1,263			1,433
Other Invested Assets		2,240			2,075


TOTAL INVESTED ASSETS		41,995			42,004

Cash		50			51
Accrued Investment Income		445			460
Premiums Receivable		2,152			2,101
Reinsurance Recoverable on Unpaid Losses and Loss Expenses		1,950			2,053
Prepaid Reinsurance Premiums		334			308
Deferred Policy Acquisition Costs		1,562			1,533
Deferred Income Tax		141			272
Goodwill		467			467
Other Assets		1,352			1,200


TOTAL ASSETS	$	50,448		$	50,449


Liabilities

Unpaid Losses and Loss Expenses	$	22,802		$	22,839
Unearned Premiums		6,197			6,153
Long Term Debt		3,975			3,975
Dividend Payable to Shareholders		118			118
Accrued Expenses and Other Liabilities		1,823			1,730


TOTAL LIABILITIES		34,915			34,815


Contingent Liabilities (Note 6)

Shareholders’ Equity

Common Stock — $1 Par Value; 371,980,460 Shares		372			372
Paid-In Surplus		175			224
Retained Earnings		16,978			16,235
Accumulated Other Comprehensive Income		812			720
Treasury Stock, at Cost — 57,431,034 and 39,972,796 Shares		(2,804	)		(1,917	)


TOTAL SHAREHOLDERS’ EQUITY		15,533			15,634


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	50,448		$	50,449

See Notes to Consolidated Financial Statements.

Page 3

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PERIODS ENDED JUNE 30


	Second Quarter						Six Months
	2010			2009			2010			2009
	(in millions)
Net Income	$	518		$	551		$	982		$	892


Other Comprehensive Income (Loss), Net of Tax
Change in Unrealized Appreciation or Depreciation of Investments		56			188			163			515
Change in Unrealized Other-Than-Temporary Impairment Losses on Investments		1			(9	)		4			(9	)
Foreign Currency Translation Gains (Losses)		(66	)		158			(94	)		45
Amortization of Net Loss and Prior Service Cost Included in Net Postretirement Benefit Costs		9			3			19			12

		—			340			92			563


Comprehensive Income	$	518		$	891		$	1,074		$	1,455

See Notes to Consolidated Financial Statements.

Page 4

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30


	2010			2009
	(in millions)
Cash Flows from Operating Activities
Net Income	$	982		$	892
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Increase in Unpaid Losses and Loss Expenses, Net		272			171
Increase (Decrease) in Unearned Premiums, Net		70			(65	)
Increase in Premiums Receivable		(51	)		(6	)
Amortization of Premiums and Discounts on Fixed Maturities		89			94
Depreciation		31			30
Realized Investment Losses (Gains), Net		(217	)		239
Other, Net		(177	)		(244	)


Net Cash Provided by Operating Activities		999			1,111


Cash Flows from Investing Activities
Proceeds from Fixed Maturities
Sales		1,593			1,771
Maturities, Calls and Redemptions		1,215			1,206
Proceeds from Sales of Equity Securities		42			344
Purchases of Fixed Maturities		(2,457	)		(4,000	)
Purchases of Equity Securities		(52	)		(4	)
Investments in Other Invested Assets, Net		1			(24	)
Increase in Short Term Investments, Net		(275	)		(182	)
Increase in Net Payable from Security Transactions Not Settled		118			196
Purchases of Property and Equipment, Net		(25	)		(24	)
Other, Net		—			4


Net Cash Provided by (Used in) Investing Activities		160			(713	)


Cash Flows from Financing Activities
Increase (Decrease) in Funds Held under Deposit Contracts		24			(2	)
Proceeds from Issuance of Common Stock Under Stock-Based Employee Compensation Plans		31			16
Repurchase of Shares		(976	)		(161	)
Dividends Paid to Shareholders		(239	)		(242	)


Net Cash Used in Financing Activities		(1,160	)		(389	)


Net Increase (Decrease) in Cash		(1	)		9

Cash at Beginning of Year		51			56


Cash at End of Period	$	50		$	65

See Notes to Consolidated Financial Statements.

Page 5

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1) General

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

Effective April 1, 2009, the Corporation adopted new guidance issued by the Financial Accounting Standards Board (FASB) related to the recognition and presentation of other-than-temporary impairments. This guidance was not permitted to be retroactively applied to prior periods’ financial statements; accordingly, consolidated financial statements for periods prior to April 1, 2009 have not been restated for this change in accounting policy. This accounting change is further described in Note (3)(b).

The amounts included in this report are unaudited but include those adjustments, consisting of normal recurring items, that management considers necessary for a fair presentation. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the Notes to Consolidated Financial Statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009.

2) Adoption of New Accounting Pronouncement

Effective January 1, 2010, the Corporation adopted new guidance issued by the FASB related to the accounting for a variable interest entity (VIE). A company would consolidate a VIE, as the primary beneficiary, when a company has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Ongoing reassessment of whether a company is the primary beneficiary of a VIE is required. The new guidance replaces the quantitative-based approach previously required for determining which company, if any, has a controlling financial interest in a VIE. The adoption of this guidance did not have a significant effect on the Corporation’s financial position or results of operations.

The Corporation is involved in the normal course of business with VIEs primarily as a passive investor in residential mortgage-backed securities, commercial mortgage-backed securities and private equity limited partnerships issued by third party VIEs. The Corporation is not the primary beneficiary of these VIEs. The Corporation’s maximum exposure to loss with respect to these investments is limited to the investment carrying values included in the Corporation’s consolidated balance sheet and any unfunded partnership commitments.

Page 6

3) Invested Assets

(a) The amortized cost and fair value of fixed maturities and equity securities were as follows:


	June 30, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Appreciation		Depreciation		Value
	(in millions)
Fixed maturities
Tax exempt	$	18,615	$	1,073	$	59	$	19,629

Taxable
U.S. Government and government agency and authority obligations		780		35		5		810
Corporate bonds		6,081		424		23		6,482
Foreign government and government agency obligations		5,733		258		7		5,984
Residential mortgage-backed securities		1,565		84		11		1,638
Commercial mortgage-backed securities		1,677		62		1		1,738

		15,836		863		47		16,652


Total fixed maturities	$	34,451	$	1,936	$	106	$	36,281


Equity securities	$	1,230	$	180	$	147	$	1,263


	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Appreciation		Depreciation		Value
	(in millions)
Fixed maturities
Tax exempt	$	18,720	$	933	$	66	$	19,587

Taxable
U.S. Government and government agency and authority obligations		756		12		10		758
Corporate bonds		6,287		327		24		6,590
Foreign government and government agency obligations		5,903		221		11		6,113
Residential mortgage-backed securities		1,850		69		20		1,899
Commercial mortgage-backed securities		1,674		6		49		1,631

		16,470		635		114		16,991


Total fixed maturities	$	35,190	$	1,568	$	180	$	36,578


Equity securities	$	1,215	$	261	$	43	$	1,433

Page 7

At June 30, 2010 and December 31, 2009, the gross unrealized depreciation of fixed maturities included $9 million and $15 million, respectively, of unrealized other-than-temporary impairment losses recognized in accumulated other comprehensive income.

The amortized cost and fair value of fixed maturities at June 30, 2010 by contractual maturity were as follows:


	Amortized		Fair
	Cost		Value
	(in millions)
Due in one year or less	$	1,300	$	1,321
Due after one year through five years		10,755		11,299
Due after five years through ten years		11,940		12,798
Due after ten years		7,214		7,487

		31,209		32,905
Residential mortgage-backed securities		1,565		1,638
Commercial mortgage-backed securities		1,677		1,738


	$	34,451	$	36,281

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

The Corporation’s equity securities comprise a diversified portfolio of primarily U.S. publicly-traded common stocks.

(b) The components of unrealized appreciation or depreciation, including unrealized other-than-temporary impairment losses, of investments carried at fair value were as follows:


	June 30		December 31
	2010		2009
	(in millions)
Fixed maturities
Gross unrealized appreciation	$	1,936	$	1,568
Gross unrealized depreciation		106		180

		1,830		1,388


Equity securities
Gross unrealized appreciation		180		261
Gross unrealized depreciation		147		43

		33		218

		1,863		1,606
Deferred income tax liability		652		562

	$	1,211	$	1,044

When the fair value of an investment is lower than its cost, an assessment is made to determine whether the decline is temporary or other than temporary. The assessment of other-than-temporary impairment of fixed maturities and equity securities is based on both quantitative criteria and qualitative information and also considers a number of other factors including, but not limited to, the length of time and the extent to which the fair value has been less than the cost, the financial condition and near term prospects of the issuer, whether the issuer is current on contractually obligated interest and principal payments, general market conditions and industry or sector specific factors.

Page 8

In determining whether fixed maturities are other than temporarily impaired, prior to April 1, 2009, the Corporation considered many factors including its intent and ability to hold a security for a period of time sufficient to allow for the recovery of the security’s cost. When an impairment was deemed other than temporary, the security was written down to fair value and the entire writedown was included in net income as a realized investment loss. Effective April 1, 2009, the Corporation adopted new guidance which modified the guidance on the recognition and presentation of other-than-temporary impairments of debt securities. Under this guidance, the Corporation is required to recognize an other-than-temporary impairment loss when it concludes it has the intent to sell or it is more likely than not it will be required to sell an impaired fixed maturity before the security recovers to its amortized cost value or it is likely it will not recover the entire amortized cost value of an impaired debt security. Also under this guidance, if the Corporation has the intent to sell or it is more likely than not that the Corporation will be required to sell an impaired fixed maturity before the security recovers to its amortized cost value, the security is written down to fair value and the entire amount of the writedown is included in net income as a realized investment loss. For all other impaired fixed maturities, the impairment loss is separated into the amount representing the credit loss and the amount representing the loss related to all other factors. The amount of the impairment loss that represents the credit loss is included in net income as a realized investment loss and the amount of the impairment loss that relates to all other factors is included in other comprehensive income.

For fixed maturities, the split between the amount of other-than-temporary impairment losses that represents credit losses and the amount that relates to all other factors is principally based on assumptions regarding the amount and timing of projected cash flows. For fixed maturities other than mortgage-backed securities, cash flow estimates are based on assumptions regarding the probability of default and estimates regarding the timing and amount of recoveries associated with a default. For mortgage-backed securities, cash flow estimates are based on assumptions regarding future prepayment rates, default rates, loss severity and timing of recoveries. The Corporation has developed the estimates of projected cash flows using information based on historical market data, industry analyst reports and forecasts and other data relevant to the collectability of a security.

In determining whether equity securities are other than temporarily impaired, the Corporation considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost. If the decline in the fair value of an equity security is deemed to be other than temporary, the security is written down to fair value and the amount of the writedown is included in net income as a realized investment loss.

Page 9

The following table summarizes, for all investment securities in an unrealized loss position at June 30, 2010, the aggregate fair value and gross unrealized depreciation, including unrealized other-than-temporary impairment losses, by investment category and length of time that individual securities have continuously been in an unrealized loss position:


	Less than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Depreciation		Value		Depreciation		Value		Depreciation
	(in millions)
Fixed maturities
Tax exempt	$	343	$	8	$	528	$	51	$	871	$	59

Taxable
U.S. Government and government agency and authority obligations		105		1		16		4		121		5
Corporate bonds		294		10		131		13		425		23
Foreign government and government agency obligations		634		5		39		2		673		7
Residential mortgage-backed securities		7		1		73		10		80		11
Commercial mortgage-backed securities		—		—		38		1		38		1

		1,040		17		297		30		1,337		47

Total fixed maturities		1,383		25		825		81		2,208		106

Equity securities		287		46		322		101		609		147


	$	1,670	$	71	$	1,147	$	182	$	2,817	$	253

At June 30, 2010, approximately 465 individual fixed maturity and equity securities were in an unrealized loss position, of which approximately 405 were fixed maturities. The Corporation does not have the intent to sell and it is not more likely than not that the Corporation will be required to sell these fixed maturities before the securities recover to their amortized cost value. In addition, the Corporation believes that none of the declines in the fair values of these fixed maturities relate to credit losses. The Corporation has the intent and ability to hold the equity securities in an unrealized loss position for a period of time sufficient to allow for the recovery of cost. The Corporation believes that none of the declines in the fair value of these fixed maturities and equity securities were other than temporary at June 30, 2010.

Page 10

The following table summarizes, for all investment securities in an unrealized loss position at December 31, 2009, the aggregate fair value and gross unrealized depreciation, including unrealized other-than-temporary impairment losses, by investment category and length of time that individual securities have continuously been in an unrealized loss position:


	Less than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Depreciation		Value		Depreciation		Value		Depreciation
	(in millions)
Fixed maturities
Tax exempt	$	542	$	8	$	1,048	$	58	$	1,590	$	66

Taxable
U.S. Government and government agency and authority obligations		195		6		44		4		239		10
Corporate bonds		657		19		88		5		745		24
Foreign government and government agency obligations		809		11		—		—		809		11
Residential mortgage-backed securities		9		4		89		16		98		20
Commercial mortgage-backed securities		—		—		1,273		49		1,273		49

		1,670		40		1,494		74		3,164		114

Total fixed maturities		2,212		48		2,542		132		4,754		180

Equity securities		82		6		393		37		475		43


	$	2,294	$	54	$	2,935	$	169	$	5,229	$	223

The change in unrealized appreciation or depreciation of investments carried at fair value, including the change in unrealized other-than-temporary impairment losses and the cumulative effect adjustment of $30 million as a result of adopting new guidance related to the recognition and presentation of other-than-temporary impairments during the second quarter of 2009, was as follows:


	Periods Ended June 30
	Second Quarter					Six Months
	2010			2009		2010			2009
	(in millions)
Change in unrealized appreciation or depreciation of fixed maturities	$	331		$	138	$	442		$	694
Change in unrealized appreciation or depreciation of equity securities		(243	)		91		(185	)		38

		88			229		257			732
Deferred income tax		31			80		90			256


	$	57		$	149	$	167		$	476

Page 11

(c)

Realized investment gains and losses were as follows:


	Periods Ended June 30
	Second Quarter						Six Months
	2010			2009			2010			2009
				(in millions)
Fixed maturities
Gross realized gains	$	19		$	29		$	57		$	65
Gross realized losses		(6	)		(11	)		(11	)		(17	)
Other-than-temporary impairment losses		(2	)		(11	)		(3	)		(19	)

		11			7			43			29


Equity securities
Gross realized gains		3			60			12			71
Gross realized losses		(1	)		—			(1	)		—
Other-than-temporary impairment losses		(6	)		(8	)		(6	)		(59	)

		(4	)		52			5			12


Other invested assets		83			(32	)		169			(280	)

	$	90		$	27		$	217		$	(239	)

(d) As of June 30, 2010 and December 31, 2009, fixed maturities still held by the Corporation for which a portion of their other-than-temporary impairment losses were recognized in other comprehensive income had cumulative credit-related losses of $21 million and $20 million, respectively, recognized in net income.

4) Fair Values of Financial Instruments

Fair values of financial instruments are determined using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical assets or liabilities or other inputs, such as quoted prices for similar assets or liabilities, that are observable either directly or indirectly. In those instances where observable inputs are not available, fair values are measured using unobservable inputs for the asset or liability. Unobservable inputs reflect the Corporation’s own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange. Certain financial instruments, particularly insurance contracts, are excluded from fair value disclosure requirements.

Page 12

The methods and assumptions used to estimate the fair values 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 for fixed maturities are determined by management, utilizing prices obtained from an independent, nationally recognized pricing service or, in the case of securities for which prices are not provided by a pricing service, from independent brokers. For fixed maturities that have quoted prices in active markets, market quotations are provided. For fixed maturities that do not trade on a daily basis, the pricing service and brokers provide fair value estimates using a variety of inputs including, but not limited to, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, reference data, prepayment spreads and measures of volatility. Management reviews on an ongoing basis the reasonableness of the methodologies used by the relevant pricing service and brokers. In addition, management, using the prices received for the securities from the pricing service and brokers, determines the aggregate portfolio price performance and reviews it against applicable indices. If management believes that significant discrepancies exist, it will discuss these with the relevant pricing service or broker to resolve the discrepancies.

	(iii)		Fair values of equity securities are based on quoted market prices.

	(iv)		Fair values of long term debt issued by Chubb are determined by management, utilizing prices obtained from an independent, nationally recognized pricing service.

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


	June 30, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
			(in millions)
Assets
Invested assets
Short term investments	$	2,211	$	2,211	$	1,918	$	1,918
Fixed maturities		36,281		36,281		36,578		36,578
Equity securities		1,263		1,263		1,433		1,433

Liabilities
Long term debt		3,975		4,244		3,975		4,102

Page 13

A pricing service provides fair value amounts for approximately 99% of the Corporation’s fixed maturities. The prices obtained from a pricing service and brokers generally are non-binding, but are reflective of current market transactions in the applicable financial instruments.

At June 30, 2010 and December 31, 2009, the Corporation did not hold financial instruments in its investment portfolio for which a lack of market liquidity impacted the determination of fair value.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:

Level 1 — Unadjusted quoted prices in active markets for identical assets.

Level 2 — Other inputs that are observable for the asset, either directly or indirectly.

Level 3 — Inputs that are unobservable.

The fair value of fixed maturities and equity securities categorized based upon the lowest level of input that was significant to the fair value measurement was as follows:


	June 30, 2010
	Level 1		Level 2		Level 3		Total
	(in millions)
Fixed maturities
Tax exempt	$	—	$	19,621	$	8	$	19,629
Taxable
U.S. Government and government Agency and authority obligations		—		810		—		810
Corporate bonds		—		6,336		146		6,482
Foreign government and government agency obligations		—		5,984		—		5,984
Residential mortgage-backed securities		—		1,638		—		1,638
Commercial mortgage-backed securities		—		1,738		—		1,738

		—		16,506		146		16,652


Total fixed maturities		—		36,127		154		36,281


Equity securities		1,250		—		13		1,263


	$	1,250	$	36,127	$	167	$	37,544

Page 14


	December 31, 2009
	Level 1		Level 2		Level 3		Total
	(in millions)
Fixed maturities
Tax exempt	$	—	$	19,578	$	9	$	19,587
Taxable
U.S. Government and government Agency and authority obligations		—		725		33		758
Corporate bonds		—		6,482		108		6,590
Foreign government and government agency obligations		—		6,113		—		6,113
Residential mortgage-backed securities		—		1,898		1		1,899
Commercial mortgage-backed securities		—		1,631		—		1,631

		—		16,849		142		16,991


Total fixed maturities		—		36,427		151		36,578


Equity securities		1,207		—		226		1,433


	$	1,207	$	36,427	$	377	$	38,011

The amount of Level 3 equity securities at June 30, 2010 decreased compared to December 31, 2009 primarily due to the exchange, as a result of a merger, of equity securities of a non-public company in which the Corporation held an investment for equity securities of a public company for which a quoted price in an active market was available.

5) Segments Information

The principal business of the Corporation is the sale of property and casualty insurance. The profitability of the property and casualty insurance business depends on the results of both underwriting operations and investments, which are viewed as two distinct operations. The underwriting operations are managed and evaluated separately from the investment function.

The property and casualty insurance subsidiaries (P&C Group) underwrite most lines of property and casualty insurance. Underwriting operations consist of four separate business units: personal insurance, commercial insurance, specialty insurance and reinsurance assumed. 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 professional liability coverages and surety. The reinsurance assumed business is effectively in run-off following the sale of the ongoing business to a reinsurance company in 2005.

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

Page 15

Revenues and income before income tax of the operating segments were as follows:


	Periods Ended June 30
	Second Quarter						Six Months
	2010			2009			2010			2009
	(in millions)
Revenues
Property and casualty insurance
Premiums earned
Personal insurance	$	933		$	917		$	1,858		$	1,824
Commercial insurance		1,164			1,195			2,316			2,393
Specialty insurance		698			705			1,399			1,406


Total insurance		2,795			2,817			5,573			5,623

Reinsurance assumed		4			11			8			31

		2,799			2,828			5,581			5,654

Investment income		393			394			789			780


Total property and casualty insurance		3,192			3,222			6,370			6,434

Corporate and other		36			17			54			36
Realized investment gains (losses), net		90			27			217			(239	)


Total revenues	$	3,318		$	3,266		$	6,641		$	6,231


Income before income tax
Property and casualty insurance
Underwriting
Personal insurance	$	42		$	131		$	18		$	243
Commercial insurance		68			123			111			221
Specialty insurance		131			123			281			248


Total insurance		241			377			410			712

Reinsurance assumed		1			15			14			40

		242			392			424			752
Increase in deferred policy acquisition costs		21			4			43			20


Underwriting income		263			396			467			772

Investment income		385			387			772			766

Other income (charges)		4			1			(3	)		5


Total property and casualty insurance		652			784			1,236			1,543

Corporate and other loss		(40	)		(58	)		(103	)		(121	)
Realized investment gains (losses), net		90			27			217			(239	)


Total income before income tax	$	702		$	753		$	1,350		$	1,183

Page 16

6) Contingent Liabilities

Chubb and certain of its subsidiaries have been involved in the investigations by various Attorneys General and other regulatory authorities of several states, the U.S. Securities and Exchange Commission, the U.S. Attorney for the Southern District of New York and certain non-U.S. regulatory authorities with respect to certain business practices in the property and casualty insurance industry including (1) potential conflicts of interest and anti-competitive behavior arising from the payment of contingent commissions to brokers and agents and (2) loss mitigation and finite reinsurance arrangements. In connection with these investigations, Chubb and certain of its subsidiaries received subpoenas and other requests for information from various regulators. The Corporation has cooperated fully with these investigations. The Corporation has settled with several state Attorneys General and insurance departments all issues arising out of their investigations. The Attorney General of Ohio on August 24, 2007 filed an action in the Court of Common Pleas in Cuyahoga County, Ohio, against Chubb and certain of its subsidiaries, as well as several other insurers and one broker, as a result of the Ohio Attorney General’s business practices investigation. This action alleges violations of Ohio’s antitrust laws. In July 2008, the court denied the Corporation’s and the other defendants’ motions to dismiss the Ohio Attorney General’s complaint. Since then discovery has been on-going. Although no other Attorney General or regulator has initiated an action against the Corporation, it is possible that such an action may be brought against the Corporation with respect to some or all of the issues that were the focus of the business practice investigations.

Individual actions and purported class actions arising out of the investigations into the payment of contingent commissions to brokers and agents have been filed in a number of federal and state courts. On August 1, 2005, Chubb and certain of its subsidiaries were named in a putative class action entitled In re Insurance Brokerage Antitrust Litigation in the U.S. District Court for the District of New Jersey (N.J. District Court). This action, brought against several brokers and insurers on behalf of a class of persons who purchased insurance through the broker defendants, asserts claims under the Sherman Act and state law and the Racketeer Influenced and Corrupt Organizations Act (RICO) arising from the alleged unlawful use of contingent commission agreements. On September 28, 2007, the N.J. District Court dismissed the second amended complaint filed by the plaintiffs in the In re Insurance Brokerage Antitrust Litigation in its entirety. In so doing, the court dismissed the plaintiffs’ Sherman Act and RICO claims with prejudice for failure to state a claim, and it dismissed the plaintiffs’ state law claims without prejudice because it declined to exercise supplemental jurisdiction over them. The plaintiffs have appealed the dismissal of their second amended complaint to the U.S. Court of Appeals for the Third Circuit, and that appeal is currently pending.

Page 17

Chubb and certain of its subsidiaries also have been named as defendants in other putative class actions relating or similar to the In re Insurance Brokerage Antitrust Litigation that have been filed in various state courts or in U.S. district courts between 2005 and 2007. These actions have been subsequently removed and ultimately transferred to the N.J. District Court for consolidation with the In re Insurance Brokerage Antitrust Litigation. These actions are currently stayed.

In the various actions described above, the plaintiffs generally allege that the defendants unlawfully used contingent commission agreements and conspired to reduce competition in the insurance markets. The actions seek treble damages, injunctive and declaratory relief, and attorneys’ fees. The Corporation believes it has substantial defenses to all of the aforementioned legal proceedings and intends to defend the actions vigorously.

The Corporation cannot predict at this time the ultimate outcome of the aforementioned ongoing investigations and legal proceedings, including any potential amounts that the Corporation may be required to pay in connection with them. Nevertheless, management believes that it is likely that the outcome will not have a material adverse effect on the Corporation’s results of operations or financial condition.

7) Earnings Per Share

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


	Periods Ended June 30
	Second Quarter				Six Months
	2010		2009		2010		2009
	(in millions,
	except for per share amounts)
Basic earnings per share:
Net income	$	518	$	551	$	982	$	892


Weighted average shares outstanding		324.5		354.8		328.7		355.0


Basic earnings per share	$	1.60	$	1.55	$	2.99	$	2.51


Diluted earnings per share:
Net income	$	518	$	551	$	982	$	892


Weighted average shares outstanding		324.5		354.8		328.7		355.0
Additional shares from assumed exercise of stock-based compensation awards		2.2		2.6		2.1		2.8


Weighted average shares and potential shares assumed outstanding for computing diluted earnings per share		326.7		357.4		330.8		357.8


Diluted earnings per share	$	1.59	$	1.54	$	2.97	$	2.49

Page 18

Item 2 — 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 as of June 30, 2010 compared with December 31, 2009 and the results of operations for the six months and three months ended June 30, 2010 and 2009. This discussion should be read in conjunction with the condensed consolidated financial statements and related notes contained in this report and the consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009.

Cautionary Statement Regarding Forward-Looking Information

Certain statements in this document are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements are made pursuant to the safe harbor provisions of the PSLRA and include statements regarding our loss reserve and reinsurance recoverable estimates; the number and severity of surety-related claims; the cost of reinsurance in 2010; the impact of the 2010 second quarter decline in equity markets on our limited partnership investments; the adequacy of the rates at which we renewed and wrote new business; premium volume, competition and other market conditions in 2010; the repurchase of common stock under our share repurchase program; our capital adequacy and funding of liquidity needs; the impact of a downgrade in our credit or financial strength ratings; and the need to obtain regulatory approval prior to the payment of dividends by the property and casualty subsidiaries during the remainder of the year. Forward-looking statements frequently can be identified by words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “will,” “may,” “should,” “could,” “would,” “likely,” “estimate,” “predict,” “potential,” “continue,” or other similar expressions. Forward-looking statements are made based upon management’s current expectations and beliefs concerning trends and future developments and their potential effects on us. These statements are not guarantees of future performance. Actual results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties, which include, among others, those discussed or identified from time to time in our public filings with the Securities and Exchange Commission and those associated with:

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

•		the effects of the outbreak or escalation of war or hostilities;

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

•		adverse changes in loss cost trends;

•		our ability to retain existing business and attract new business;

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

Page 19

•

the adequacy of loss reserves, including:

	–		our expectations relating to reinsurance recoverables;

	–		the willingness of parties, including us, to settle disputes;

	–		developments in judicial decisions or regulatory or legislative actions relating to coverage and liability, in particular, for asbestos, toxic waste and other mass tort claims;

	–		development of new theories of liability;

	–		our estimates relating to ultimate asbestos liabilities;

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

	–		the effects of proposed asbestos liability legislation, including the impact of claims patterns arising from the possibility of legislation and those that may arise if legislation is not passed;

•

the availability and cost of reinsurance coverage;

•

the occurrence of significant weather-related or other natural or human-made disasters, particularly in locations where we have concentrations of risk;

•

the impact of economic factors on companies on whose behalf we have issued surety bonds, and in particular, on those companies that file for bankruptcy or otherwise experience deterioration in creditworthiness;

•

the effects of disclosures by, and investigations of, companies relating to possible accounting irregularities, practices in the financial services industry, investment losses or other corporate governance issues, including:

	–		claims and litigation arising out of stock option “backdating,” “spring loading” and other equity grant practices by public companies;

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

	–		claims and litigation arising out of actual or alleged accounting or other corporate malfeasance by other companies;

	–		claims and litigation arising out of practices in the financial services industry;

	–		claims and litigation relating to uncertainty in the credit and broader financial markets; and

	–		legislative or regulatory proposals or changes;

•

the effects of changes in market practices in the U.S. property and casualty insurance industry arising from any legal or regulatory proceedings, related settlements and industry reform, including changes that have been announced and changes that may occur in the future;

•

the impact of legislative and regulatory developments on our business, including those relating to terrorism, catastrophes and the financial markets;

•

any downgrade in our claims-paying, financial strength or other credit ratings;

•

the ability of our subsidiaries to pay us dividends;

Page 20

•

general political, economic and market conditions, whether globally or in the markets in which we operate including:

	-		changes in interest rates, market credit spreads and the performance of the financial markets;

	-		currency fluctuations;

	-		the effects of inflation;

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

	-		changes in competition and pricing environments;

	-		regional or general changes in asset valuations;

	-		the inability to reinsure certain risks economically; and

	-		changes in the litigation environment; and

•

our ability to implement management’s strategic plans and initiatives.

Chubb assumes no obligation to update any forward-looking information set forth in this document, which speak as of the date hereof.

Critical Accounting Estimates and Judgments

The consolidated financial statements include amounts based on informed estimates and judgments of management for transactions that are not yet complete. 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 determination of loss reserves and the recoverability of related reinsurance recoverables and the evaluation of whether a decline in value of any investment is temporary or other than temporary. These estimates and judgments, which are discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2009 as supplemented within the following analysis of our results of operations, require the use of assumptions about matters that are highly uncertain and therefore are subject to change as facts and circumstances develop. If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements.

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Overview

The following highlights do not address all of the matters covered in the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations or contain all of the information that may be important to Chubb’s shareholders or the investing public. This overview should be read in conjunction with the other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	•		Net income was $982 million in the first six months of 2010 and $518 million in the second quarter compared with $892 million and $551 million, respectively, in the same periods of 2009. The higher net income in the first six months of 2010 was due to net realized investment gains in the first six months of 2010 compared with substantial net realized investment losses in the same period in 2009. Operating income, which we define as net income excluding realized investment gains and losses after tax, was lower in the first six months and second quarter of 2010 compared with the same periods of 2009. The lower net income in the second quarter of 2010 was due to lower operating income.

	•		Operating income was $841 million in the first six months of 2010 and $460 million in the second quarter compared with $1.0 billion and $533 million, respectively, in the comparable periods of 2009. The lower operating income in the 2010 periods was due to lower underwriting income in our property and casualty insurance business. Management uses operating income, a non-GAAP financial measure, among other measures, to evaluate its performance because the realization of investment gains and losses in any period could be discretionary as to timing and can fluctuate significantly, which could distort the analysis of operating trends.

	•		Underwriting results were profitable in the first six months and second quarter of both 2010 and 2009, but more so in the 2009 periods. Our combined loss and expense ratio was 92.0% in the first six months of 2010 and 90.4% in the second quarter compared with 87.0% and 85.9% in the respective periods of 2009. The less profitable results in the 2010 periods were due primarily to a substantially higher impact of catastrophes. The impact of catastrophes accounted for 9.6 percentage points of the combined ratio in the first six months of 2010 and 6.9 percentage points in the second quarter, compared with 1.2 and 1.5 percentage points, respectively, in the same periods of 2009.

	•		During the first six months and second quarter of 2010, we estimate that we experienced overall favorable development of about $400 million and $180 million, respectively, on loss reserves established as of the previous year end, due primarily to favorable loss experience in the professional liability, commercial liability and personal insurance classes. During the first six months and second quarter of 2009, we estimate that we experienced overall favorable development of about $340 million and $210 million, respectively, primarily in the professional liability, commercial liability and commercial property classes.

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	•		Total net premiums written increased by 1% in the first six months and second quarter of 2010 compared with the same periods in 2009. The increase was attributable to the impact of currency fluctuation as a result of a weaker U.S. dollar relative to several currencies in which we write business in the first six months and second quarter of 2010 compared to the respective periods of 2009. Growth in net premiums written has been limited by the ongoing impact of the general economic downturn and our continued emphasis on underwriting discipline in a market environment that remains competitive.

	•		Property and casualty investment income after tax increased by 1% in the first six months of 2010 and was flat in the second quarter compared with the same periods in 2009. Growth was positively affected in the 2010 periods by the effects of currency fluctuation on income from our non-U.S. investments, in what continued to be a low yield investment environment. Management uses property and casualty investment income after tax, a non-GAAP financial measure, to evaluate its investment performance because it reflects the impact of any change in the proportion of the investment portfolio invested in tax exempt securities and is therefore more meaningful for analysis purposes than investment income before income tax.

	•		Net realized investment gains before tax were $217 million ($141 million after tax) in the first six months of 2010 compared with net realized losses before tax of $239 million ($155 million after tax) in the same period of 2009. Net realized investment gains before tax were $90 million ($58 million after tax) in the second quarter of 2010 compared with net realized gains of $27 million ($18 million after tax) in the same period of 2009. The net realized gains in the first six months and second quarter of 2010 were primarily related to investments in limited partnerships, which are reported on a quarter lag. The net realized losses in the first six months of 2009 were primarily attributable to losses in the first quarter from investments in limited partnerships.

A summary of our consolidated net income is as follows:


	Six Months						Second Quarter
	2010			2009			2010			2009
				(in millions)
Property and casualty insurance	$	1,236		$	1,543		$	652		$	784
Corporate and other		(103	)		(121	)		(40	)		(58	)

Consolidated operating income before income tax		1,133			1,422			612			726
Federal and foreign income tax		292			375			152			193

Consolidated operating income		841			1,047			460			533
Realized investment gains (losses) after income tax		141			(155	)		58			18

Consolidated net income	$	982		$	892		$	518		$	551

Page 23

Property and Casualty Insurance

A summary of the results of operations of our property and casualty insurance business is as follows:


	Periods Ended June 30
	Six Months						Second Quarter
	2010			2009			2010			2009
				(in millions)
Underwriting
Net Premiums Written	$	5,651		$	5,589		$	2,886		$	2,846
Decrease (Increase) in Unearned Premiums		(70	)		65			(87	)		(18	)

Premiums Earned		5,581			5,654			2,799			2,828

Losses and Loss Expenses		3,390			3,187			1,660			1,572
Operating Costs and Expenses		1,751			1,700			889			857
Increase in Deferred Policy Acquisition Costs		(43	)		(20	)		(21	)		(4	)
Dividends to Policyholders		16			15			8			7


Underwriting Income		467			772			263			396


Investments
Investment Income Before Expenses		789			780			393			394
Investment Expenses		17			14			8			7


Investment Income		772			766			385			387


Other Income (Charges)		(3	)		5			4			1


Property and Casualty Income Before Tax	$	1,236		$	1,543		$	652		$	784


Property and Casualty Investment Income After Tax	$	624		$	618		$	311		$	312

Property and casualty income before tax was lower in the first six months and second quarter of 2010 compared to the same periods in 2009. The lower income in the 2010 periods was due to a decrease in underwriting income, which was primarily the result of a higher impact of catastrophes during the periods. Investment income increased slightly in the first six months of 2010 and decreased slightly in the second quarter compared to the same periods of 2009.

The profitability of the property and casualty insurance business depends on the results of both our underwriting and investment operations. We view these as two distinct operations since the underwriting functions are managed separately from the investment function. Accordingly, in assessing our performance, we evaluate underwriting results separately from investment results.

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Underwriting Results

We evaluate the underwriting results of our property and casualty insurance business in the aggregate and also for each of our separate business units.

Net Premiums Written

Net premiums written were $5.7 billion in the first six months of 2010 and $2.9 billion in the second quarter, compared with $5.6 billion and $2.8 billion, respectively, in the comparable periods of 2009.

Net premiums written by business unit were as follows:


	Six Months Ended							Quarter Ended
	June 30				% Incr.			June 30
	2010		2009		(Decr.)			2010		2009		% Incr.
	(in millions)							(in millions)
Personal insurance	$	1,882	$	1,804		4	%	$	1,008	$	961		5	%
Commercial insurance		2,452		2,473		(1	)		1,209		1,213		—
Specialty insurance		1,312		1,299		1			666		669		—

Total insurance		5,646		5,576		1			2,883		2,843		1
Reinsurance assumed		5		13		(62	)		3		3		—

Total	$	5,651	$	5,589		1		$	2,886	$	2,846		1

Net premiums written increased by 1% in the first six months and second quarter of 2010 compared with the same periods in 2009. Premiums in the United States, which represented 73% of our premiums written in the first six months of 2010, decreased by 3% in the first six months and 1% in the second quarter. Premiums outside the United States, expressed in U.S. dollars, increased by 14% in the first six months and 11% in the second quarter. The increase in premiums written outside the United States was largely due to the impact of the weaker U.S. dollar relative to several currencies in which we write business in the first six months and second quarter of 2010 compared to the same periods of 2009. Net premiums written outside the United States grew modestly in both periods when measured in local currencies.

Premium growth was constrained in the first six months of 2010 by the challenging economic environment and a highly competitive marketplace where we continued our emphasis on underwriting discipline. Overall, renewal rates in the first six months of 2010 in the U.S. were flat in commercial lines and down slightly in the professional liability business in comparison to expiring rates. The amounts of coverage purchased or the insured exposure amounts, both of which are bases upon which we calculate the premiums we charge, were generally flat to down slightly due to the general downturn in the economy which began in 2008. We continued to retain a high percentage of our existing customers, albeit in some cases with reduced amounts of coverage or lower insured exposures, and to renew those accounts at what we believe are acceptable rates relative to the risks. We expect the highly competitive market to continue throughout the remainder of 2010.

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Reinsurance Ceded

Our premiums written are net of amounts ceded to reinsurers who assume a portion of the risk under the insurance policies we write that are subject to reinsurance.

The most significant component of our ceded reinsurance program is property reinsurance. We purchase two types of such property treaties: catastrophe and property per risk. We renewed our major traditional property catastrophe treaties and our commercial property per risk treaty in April 2010, with no change in coverage. In June 2010, we purchased supplemental catastrophe reinsurance that provides additional coverage for our northeast United States exposures.

For property risks in the United States and Canada, we purchase catastrophe reinsurance in two forms. We purchase traditional catastrophe reinsurance, which includes our primary treaty, known as the North American catastrophe treaty, as well as the supplemental catastrophe reinsurance purchased in June 2010. We have also arranged for the purchase of multi–year, collateralized reinsurance coverage funded through the issuance of collateralized risk linked securities, known as catastrophe bonds.

Our North American catastrophe treaty has an initial retention of $500 million.

The combination of the North American catastrophe treaty and a portion of the catastrophe bond coverages provide coverage for United States and Canadian exposures of approximately 69% of losses (net of recoveries from other available reinsurance) between $500 million and $1.37 billion and 60% of losses between $1.37 billion and $1.65 billion. For catastrophic events in the northeastern part of the United States and in Florida, the combination of the North American catastrophe treaty, the supplemental catastrophe reinsurance and the catastrophe bond coverages provide additional coverages as discussed below.

The catastrophe bond coverages generally provide reinsurance coverage for specific types of losses in specific geographic locations. They are generally designed to supplement coverage provided under the North American catastrophe treaty. We currently have three catastrophe bond coverages in effect: a $250 million reinsurance arrangement that expires in 2011 that provides coverage for homeowners-related hurricane losses in the northeastern part of the United States; a $200 million reinsurance arrangement that expires in 2011 that provides coverage for homeowners and commercial exposures for loss events in the northeastern part of the United States (for losses occurring elsewhere in the continental United States or Canada, the coverage is limited to $55 million); and a $150 million reinsurance arrangement that expires in 2012 that provides coverage for homeowners-related hurricane losses in Florida.

For catastrophic events in the northeastern part of the United States, the combination of the North American catastrophe treaty, the supplemental catastrophe reinsurance and certain catastrophe bond coverages provide additional coverage of approximately 40% of losses (net of recoveries from other available reinsurance) between $1.37 billion and $2.17 billion, approximately 90% of losses between $2.50 billion and $2.85 billion, and approximately 30% of homeowners-related hurricane losses between $1.47 billion and $2.30 billion.

Page 26

For hurricane events in Florida, we have reinsurance from the Florida Hurricane Catastrophe Fund (FHCF), which is a state-mandated fund designed to reimburse insurers for a portion of their residential catastrophic hurricane losses. Our participation in this program limits our initial retention in Florida for homeowners-related losses to approximately $170 million and provides coverage of 90% of covered losses between approximately $170 million and $620 million. Additionally, certain catastrophe bond coverages provide coverage of approximately 50% of Florida homeowners-related hurricane losses between $850 million and $1.15 billion.

Our primary property catastrophe treaty for events outside the United States provides coverage of approximately 75% of losses (net of recoveries from other available reinsurance) between $100 million and $350 million.

Recoveries under our property reinsurance treaties are subject to certain coinsurance requirements that affect the interaction of some elements of our reinsurance program.

In addition to catastrophe treaties, we also have a commercial property per risk treaty. This treaty provides up to approximately $800 million (depending upon the currency in which the insurance policy was issued) of coverage per risk in excess of our initial retention, which is generally between $25 million and $35 million.

In addition to our major property catastrophe and property per risk treaties, we purchase several smaller property treaties that only cover specific classes of business or locations having potential concentrations of risk.

Our property reinsurance treaties generally contain terrorism exclusions for acts perpetrated by foreign terrorists, and for nuclear, biological, chemical and radiological loss causes whether such acts are perpetrated by foreign or domestic terrorists.

Overall, reinsurance rates for property risks have decreased in 2010, although rates have increased for non-U.S. property exposures in response to events during the first quarter such as the earthquake in Chile. We expect that the overall cost of our property reinsurance program in 2010 will be modestly lower than that in 2009.

Profitability

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. Management evaluates the performance of our underwriting operations and of each of our business units using, among other measures, the combined loss and expense ratio calculated in accordance with statutory accounting principles. It is the sum of the ratio of losses and loss expenses to premiums earned (loss ratio) plus the ratio of statutory 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.

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Statutory accounting principles applicable to property and casualty insurance companies differ in certain respects from generally accepted accounting principles (GAAP). Under statutory accounting principles, policy acquisition and other underwriting expenses are recognized immediately, not at the time premiums are earned. Management uses underwriting results determined in accordance with GAAP, among other measures, to assess the overall performance of our underwriting operations. To convert statutory underwriting results to a GAAP basis, policy acquisition expenses are deferred and amortized over the period in which the related premiums are earned. Underwriting income determined in accordance with GAAP is defined as premiums earned less losses and loss expenses incurred and GAAP underwriting expenses incurred.

Underwriting results were profitable in the first six months and second quarter of 2010 and 2009, but more so in the 2009 periods. The combined loss and expense ratio for our overall property and casualty business was as follows:


	Periods Ended June 30
	Six Months						Second Quarter
	2010			2009			2010			2009
Loss ratio		60.9	%		56.5	%		59.5	%		55.7	%
Expense ratio		31.1			30.5			30.9			30.2

Combined ratio		92.0	%		87.0	%		90.4	%		85.9	%

The loss ratio was higher in the first six months and second quarter of 2010 compared with the same periods in 2009. The increase in both periods was due to a substantially higher impact from catastrophe losses. The loss ratio in all periods reflected favorable loss experience which we believe resulted from our disciplined underwriting in recent years as well as relatively mild loss trends in certain classes of business.

The impact of catastrophe losses in the first six months of 2010 was $537 million, including incurred losses of $528 million and reinsurance reinstatement premium costs of $9 million, which collectively represented 9.6 percentage points of the combined loss and expense ratio. This compares with catastrophe losses of $69 million, or 1.2 percentage points, in the same period in 2009. The $9 million reinstatement premium reinstated coverage under property catastrophe treaties for events outside the United States, including coverage for property catastrophe losses in parts of Latin America. The impact of catastrophe losses in the second quarter of 2010 was $193 million, reflecting incurred losses of $197 million and a reduction in reinsurance reinstatement premium costs of $4 million, which collectively represented 6.9 percentage points of the combined loss and expense ratio. This compares with catastrophe losses of $43 million, or 1.5 percentage points, in the second quarter of 2009. A significant portion of the catastrophe losses in the first six months of 2010 related to numerous storms in the United States, including a severe hail storm in Oklahoma in the second quarter and the earthquake in Chile in the first quarter.

The expense ratio was higher in the first six months and second quarter of 2010 compared with the same periods in 2009. The increase in the 2010 periods was due to an increase in commission rates for certain classes of business in the United States, as well as overhead expenses increasing at a rate that exceeded the rate of growth of premiums written.

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Review of Underwriting Results by Business Unit

Personal Insurance

Net premiums written from personal insurance, which represented 33% of our premiums written in the first six months of 2010, increased by 4% in the first six months of 2010 and 5% in the second quarter compared with the same periods in 2009. The increase in both periods was largely due to the impact of currency fluctuation on business written outside the U.S. Excluding the impact of currency fluctuation, premiums from personal insurance increased slightly in both periods. Net premiums written for the classes of business within the personal insurance segment were as follows:


	Six Months Ended							Quarter Ended
	June 30							June 30
	2010		2009		% Incr.			2010		2009		% Incr.
	(in millions)							(in millions)
Automobile	$	314	$	278		13	%	$	168	$	147		14	%
Homeowners		1,164		1,151		1			647		637		2
Other		404		375		8			193		177		9

Total personal	$	1,882	$	1,804		4		$	1,008	$	961		5

Personal automobile premiums increased in the first six months and second quarter of 2010, driven by growth outside the United States, due to the impact of currency fluctuation and new business. Premiums for automobile business written in the United States decreased due to a highly competitive marketplace. Premium growth in our homeowners business continued to be constrained by the downturn in the United States economy which has resulted in a slowdown in new housing construction as well as lower demand for jewelry and fine arts policy endorsements. Premiums from our other personal business, which includes accident and health, excess liability and yacht coverages, increased in the first six months and second quarter of 2010 compared with the same periods in 2009, due in large part to growth in the accident and health business written outside the United States, including a benefit from the effect of currency fluctuation.

Our personal insurance business produced profitable underwriting results in the first six months and the second quarter of 2010 compared with highly profitable results in the comparable periods of 2009. The less profitable results in the 2010 periods were due to higher homeowners catastrophe losses. The combined loss and expense ratios for the classes of business within the personal insurance segment were as follows:


	Periods Ended June 30
	Six Months						Second Quarter
	2010			2009			2010			2009
Automobile		90.8	%		90.1	%		90.2	%		90.5	%
Homeowners		103.8			84.3			94.5			80.7
Other		88.9			93.9			90.5			90.7
Total personal		98.6			87.0			92.9			84.2

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Our personal automobile business produced highly profitable results in the first six months and second quarter of 2010 and 2009. Results in all periods benefited from favorable prior year loss development.

Homeowners results were unprofitable in the first six months of 2010 and profitable in the second quarter compared with highly profitable results in the comparable periods of 2009. The results in the 2010 periods were adversely affected by high catastrophe losses. Catastrophe losses represented 27.7 and 20.3 percentage points of the combined ratio for this class in the first six months and second quarter of 2010, respectively, compared with 3.5 and 4.7 percentage points, respectively, in the comparable periods in 2009.

Other personal results were highly profitable in the first six months of 2010 compared with profitable results in the same period of 2009. Results were highly profitable in the second quarter of both years. The improved profitability in the first six months of 2010 reflected improved results in the accident and health and the excess liability components of our other personal business. Our accident and health business produced profitable results in the first six months and second quarter of 2010 compared with breakeven results in the same periods in 2009. Our excess liability and yacht business produced highly profitable results in the first six months and second quarter of both 2010 and 2009. Our other personal business experienced favorable prior year loss development in each period, but more so in the first six months of 2010 compared to the same period of 2009.

Commercial Insurance

Net premiums written from commercial insurance, which represented 43% of our premiums written in the first six months of 2010, decreased by 1% in the first six months of 2010 and were flat in the second quarter compared with the comparable periods a year ago. Net premiums written for the classes of business within the commercial insurance segment were as follows:


	Six Months Ended							Quarter Ended
	June 30				% Incr.			June 30				% Incr.
	2010		2009		(Decr.)			2010		2009		(Decr.)
	(in millions)							(in millions)
Multiple peril	$	540	$	561		(4	)%	$	286	$	292		(2	)%
Casualty		812		815		—			398		406		(2	)
Workers’ compensation		409		424		(4	)		187		188		(1	)
Property and marine		691		673		3			338		327		3

Total commercial	$	2,452	$	2,473		(1	)	$	1,209	$	1,213		—

The decrease in total premiums in our commercial insurance business in the first six months of 2010 was tempered somewhat by the positive impact of currency fluctuation on business written outside the United States, particularly in the casualty and property and marine lines of business. Excluding the impact of currency fluctuation, premiums in our commercial insurance business decreased modestly in the first six months of 2010. The impact of currency fluctuation on premium growth was less pronounced in the second quarter of 2010; excluding the impact of currency fluctuation, premiums decreased slightly. The decrease in both periods primarily reflected reduced exposures on renewal business due to the continuing effects of the weak economy, but the decline in renewal exposures moderated in the second quarter. Overall, commercial insurance renewal rates

Page 30

were flat in the first six months of 2010. Retention levels of our existing customers remained strong, with slight improvement over those in the first six months of 2009. New business volume in the first six months of 2010 was up modestly compared with the same period in 2009. We have continued to maintain our underwriting discipline in the competitive market, renewing business and writing new business only where we believe we are securing acceptable rates and and appropriate terms and conditions for the exposures. We expect these market conditions will continue for the remainder of this year.

Our commercial insurance business produced profitable underwriting results in the first six months and second quarter of 2010 compared with highly profitable results in the same periods in 2009. The combined loss and expense ratios for the classes of business within the commercial insurance segment were as follows:


	Periods Ended June 30
	Six Months						Second Quarter
	2010			2009			2010			2009
Multiple peril		103.6	%		82.8	%		95.2	%		79.9	%
Casualty		89.7			97.7			91.0			92.7
Workers’ compensation		90.8			89.6			91.5			91.8
Property and marine		90.8			86.2			93.9			91.4
Total commercial		93.4			89.7			92.9			89.2

Results for our commercial insurance business were less profitable in the 2010 periods due to a higher impact of catastrophe losses, particularly in the multiple peril and property and marine classes. The impact of catastrophe losses represented 8.5 percentage points of the combined ratio for the commercial insurance segment in the first six months of 2010 and 5.6 percentage points in the second quarter compared with 1.1 and 1.2 percentage points, respectively, in the comparable periods in 2009. The higher impact of catastrophe losses in the first six months of 2010 was offset in part by better results in the casualty class as well as better non-catastrophe loss experience in the property and marine classes. Results in both years benefited from disciplined risk selection and appropriate policy terms and conditions in recent years.

Multiple peril results were unprofitable in the first six months of 2010 and profitable in the second quarter compared with highly profitable results in the same periods in 2009. The unprofitable results in the first six months of 2010 and less profitable results in the second quarter compared to the same periods in 2009 were due to the significant impact of catastrophes. The impact of catastrophes was 21.8 percentage points of the combined ratio for this class in the first six months of 2010 and 10.7 percentage points in the second quarter compared with 1.4 and 0.7 percentage points, respectively, in the comparable periods of 2009. Results in the first six months of 2010 included better current accident year non-catastrophe loss experience in the property component of this business than in 2009. The liability component of this business was near breakeven in the first six months of 2010 and unprofitable in the second quarter compared to highly profitable results in the same periods in 2009. Reported losses for this component were higher in the 2010 periods. Results in the first six months of both years for both the property and liability components of this business benefited from favorable prior year loss development.

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Our casualty business produced highly profitable results in the first six months of 2010 compared with profitable results in the same period in 2009. Results in the second quarter of 2010 and 2009 were profitable. The significantly better results in the first six months of 2010 were due to substantial improvement in the excess liability component of this business. The excess liability component produced highly profitable results in the first six months of 2010 compared with breakeven results in the same period in 2009. Results for the excess liability component in the first six months of 2010 benefited from a more significant amount of favorable prior year loss development than in the same period in 2009. Results for this component were highly profitable in the second quarter of both years. Results for the primary liability component were profitable in the first six months and second quarter of both years, but more so in the 2009 periods. The automobile component of this business produced near breakeven results in the first six months and second quarter of 2010 compared with profitable results in the same periods in 2009. Casualty results were adversely affected by incurred losses related to toxic waste claims in the first six months and second quarter of both years, but more so in the 2009 periods. These losses represented 1.3 and 4.4 percentage points of the combined ratio in the first six months of 2010 and 2009, respectively, and 0.8 and 3.8 percentage points in the second quarter of 2010 and 2009, respectively.

Workers’ compensation results were profitable in the first six months and second quarter of both 2010 and 2009. Results in both years benefited from our disciplined risk selection during the past several years.

Property and marine results were profitable in the first six months and second quarter of 2010 and 2009, but less so in 2010 partly due to a higher impact of catastrophes. Catastrophe losses represented 10.4 percentage points of the combined ratio for this class in the first six months of 2010 and 9.1 percentage points in the second quarter compared with 1.3 and 2.3 percentage points, respectively, in the comparable periods of 2009.

Specialty Insurance

Net premiums written from specialty insurance, which represented 23% of our premiums written in the first six months of 2010, increased by 1% in the first six months of 2010 and were flat in the second quarter compared with the same periods in 2009. Net premiums written for the classes of business within the specialty insurance segment were as follows:


	Six Months Ended							Quarter Ended
	June 30				% Incr.			June 30
	2010		2009		(Decr.)			2010		2009		% Decr.
	(in millions)							(in millions)
Professional liability	$	1,153	$	1,137		1	%	$	583	$	584		—	%
Surety		159		162		(2	)		83		85		(2	)

Total specialty	$	1,312	$	1,299		1		$	666	$	669		—

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Growth in net premiums written in our professional liability business in the first six months and second quarter of 2010 was favorably impacted by currency fluctuation on business written outside the United States. Excluding the impact of currency fluctuation, net premiums written were down slightly in the 2010 periods. Renewal rates in the U.S. decreased slightly overall in the first six months of 2010 compared with those in the same period of 2009. Retention levels were slightly higher in the first six months of 2010 compared with those in the same period of 2009. New business volume was down modestly. We have continued our focus on underwriting discipline, obtaining what we believe are acceptable rates and appropriate terms and conditions on both new business and renewals.

The decrease in net premiums written for our surety business in the first six months and second quarter of 2010 reflected the effects of the weak economy as well as increased competition. We expect this trend will continue for the remainder of the year.

Our specialty insurance business produced highly profitable underwriting results in the first six months and second quarter of 2010 and 2009. The combined loss and expense ratios for the classes of business within the specialty insurance segment were as follows:


	Periods Ended June 30
	Six Months						Second Quarter
	2010			2009			2010			2009
Professional liability		86.7	%		90.6	%		87.2	%		90.1	%
Surety		43.9			38.4			47.7			38.5
Total specialty		81.7			84.4			82.5			83.9

Our professional liability business produced highly profitable results in the first six months and second quarter of 2010. Results in the first six months and second quarter of 2009 were profitable. Results in each of the periods were particularly profitable in the fiduciary liability, employment practices liability and fidelity classes. Results in the directors and officers liability class, while profitable in the first six months and second quarter of both years, improved in the 2010 periods compared with the same periods in 2009. Results in the errors and omissions liability class were highly unprofitable in the first six months and second quarter of both years. The overall results for our professional liability business were more profitable in the 2010 periods due primarily to an improvement in the current accident year loss ratio. The current accident year combined ratio for our professional liability business is slightly below breakeven, lower than that for the 2009 accident year, which was more affected by the financial market crisis. The favorable prior year loss development in the first six months and second quarter of both years was driven mainly by continued positive loss trends related to accident years 2006 and prior. These trends were largely the result of a favorable business climate, lower policy limits and better terms and conditions.

Surety results were highly profitable in the first six months and second quarter of both 2010 and 2009. Our surety business tends to be characterized by infrequent but potentially high severity losses.

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Reinsurance Assumed

Net premiums written from our reinsurance assumed business, which is in runoff, were not significant in the first six months and second quarter of 2010 or 2009.

Reinsurance assumed results were profitable in the first six months and second quarter of 2010 and 2009. Results in the first six months of both years, but more so in 2009, benefited from favorable prior year loss development.

Loss Reserves

Unpaid losses and loss expenses, also referred to as loss reserves, are the largest liability of our business.

Our loss reserves include case estimates for claims that have been reported and estimates for claims that have been incurred but not reported at the balance sheet date as well as estimates of the expenses associated with processing and settling all reported and unreported claims, less estimates of anticipated salvage and subrogation recoveries. Estimates are based upon past loss experience modified for current trends as well as prevailing economic, legal and social conditions. Our loss reserves are not discounted to present value.

We regularly review our loss reserves using a variety of actuarial techniques. We update the reserve estimates as historical loss experience develops, additional claims are reported and/or settled and new information becomes available. Any changes in estimates are reflected in operating results in the period in which the estimates are changed.

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Our gross case and incurred but not reported (IBNR) loss reserves and related reinsurance recoverable by class of business were as follows:


									Net
	Gross Loss Reserves						Reinsurance		Loss
	Case		IBNR		Total		Recoverable		Reserves
	(in millions)
June 30, 2010
Personal insurance
Automobile	$	237	$	172	$	409	$	14	$	395
Homeowners		438		378		816		29		787
Other		328		686		1,014		161		853

Total personal		1,003		1,236		2,239		204		2,035


Commercial insurance
Multiple peril		564		1,212		1,776		61		1,715
Casualty		1,437		4,946		6,383		349		6,034
Workers’ compensation		887		1,466		2,353		191		2,162
Property and marine		692		475		1,167		362		805

Total commercial		3,580		8,099		11,679		963		10,716


Specialty insurance
Professional liability		1,507		6,313		7,820		449		7,371
Surety		22		49		71		8		63

Total specialty		1,529		6,362		7,891		457		7,434


Total insurance		6,112		15,697		21,809		1,624		20,185

Reinsurance assumed		278		715		993		326		667


Total	$	6,390	$	16,412	$	22,802	$	1,950	$	20,852


									Net
	Gross Loss Reserves						Reinsurance		Loss
	Case		IBNR		Total		Recoverable		Reserves
	(in millions)
December 31, 2009
Personal insurance
Automobile	$	226	$	187	$	413	$	13	$	400
Homeowners		395		293		688		23		665
Other		372		660		1,032		160		872

Total personal		993		1,140		2,133		196		1,937


Commercial insurance
Multiple peril		550		1,091		1,641		26		1,615
Casualty		1,499		4,849		6,348		360		5,988
Workers’ compensation		887		1,448		2,335		197		2,138
Property and marine		781		426		1,207		449		758

Total commercial		3,717		7,814		11,531		1,032		10,499


Specialty insurance
Professional liability		1,626		6,379		8,005		453		7,552
Surety		18		48		66		8		58

Total specialty		1,644		6,427		8,071		461		7,610


Total insurance		6,354		15,381		21,735		1,689		20,046

Reinsurance assumed		305		799		1,104		364		740


Total	$	6,659	$	16,180	$	22,839	$	2,053	$	20,786

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Loss reserves, net of reinsurance recoverable, increased by $66 million during the first six months of 2010. The increase in loss reserves reflected a decrease of approximately $206 million related to currency fluctuation due to the strength of the U.S. dollar at June 30, 2010 compared to December 31, 2009. Loss reserves related to our insurance business increased by $139 million during the first six months of 2010 due primarily to catastrophe-related losses. Loss reserves related to our reinsurance assumed business, which is in runoff, decreased by $73 million.

The increase in gross case and IBNR reserves related to our homeowners and commercial multiple peril classes of business during the first six months of 2010 was due largely to catastrophe losses in the first six months of 2010 that remained unpaid at June 30. The decrease in gross case reserves related to our professional liability classes of business in the first six months of 2010 was partly due to the settlement of claims for which case reserves were previously established.

In establishing the loss reserves of our property and casualty subsidiaries, we consider facts currently known and the present state of the law and coverage litigation. Based on all information currently available, we believe that the aggregate loss reserves at June 30, 2010 were adequate to cover claims for losses that had occurred as of that date, including both those known to us and those yet to be reported. However, as discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2009, there are significant uncertainties inherent in the loss reserving process. It is therefore possible that management’s estimate of the ultimate liability for losses that had occurred as of June 30, 2010 may change, which could have a material effect on the Corporation’s results of operations and financial condition.

Changes in loss reserve estimates are unavoidable because such estimates are subject to the outcome of future events. Loss trends vary and time is required for changes in trends to be recognized and confirmed. Reserve changes that increase previous estimates of ultimate cost are referred to as unfavorable or adverse development or reserve strengthening. Reserve changes that decrease previous estimates of ultimate cost are referred to as favorable development or reserve releases.

We estimate that we experienced overall favorable prior year development of about $400 million during the first six months of 2010 and $180 million in the second quarter compared with favorable prior year development of about $340 million and $210 million in the comparable periods of 2009.

The favorable development in the first six months of 2010 was primarily in the professional liability classes due to continued favorable loss trends related largely to accident years 2006 and prior and particularly outside the United States, in the commercial liability classes related mainly to accident years 2007 and prior, and in the personal insurance classes. The favorable development in the first six months of 2009 was primarily in the professional liability classes due to favorable loss trends related to accident years 2004 through 2006, in the commercial property classes largely related to the 2008 accident year and in the commercial casualty classes related to accident years 2006 and prior.

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Investment Results

Property and casualty investment income before taxes increased by 1% in the first six months of 2010 and decreased by 1% in the second quarter of 2010 compared with the same periods in 2009. Included in these results was a slight positive impact from the effect of currency fluctuation on the income of our non-U.S. investments. While the average invested assets of the property and casualty subsidiaries were higher during the first six months of 2010 and the second quarter of 2010 compared with the same periods of 2009, growth in investment income was limited by the continuing impact of the low yield environment on the investment of both new cash and the proceeds of maturing fixed maturity securities.

The effective tax rate on investment income was 19.2% in the first six months of 2010 compared with 19.3% in the same period of 2009. The effective tax rate fluctuates as a result of our holding a different proportion of our investment portfolio in tax exempt securities during different periods.

On an after-tax basis, property and casualty investment income increased by 1% in the first six months of 2010 and was flat in the second quarter of 2010 compared with the same periods in 2009. The after-tax annualized yield on the investment portfolio that supports our property and casualty insurance business was 3.26% and 3.41% in the first six months of 2010 and 2009, respectively.

Corporate and Other

Corporate and other comprises investment income earned on corporate invested assets, interest expense and other expenses not allocated to our operating subsidiaries and the results of our non-insurance subsidiaries.

Corporate and other produced a loss before taxes of $103 million in the first six months of 2010 compared with a loss of $121 million in the first six months of 2009. The lower loss in 2010 was due to higher investment income, which was largely due to a $20 million special dividend received on an equity security investment during the second quarter of 2010.

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Realized Investment Gains and Losses

Net realized investment gains and losses were as follows:


	Periods Ended June 30
	Six Months						Second Quarter
	2010			2009			2010			2009
	(in millions)
Net realized gains (losses)
Fixed maturities	$	46		$	48		$	13		$	18
Equity securities		11			71			2			60
Other invested assets		169			(280	)		83			(32	)

		226			(161	)		98			46


Other-than-temporary impairment losses
Fixed maturities		(3	)		(19	)		(2	)		(11	)
Equity securities		(6	)		(59	)		(6	)		(8	)

		(9	)		(78	)		(8	)		(19	)


Realized investment gains (losses) before tax	$	217		$	(239	)	$	90		$	27


Realized investment gains (losses) after tax	$	141		$	(155	)	$	58		$	18

The net realized gains and losses of our other invested assets represent primarily the aggregate of distributions to us from the limited partnerships in which we have an interest and changes in our equity in the net assets of those partnerships based on valuations provided to us by the manager of each partnership. Due to the timing of our receipt of valuation data from the investment managers, these investments are generally reported on a one quarter lag.

The net realized gains of the limited partnerships reported in the first six months of 2010 reflected the strong performance of the equity and high yield investment markets in the fourth quarter of 2009 and the first quarter of 2010. Any impact on the net assets of the limited partnerships from the decline in the equity markets in second quarter of 2010 will be reflected in our third quarter 2010 results. In the first six months of 2009, the limited partnership losses were largely due to losses on the underlying assets held by the limited partnerships that reflected both the decline in the value of equities and the increase in credit spreads that occurred during late 2008.

We regularly review those invested assets whose fair value is less than cost to determine if an other-than-temporary decline in value has occurred. We have a monitoring process overseen by a committee of investment and accounting professionals that is responsible for identifying those securities to be specifically evaluated for potential other-than-temporary impairment.

The determination of whether a decline in value of any investment is temporary or other than temporary requires the judgment of management. The assessment of other-than-temporary impairment of fixed maturities and equity securities is based on both quantitative criteria and qualitative information

Page 38

and also considers a number of factors including, but not limited to, the length of time and the extent to which the fair value has been less than the cost, the financial condition and near term prospects of the issuer, whether the issuer is current on contractually obligated interest and principal payments, general market conditions and industry or sector specific factors. The decision to recognize a decline in the value of a security carried at fair value as other than temporary rather than temporary has no impact on shareholders’ equity.

In determining whether fixed maturities are other than temporarily impaired, prior to April 1, 2009, we considered many factors including the intent and ability to hold a security for a period of time sufficient to allow for the recovery of the security’s cost. When an impairment was deemed other than temporary, the security was written down to fair value and the entire writedown was included in net income as a realized investment loss. Effective April 1, 2009, the Corporation adopted new guidance which modified the guidance on the recognition and presentation of other-than-temporary impairments of debt securities. Under the new guidance, we are required to recognize an other-than-temporary impairment loss for a fixed maturity when we conclude that we have the intent to sell or it is more likely than not that we will be required to sell an impaired fixed maturity before the security recovers to its amortized cost value or it is likely we will not recover the entire amortized cost value of an impaired debt security. Also under this guidance, if we have the intent to sell or it is more likely than not we will be required to sell an impaired fixed maturity before the security recovers to its amortized cost value, the security is written down to fair value and the entire amount of the writedown is included in net income as a realized investment loss. For all other impaired fixed maturities, the impairment loss is separated into the amount representing the credit loss and the amount representing the loss related to all other factors. The amount of the impairment loss that represents the credit loss is included in net income as a realized investment loss and the amount of the impairment loss that relates to all other factors is included in other comprehensive income.

In determining whether equity securities are other than temporarily impaired, we consider our intent and ability to hold a security for a period of time sufficient to allow us to recover our cost. If a decline in the fair value of an equity security is deemed to be other than temporary, the security is written down to fair value and the amount of the writedown is included in net income as a realized investment loss.

Income Taxes

Net income in the first six months of 2010 included an income tax charge of $22 million in the first quarter related to a decrease in deferred tax assets as a result of federal health care legislation enacted in March 2010. The legislation eliminated the tax benefit associated with Medicare Part D subsidies we expect to receive for providing qualifying prescription drug coverage to retirees.

Capital Resources and Liquidity

Capital resources and liquidity represent a company’s overall financial strength and its ability to generate cash flows, borrow funds at competitive rates and raise new capital to meet operating and growth needs.

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Capital Resources

Capital resources provide protection for policyholders, furnish the financial strength to support the business of underwriting insurance risks and facilitate continued business growth. At June 30, 2010, the Corporation had shareholders’ equity of $15.5 billion and total debt of $4.0 billion.

Management regularly monitors the Corporation’s capital resources. In connection with our long term capital strategy, Chubb from time to time contributes capital to its property and casualty subsidiaries. In addition, in order to satisfy capital needs as a result of any rating agency capital adequacy or other future rating issues, or in the event we were to need additional capital to make strategic investments in light of market opportunities, we may take a variety of actions, which could include the issuance of additional debt and/or equity securities. We believe that our strong financial position and current debt level provide us with the flexibility and capacity to obtain funds externally through debt or equity financings on both a short term and long term basis.

In December 2009, the Board of Directors authorized the repurchase of up to 25,000,000 shares of Chubb’s common stock. In June 2010, the Board of Directors authorized an increase of 14,000,000 shares to the authorization approved in December 2009. The authorization has no expiration date. During the first six months of 2010, we repurchased 19,394,818 shares of Chubb’s common stock in open market transactions at a cost of $980 million. As of June 30, 2010, 16,765,307 shares remained under the share repurchase authorization. We expect to repurchase all of the shares remaining under the authorization by the end of 2010, subject to market conditions.

Ratings

Chubb and its property and casualty subsidiaries are rated by major rating agencies. These ratings reflect the rating agency’s opinion of our financial strength, operating performance, strategic position and ability to meet our obligations to policyholders.

Ratings are an important factor in establishing our competitive position in the insurance markets. There can be no assurance that our ratings will continue for any given period of time or that they will not be changed.

It is possible that one or more of the rating agencies may raise or lower our existing ratings in the future. If our credit ratings were downgraded, we might incur higher borrowing costs and might have more limited means to access capital. A downgrade in our financial strength ratings could adversely affect the competitive position of our insurance operations, including a possible reduction in demand for our products in certain markets.

Liquidity

Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet the short and long term cash requirements of its business operations.

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The Corporation’s liquidity requirements in the past have generally been met by funds from operations and we expect that in the future funds from operations will continue to be sufficient to meet such requirements. Liquidity requirements could also be met by funds received upon the maturity or sale of marketable securities in our investment portfolio. The Corporation also has the ability to borrow under its existing $500 million credit facility and we believe we could issue debt or equity securities.

Our property and casualty operations provide liquidity in that premiums are generally received months or even years before losses are paid under the policies purchased by such premiums. 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 Chubb. After satisfying our cash requirements, excess cash flows are used to build the investment portfolio and thereby increase future investment income.

Our strong underwriting and investment results continued to generate substantial cash from operations. New cash available for investment by our property and casualty subsidiaries was approximately $60 million in the first six months of 2010 compared with $1.0 billion in the same period in 2009. New cash available for investment by our property and casualty subsidiaries was lower as a result of $1.0 billion of dividends paid to Chubb by the property and casualty subsidiaries in the first six months of 2010 compared with no dividends paid to Chubb in the first six months of 2009. This was caused by a difference in the timing of subsidiary dividends in 2009 and those in 2010. The impact on new cash available for investment of modestly higher loss payments and reduced premium collections were largely offset by lower income tax payments in the first six months of 2010 compared with the same period in 2009.

Our property and casualty subsidiaries maintain substantial investments in highly liquid, short term marketable securities. Accordingly, we do not anticipate selling long term fixed maturity investments to meet any liquidity needs.

Chubb’s liquidity requirements primarily include the payment of dividends to shareholders and interest and principal on debt obligations. The declaration and payment of future dividends to Chubb’s shareholders will be at the discretion of Chubb’s Board of Directors and will depend upon many factors, including our operating results, financial condition, capital requirements and any regulatory constraints.

As a holding company, Chubb’s ability to continue to pay dividends to shareholders and to satisfy its debt obligations relies on the availability of liquid assets, which is dependent in large part on the dividend paying ability of its property and casualty subsidiaries. The timing and amount of dividends paid by the property and casualty subsidiaries to Chubb may vary from year to year. Our property and casualty subsidiaries are subject to laws and regulations in the jurisdictions in which they operate that restrict the amount and timing of dividends they may pay within twelve consecutive months 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

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excess of such thresholds are considered “extraordinary” and require prior regulatory approval.

During the second quarter of 2010, the subsidiaries sought and obtained regulatory approval for the payment of dividends of $700 million to Chubb, due to the limitation on the amount of dividends that may be paid within twelve consecutive months. During the first six months of 2010, the subsidiaries paid aggregate dividends of $1.0 billion to Chubb. As of June 30, 2010, the maximum dividend distribution that may be made by the property and casualty subsidiaries to Chubb for the remainder of 2010 without prior regulatory approval is approximately $500 million. Depending upon the timing and amount of additional dividend payments by the property and casualty subsidiaries during the remainder of the year, such dividends may also require prior regulatory approval.

Invested Assets

The main objectives in managing our investment portfolios are to maximize after-tax investment income and total investment returns while minimizing credit risks in order to ensure that funds will be available to meet our insurance obligations. 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 of Chubb and its respective operating companies.

Our investment portfolio primarily comprises high quality bonds, principally tax exempt securities, corporate bonds, mortgage-backed securities and U.S. Treasury securities, as well as foreign government and corporate bonds that support our operations outside the United States. The portfolio also includes equity securities, primarily publicly traded common stocks, and other invested assets, primarily private equity limited partnerships, all of which are held with the primary objective of capital appreciation.

Our objective is to achieve the appropriate mix of taxable and tax exempt securities in our portfolio to balance both investment and tax strategies. At June 30, 2010 and December 31, 2009, 67% of our fixed maturity portfolio which supports our U.S. operations was invested in highly rated tax exempt bonds. Although about 40% of our tax exempt bonds are insured, the effect of insurance on the average credit rating of these bonds is insignificant. The insured tax exempt bonds in our portfolio have been selected based on the quality of the underlying credit and not the value of the credit insurance enhancement.

At June 30, 2010, we held $3.4 billion of highly rated mortgage-backed securities which comprised 20% of our taxable bond portfolio. About 50% of these securities are residential mortgage-backed securities, consisting of government agency pass-through securities guaranteed by a government agency or a government sponsored enterprise (GSE), GSE collateralized mortgage obligations (CMOs) and other CMOs, all backed by single family home mortgages. The majority of the CMOs are actively traded in liquid markets. The balance of the mortgage-backed securities are call protected, commercial mortgage-backed securities (CMBS). About 90% of our CMBS are senior securities with the highest level of subordination. The remainder of our CMBS are seasoned securities that were issued in 2004 or earlier.

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The net unrealized appreciation before tax of our fixed maturities and equity securities carried at fair value was $1.9 billion at June 30, 2010 compared with net unrealized appreciation before tax of $1.6 billion at December 31, 2009. Such unrealized appreciation is reflected in accumulated other comprehensive income, net of applicable deferred income tax.

Fair Values of Financial Instruments

Fair values of financial instruments are determined using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical assets or liabilities or other inputs, such as quoted prices for similar assets or liabilities, that are observable either directly or indirectly. In those instances where observable inputs are not available, fair values are measured using unobservable inputs for the asset or liability. Unobservable inputs reflect our own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure the fair values of our fixed maturities and equity securities into three broad levels as follows:

			Level 1 — Unadjusted quoted prices in active markets for identical assets.

			Level 2 — Other inputs that are observable for the asset, either directly or indirectly.

			Level 3 — Inputs that are unobservable.

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

Fair values for fixed maturities are determined by management, utilizing prices obtained from an independent, nationally recognized pricing service or, in the case of securities for which prices are not provided by a pricing service, from independent brokers. For fixed maturities that have quoted prices in active markets, market quotations are provided. For fixed maturities that do not trade on a daily basis, the pricing service and brokers provide fair value estimates using a variety of inputs including, but not limited to, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, reference data, prepayment spreads and measures of volatility. Management reviews on an ongoing basis the reasonableness of the methodologies used by the relevant pricing service and brokers. In addition, management, using the prices received for the securities from the pricing service and brokers, determines the aggregate portfolio price performance and reviews it against applicable indices. If management believes that significant discrepancies exist, it will discuss these with the relevant pricing service or broker to resolve the discrepancies.

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Fair values of equity securities are based on quoted market prices.

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

Fair values of long term debt issued by Chubb are determined by management, utilizing prices obtained from an independent, nationally recognized pricing service.

A pricing service provides fair value amounts for approximately 99% of our fixed maturities. The prices we obtain from a pricing service and brokers generally are non-binding, but are reflective of current market transactions in the applicable financial instruments.

At June 30, 2010 and December 31, 2009, we did not hold financial instruments in our investment portfolio for which a lack of market liquidity impacted our determination of fair value.

Item 4 — Controls and Procedures

As of June 30, 2010, an evaluation of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) was performed under the supervision and with the participation of the Corporation’s management, including the chief executive officer and chief financial officer. Based on that evaluation, Chubb’s chief executive officer and chief financial officer concluded that the Corporation’s disclosure controls and procedures were effective as of June 30, 2010.

During the quarter ended June 30, 2010, there were no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1A — Risk Factors

The Corporation’s business is subject to a number of risks, including those identified in Item 1A of Chubb’s Annual Report on Form 10-K for the year ended December 31, 2009, that could have a material effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from fiscal period to fiscal period. The risks described in the Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could have a material effect on our business, results of operations, financial condition and/or liquidity.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes Chubb’s stock repurchased each month in the quarter ended June 30, 2010:


					Total Number of		Maximum Number of
					Shares Purchased		Shares that May
	Total Number		Average		as Part of		Yet Be Purchased
	of Shares		Price Paid		Publicly Announced		Under the
Period	Purchased(a)		Per Share		Plans or Programs		Plans or Programs(b)
April 2010		1,750,238	$	52.53		1,750,238		13,448,220

May 2010		7,956,813		51.03		7,956,813		5,491,407

June 2010		2,726,100		50.56		2,726,100		16,765,307


Total		12,433,151		51.14		12,433,151


(a)		The stated amounts exclude 1,710 shares and 1,145 shares delivered to Chubb during the months of April 2010 and June 2010, respectively, by employees of the Corporation to cover option exercise prices and withholding taxes in connection with the Corporation’s stock-based compensation plans.

(b)		On December 3, 2009, the Board of Directors authorized the repurchase of up to 25,000,000 shares of common stock. On June 10, 2010, the Board of Directors authorized an increase of 14,000,000 shares to the authorization approved in December 2009. The authorization has no expiration date.

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Item 6 — Exhibits


Exhibit
Number		Description

	–	Rule 13a-14(a)/15d-14(a) Certifications

31.1		Certification by John D. Finnegan filed herewith.

31.2		Certification by Richard G. Spiro filed herewith.

	–	Section 1350 Certifications

32.1		Certification by John D. Finnegan filed herewith.

32.2		Certification by Richard G. Spiro filed herewith.

	–	Interactive Data File

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document


*		Pursuant to applicable securities laws and regulations, the Corporation is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Corporation has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, The Chubb Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	THE CHUBB CORPORATION (Registrant)
	By:	/s/ John J. Kennedy
		John J. Kennedy
		Senior Vice-President and Chief Accounting Officer

Date: August 6, 2010