Chubb (CHB) 10-Q 2006 Q3 Quarterly report

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 endedSeptember 30, 2006

OR

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 number1-8661

THE CHUBB CORPORATION

(Exact name of registrant as specified in its charter)

NEW JERSEY	13-2595722
(State or other jurisdiction of incorporation or organization)	(I. R. S. Employer Identification No.)
15 MOUNTAIN VIEW ROAD, WARREN, NEW JERSEY	07061-1615
(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.

YESþ NOo

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filerþ Accelerated filero Non-accelerated filero

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

YESo NOþ

     The number of shares of common stock outstanding as of September 30, 2006 was 411,645,538.

THE CHUBB CORPORATION
INDEX

	Page Number
Part I. Financial Information:
Item 1 — Financial Statements:
Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2006 and 2005		1
Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005		2
Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2006 and 2005		3
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005		4
Notes to Consolidated Financial Statements		5
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 4 — Controls and Procedures		37
Part II. Other Information:
Item 1 — Legal Proceedings		38
Item 1A — Risk Factors		38
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 6 — Exhibits		40
Signatures		40
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

Page 1

Part I. FINANCIAL INFORMATION

Item 1 — Financial Statements

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

PERIODS ENDED SEPTEMBER 30

	Third Quarter					Nine Months
	2006		2005			2006		2005
	(in millions except
	for per share amounts)
Revenues
Premiums Earned	$	2,974	$	3,043		$	8,963	$	9,097
Investment Income		399		356			1,172		1,039
Other Revenues		40		(19	)		81		47
Realized Investment Gains		38		99			186		197
Total Revenues		3,451		3,479			10,402		10,380
Losses and Expenses
Insurance Losses and Loss Expenses		1,687		2,260			4,984		5,914
Amortization of Deferred Policy Acquisition Costs		711		718			2,157		2,192
Other Insurance Operating Costs and Expenses		140		125			400		404
Investment Expenses		6		7			26		23
Other Expenses		29		20			73		106
Corporate Expenses		47		45			145		141
Total Losses and Expenses		2,620		3,175			7,785		8,780
Income Before Federal and Foreign Income Tax		831		304			2,617		1,600
Federal and Foreign Income Tax		227		58			743		389
Net Income	$	604	$	246		$	1,874	$	1,211
Net Income Per Share
Basic	$	1.47	$	.62		$	4.54	$	3.09
Diluted		1.43		.60			4.43		3.00
Dividends Declared Per Share		.25		.21	1/2		.75		.64	1/2

See Notes to Consolidated Financial Statements.

Page 2

THE CHUBB CORPORATION

CONSOLIDATED BALANCE SHEETS

	Sept. 30,		Dec. 31,
	2006		2005
	(in millions)
Assets
Invested Assets
Short Term Investments	$	1,337	$	1,899
Fixed Maturities
Held-to-Maturity — Tax Exempt (market $152 and $216)		144		205
Available-for-Sale
Tax Exempt (cost $16,747 and $15,449)		17,075		15,750
Taxable (cost $15,060 and $14,515)		15,000		14,568
Equity Securities (cost $2,886 and $2,088)		3,194		2,212
TOTAL INVESTED ASSETS		36,750		34,634
Cash		28		36
Securities Lending Collateral		2,081		2,077
Accrued Investment Income		414		391
Premiums Receivable		2,262		2,319
Reinsurance Recoverable on Unpaid Losses and Loss Expenses		2,784		3,769
Prepaid Reinsurance Premiums		315		244
Deferred Policy Acquisition Costs		1,497		1,445
Real Estate Assets		313		367
Investment in Partially Owned Company		—		260
Deferred Income Tax		427		623
Goodwill		467		467
Other Assets		1,777		1,429
TOTAL ASSETS	$	49,115	$	48,061
Liabilities
Unpaid Losses and Loss Expenses	$	22,542	$	22,482
Unearned Premiums		6,513		6,361
Securities Lending Payable		2,081		2,077
Long Term Debt		2,463		2,467
Dividend Payable to Shareholders		103		90
Accrued Expenses and Other Liabilities		1,851		2,177
TOTAL LIABILITIES		35,553		35,654
Contingent Liabilities (Note 8)
Shareholders’ Equity
Common Stock — $1 Par Value; 411,645,538 and 210,432,298 Shares		412		210
Paid-In Surplus		1,545		2,364
Retained Earnings		11,164		9,600
Accumulated Other Comprehensive Income
Unrealized Appreciation of Investments, Net of Tax		374		311
Foreign Currency Translation Gains, Net of Tax		67		57
Treasury Stock, at Cost — 1,393,900 Shares in 2005		—		(135	)
TOTAL SHAREHOLDERS’ EQUITY		13,562		12,407
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	49,115	$	48,061

See Notes to Consolidated Financial Statements.

Page 3

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

PERIODS ENDED SEPTEMBER 30

	Third Quarter					Nine Months
	2006		2005			2006		2005
	(in millions)
Net Income	$	604	$	246		$	1,874	$	1,211
Other Comprehensive Income (Loss)
Change in Unrealized Appreciation or Depreciation of Investments, Net of Tax		543		(254	)		63		(225	)
Foreign Currency Translation Gains (Losses), Net of Tax		4		10			10		(19	)
		547		(244	)		73		(244	)
Comprehensive Income	$	1,151	$	2		$	1,947	$	967

See Notes to Consolidated Financial Statements.

Page 4

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30

	2006			2005
	(in millions)
Cash Flows from Operating Activities
Net Income	$	1,874		$	1,211
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Increase in Unpaid Losses and Loss Expenses, Net		1,045			1,760
Increase in Unearned Premiums, Net		37			89
Decrease in Premiums Receivable		57			13
Increase in Reinsurance Recoverable on Paid Losses		(325	)		(22	)
Decrease in Liability Related to Principal and Interest Guarantee		—			(186	)
Change in Deferred Income Tax		147			111
Amortization of Premiums and Discounts on Fixed Maturities		174			161
Depreciation		64			69
Realized Investment Gains		(186	)		(197	)
Other, Net		(527	)		(38	)
Net Cash Provided by Operating Activities		2,360			2,971
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities		2,266			4,434
Proceeds from Maturities of Fixed Maturities		1,186			1,357
Proceeds from Sales of Equity Securities		431			555
Purchases of Fixed Maturities		(5,215	)		(8,346	)
Purchases of Equity Securities		(752	)		(604	)
Decrease (Increase) in Short Term Investments, Net		562			(71	)
Increase in Net Payable from Security Transactions Not Settled		47			40
Purchases of Property and Equipment, Net		(35	)		(30	)
Other, Net		—			97
Net Cash Used in Investing Activities		(1,510	)		(2,568	)
Cash Flows from Financing Activities
Repayment of Long Term Debt		—			(301	)
Decrease in Funds Held Under Deposit Contracts		(18	)		(277	)
Proceeds from Common Stock Issued Upon Settlement of Equity Unit Warrants		460			—
Proceeds from Issuance of Common Stock Under Stock-Based Employee Compensation Plans		172			414
Repurchase of Shares		(1,175	)		—
Dividends Paid to Shareholders		(297	)		(243	)
Net Cash Used in Financing Activities		(858	)		(407	)
Net Decrease in Cash		(8	)		(4	)
Cash at Beginning of Year		36			42
Cash at End of Period	$	28		$	38

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 and include the accounts of The Chubb Corporation (Chubb) and its subsidiaries (collectively, the Corporation). Significant intercompany transactions have been eliminated in consolidation.

     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 2005 Annual Report on Form 10-K.

     Share and per share amounts have been retroactively adjusted to reflect the two-for-one stock split paid on April 18, 2006 to Chubb’s shareholders of record on March 31, 2006.

2) Adoption of New Accounting Pronouncements

     Effective January 1, 2006, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment, which revised SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) requires companies to adopt the fair value method of accounting for stock-based employee compensation plans. The fair value method of accounting for stock-based employee compensation plans as defined in SFAS No. 123(R) is similar in most respects to the fair value method defined in SFAS No. 123. Since the Corporation had previously adopted the fair value method of accounting for stock-based employee compensation plans, the adoption of SFAS No. 123(R) did not have a significant effect on the Corporation’s financial position or results of operations.

     Effective January 1, 2006, the Corporation adopted Financial Accounting Standards Board Staff Position (FSP) Nos. 115-1 and 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other-than-temporary and the measurement of an impairment loss. The FSP clarifies that an investor shall recognize an impairment loss when the impairment is deemed to be other-than-temporary even if a decision to sell the impaired security has not been made. The FSP nullifies certain requirements and carries forward other requirements of Emerging Issues Task Force Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The implementation of the guidance in the FSP did not have a significant effect on the Corporation’s financial position or results of operations.

Page 6

3) Accounting Pronouncements Not Yet Adopted

a) In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R). The Statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in the funded status in comprehensive income in the year in which the changes occur.

     The provisions of SFAS No. 158 are effective for the Corporation as of December 31, 2006. Retrospective application is not permitted. Any required adjustment, net of tax, shall be reported as an adjustment of the ending balance of accumulated other comprehensive income. It is expected that the adoption of SFAS No. 158 will reduce the Corporation’s shareholders’ equity at December 31, 2006. The amount of such reduction, which is not expected to have a material adverse effect on the Corporation’s financial position, will be determined based on the funded status of the Corporation’s defined benefit postretirement plans as of December 31, 2006. Adoption of the Statement will not have an effect on the Corporation’s results of operations in 2006 or in future years.

b) In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for the Corporation for the year beginning January 1, 2007. The adoption of FIN 48 is not expected to have a material effect on the Corporation’s financial position or results of operations.

Page 7

4) Investments

     Short term investments, which have an original maturity of one year or less, are carried at amortized cost which approximates market value. Fixed maturities classified as held-to-maturity are carried at amortized cost. Fixed maturities classified as available-for-sale and equity securities are carried at market value as of the balance sheet date.

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

	Periods Ended September 30
	Third Quarter					Nine Months
	2006		2005			2006			2005
	(in millions)
Change in unrealized appreciation of equity securities	$	164	$	(30	)	$	184		$	(12	)
Change in unrealized appreciation or depreciation of fixed maturities		581		(361	)		(86	)		(335	)
		745		(391	)		98			(347	)
Deferred income tax (credit)		202		(137	)		35			(122	)
Change in unrealized appreciation or depreciation of investments, net	$	543	$	(254	)	$	63		$	(225	)

5) Investment in Partially Owned Company

     Investment in partially owned company included the Corporation’s minority interest in a corporate joint venture, Allied World Assurance Holdings, Ltd. The equity method of accounting was used for this investment.

     In July 2006, Allied World sold previously unissued shares of common stock through an initial public offering. As a result of the public offering, the Corporation no longer considers Allied World to be a corporate joint venture. Accordingly, the equity method of accounting is no longer used for this investment. Instead, the investment in Allied World is now classified as an equity security. As such, it is carried at market value as of the balance sheet date with unrealized appreciation or depreciation credited or charged to comprehensive income.

6) Debt

     In June 2003, Chubb issued $460 million of unsecured 2.25% senior notes due August 16, 2008 and 18.4 million purchase contracts to purchase Chubb’s common stock. The notes and purchase contracts were issued together in the form of 7% equity units. Each equity unit initially represented one purchase contract and $25 principal amount of notes. In May 2006, the notes were successfully remarketed as required by their terms. The interest rate on the notes was reset to 5.472% from 2.25%, effective May 16, 2006. The remarketed notes are due on August 16, 2008. The purchase contracts, which were settled on August 16, 2006, are further discussed in Note (10).

Page 8

7) 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 runoff following the sale, in December 2005, of the ongoing business to a Bermuda based reinsurance company, Harbor Point Limited. Harbor Point has the right for a transition period of up to two years to underwrite specific reinsurance business on the P&C Group’s behalf. The P&C Group retains a portion of this business and cedes the balance to Harbor Point.

     Corporate and other includes investment income earned on corporate invested assets, corporate expenses and the Corporation’s real estate and other non-insurance subsidiaries. The results of Chubb Financial Solutions (CFS), which were previously reported separately, are now included in corporate and other. CFS’s business was primarily structured credit derivatives, principally as a counterparty in portfolio credit default swaps. CFS has been in run-off since April 2003.

Page 9

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

	Periods Ended September 30
	Third Quarter						Nine Months
	2006			2005			2006			2005
	(in millions)
Revenues
Property and casualty insurance
Premiums earned
Personal insurance	$	851		$	797		$	2,532		$	2,391
Commercial insurance		1,271			1,202			3,805			3,727
Specialty insurance		736			757			2,227			2,206
Total insurance		2,858			2,756			8,564			8,324
Reinsurance assumed		116			287			399			773
		2,974			3,043			8,963			9,097
Investment income		375			340			1,100			993
Total property and casualty insurance		3,349			3,383			10,063			10,090
Corporate and other		64			(3	)		153			93
Realized investment gains		38			99			186			197
Total revenues	$	3,451		$	3,479		$	10,402		$	10,380
Income (loss) before income tax
Property and casualty insurance
Underwriting
Personal insurance	$	116		$	27		$	454		$	294
Commercial insurance		192			(130	)		619			207
Specialty insurance		97			44			267			22
Total insurance		405			(59	)		1,340			523
Reinsurance assumed		20			(1	)		36			57
		425			(60	)		1,376			580
Increase in deferred policy acquisition costs		11			1			40			10
Underwriting income (loss)		436			(59	)		1,416			590
Investment income		370			334			1,076			972
Other income (charges)		—			(1	)		6			(3	)
Total property and casualty insurance		806			274			2,498			1,559
Corporate and other loss		(13	)		(69	)		(67	)		(156	)
Realized investment gains		38			99			186			197
Total income before income tax	$	831		$	304		$	2,617		$	1,600

Page 10

8) Contingent Liabilities

     Chubb and certain of its subsidiaries are involved in the ongoing investigations of business practices in the property and casualty insurance industry relating to, among other things, (1) 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 have received subpoenas and other information requests from the Attorneys General and insurance regulators of several states, as well as from several foreign regulatory authorities, the U.S. Securities and Exchange Commission and the U.S. Attorney for the Southern District of New York. The Corporation is cooperating fully in such investigations. Although no regulatory action has been initiated against the Corporation, it is possible that one or more regulatory authorities will bring an action against the Corporation with respect to some or all of the issues that are the focus of these ongoing investigations. In May 2006, the Corporation was informed by the Attorney General of the State of Ohio that he intended to file an action against several industry participants, including the Corporation, with respect to certain of these issues. No such action has been filed to date.

     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 state and federal courts. On August 1, 2005, Chubb and certain of its subsidiaries were named in a putative class action entitledIn re Insurance Brokerage Antitrust Litigationin the U.S. District Court for the District of New Jersey. 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. The complaint seeks treble damages, injunctive and declaratory relief, and attorneys’ fees.

     Chubb and certain of its subsidiaries have also been named as defendants in two purported class actions relating to allegations of unlawful use of contingent commission arrangements that were originally filed in state court. The first was filed on February 16, 2005 in Seminole County, Florida. The second was filed on May 17, 2005 in Essex County, Massachusetts. Both cases were removed to federal court and then transferred by the Judicial Panel on Multidistrict Litigation to the U.S. District Court for the District of New Jersey for consolidation with theIn re Insurance Brokerage Antitrust Litigation. In December 2005, Chubb and certain of its subsidiaries were named in an action similar to theIn re Insurance Brokerage Antitrust Litigation. The action is pending in the same court and has been assigned to the judge who is presiding over theIn re Insurance Brokerage Antitrust Litigation. The complaint has not yet been served in this matter. Separately, in April 2006, Chubb and one of its subsidiaries were named in an action similar to theIn re Insurance Brokerage Antitrust Litigation.This action is pending in the U.S. District Court for the Northern District of Georgia. In these actions, the plaintiffs generally allege that the defendants unlawfully used contingent commission agreements. The actions seek unspecified damages and attorneys’ fees.

     The Corporation believes it has substantial defenses to all of the aforementioned legal proceedings and intends to defend the actions vigorously.

Page 11

     The Corporation cannot at this time predict the ultimate outcome of the aforementioned investigations and legal proceedings, including any potential amounts that the Corporation may be required to pay in connection with them. However, it is possible that such payments could have a material adverse effect on the Corporation’s results of operations in particular quarterly or annual periods.

9) Earnings Per Share

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

	Periods Ended September 30
	Third Quarter				Nine Months
	2006		2005		2006		2005
	(in millions
	except for per share amounts)
Basic earnings per share:
Net income	$	604	$	246	$	1,874	$	1,211
Weighted average number of common shares outstanding		410.9		397.4		412.8		392.2
Basic earnings per share	$	1.47	$	.62	$	4.54	$	3.09
Diluted earnings per share:
Net income	$	604	$	246	$	1,874	$	1,211
Weighted average number of common shares outstanding		410.9		397.4		412.8		392.2
Additional shares from assumed exercise of stock-based compensation awards		8.7		7.3		7.5		7.4
Additional shares from assumed issuance of common stock upon settlement of purchase contracts and mandatorily exercisable warrants		1.8		6.0		2.9		4.4
Weighted average number of common shares and potential common shares assumed outstanding for computing diluted earnings per share		421.4		410.7		423.2		404.0
Diluted earnings per share	$	1.43	$	.60	$	4.43	$	3.00

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10) Shareholders’ Equity

     On February 8, 2006, the Board of Directors authorized the cancellation of all treasury shares, which were thereupon restored to the status of authorized but unissued common shares. The change had no effect on total shareholders’ equity.

     On March 3, 2006, the Board of Directors approved a two-for-one stock split payable to shareholders of record on March 31, 2006. In connection with the stock split, the Board of Directors approved a proportionate increase in the number of authorized shares of Chubb’s common stock from 600 million shares to 1.2 billion shares.

     The activity of Chubb’s common stock was as follows:

	Nine Months Ended
	September 30
	2006			2005
Common stock issued
Balance, beginning of year		210,432,298			195,803,824
Two-for-one stock split		210,432,298			—
Treasury shares cancelled		(7,887,800	)		—
Repurchase of shares		(18,720,732	)		—
Shares issued upon settlement of equity unit warrants		12,883,527			—
Share activity under stock-based employee compensation plans		4,505,947			4,106,967
Balance, end of period		411,645,538			199,910,791
Treasury stock
Balance, beginning of year		1,393,900			3,127,282
Two-for-one stock split		1,393,900			—
Repurchase of shares		5,100,000			—
Cancellation of shares		(7,887,800	)		—
Share activity under stock-based employee compensation plans		—			(3,127,282	)
Balance, end of period		—			—
Common stock outstanding, end of period		411,645,538			199,910,791

     In June 2003, Chubb issued 18.4 million purchase contracts to purchase its common stock and $460 million of 2.25% senior notes. The purchase contracts and notes were issued together in the form of 7% equity units. Each purchase contract obligated the holder to purchase, and obligated Chubb to sell, on or before the settlement date of August 16, 2006, for a settlement price of $25, a variable number of newly issued shares of Chubb’s common stock. The number of shares of Chubb’s common stock purchased was determined based on a formula that considered the market price of the common stock immediately prior to the time of settlement in relation to the $29.75 per share sale price of the common stock at the time the equity units were offered. Upon settlement of the purchase contracts, Chubb received proceeds of $460 million and issued 12,883,527 shares of common stock.

Page 13

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Nine Months Ended September 30, 2006 and 2005 and for the Quarters Ended September 30, 2006 and 2005

     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 our loss reserve and reinsurance recoverable estimates; the adequacy of the pricing for our insurance products relative to the exposures, reinsurance pricing; commercial insurance rates; the impact of regulatory investigations and developments on our business; our estimated CFS credit derivatives exposure; the possible recognition of additional impairment losses if real estate is not sold or does not perform as expected and the effect thereof on our results of operations; the repurchase of Chubb’s common stock under its share repurchase program; continuation of our financial strength and credit ratings; the funding of Chubb’s future capital and liquidity needs; and the impact of the adoption of Statement of Financial Accounting Standards No. 158 on our shareholders’ equity. 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;

• the ability to retain existing business;

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

• the adequacy of loss reserves, including:

– our expectations relating to 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;

– 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;

Page 14

• 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 have filed for bankruptcy or otherwise experienced deterioration in creditworthiness;

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

– claims and litigation arising out of stock option “backdating,” “spring loading” and other option 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;

– legislative or regulatory proposals or changes;

• the effects of investigations into market practices, in particular contingent commissions and loss mitigation and finite reinsurance arrangements, in the property and casualty insurance industry together with any legal or regulatory proceedings, related settlements and industry reform or other changes with respect to contingent commissions or otherwise arising therefrom;

• the impact of legislative and regulatory developments on our business, including those relating to terrorism and large-scale catastrophes;

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

• the ability of our subsidiaries to pay us dividends;

• general economic and market conditions including:

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

– 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;

– changes in the litigation environment; and

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

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

Page 15

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 recoverability of the carrying value of real estate properties. These estimates and judgments, which are discussed in Item 7 of our 2005 Annual Report on Form 10-K 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.

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 $1.9 billion in the first nine months of 2006 and $604 million in the third quarter compared with $1.2 billion and $246 million, respectively, in the comparable periods of 2005. The increase in net income in the 2006 periods was driven by substantially higher underwriting income in our property and casualty insurance business.

• Results in the first nine months and third quarter of 2005 were adversely impacted by pre-tax costs of $511 million related to Hurricane Katrina, including estimated net losses of $415 million, net reinsurance reinstatement premium costs of $51 million and a $45 million charge, included in our corporate segment, representing Chubb’s share of the losses estimated by an insurer in which we have a minority interest.

• Total net premiums written decreased by 2% in the first nine months of 2006 and 1% in the third quarter. Net premiums written in our insurance business increased 2% in the first nine months of 2006 and 5% in the third quarter. Net premiums written in our reinsurance assumed business decreased 54% in the first nine months of 2006 and 66% in the third quarter, which was in line with our expectations following the sale of the ongoing business.

• Underwriting results were exceptionally profitable in the first nine months and third quarter of 2006 as evidenced by the combined loss and expense ratio of 84.5% and 85.5%, respectively, compared with 93.3% and 102.2%, respectively, in the corresponding periods of 2005. Underwriting results in the 2005 periods were adversely affected by catastrophes, particularly Hurricane Katrina.

• Property and casualty investment income after tax increased by 11% in the first nine months of 2006 and 10% in the third quarter. For more information on this non-GAAP financial measure, see “Property and Casualty Insurance – Investment Results.”

Page 16

          A summary of our consolidated net income is as follows:

	Periods Ended September 30
	Third Quarter						Nine Months
	2006			2005			2006			2005
	(in millions)
Property and Casualty Insurance	$	806		$	274		$	2,498		$	1,559
Corporate and Other		(13	)		(69	)		(67	)		(156	)
Realized Investment Gains		38			99			186			197
Consolidated Income Before Income Tax		831			304			2,617			1,600
Federal and Foreign Income Tax		227			58			743			389
Consolidated Net Income	$	604		$	246		$	1,874		$	1,211

Property and Casualty Insurance

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

		Periods Ended September 30
		Third Quarter						Nine Months
		2006			2005			2006			2005
		(in millions)
Underwriting
Net Premiums Written		$	2,994		$	3,017		$	9,000		$	9,186
Decrease (Increase) in Unearned Premiums			(20	)		26			(37	)		(89	)
Premiums Earned			2,974			3,043			8,963			9,097
Losses and Loss Expenses			1,687			2,260			4,984			5,914
Operating Costs and Expenses			854			836			2,580			2,584
Increase in Deferred Policy Acquisition Costs			(11	)		(1	)		(40	)		(10	)
Dividends to Policyholders			8			7			23			19
Underwriting Income (Loss)			436			(59	)		1,416			590
	��
Investments
Investment Income Before Expenses			375			340			1,100			993
Investment Expenses			5			6			24			21
Investment Income			370			334			1,076			972
Other Income (Charges)			—			(1	)		6			(3	)
Property and Casualty Income Before Tax		$	806		$	274		$	2,498		$	1,559
Property and Casualty Investment Income After Tax		$	295		$	267		$	862		$	780

Page 17

          Income before tax from our property and casualty business was substantially higher in the first nine months and third quarter of 2006 compared with the comparable periods of 2005. The increase was driven by significantly higher underwriting income, due largely to substantially lower catastrophe losses and improvement in our specialty insurance business unit. Underwriting results in both 2005 periods were adversely affected by catastrophes. In particular, such results included estimated net losses of $415 million and net reinsurance reinstatement premium costs of $51 million related to Hurricane Katrina. Results in the 2006 periods also benefited from higher investment income.

          The profitability of the property and casualty insurance business depends on the results of both underwriting operations and investments. 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.

     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.

          Catastrophe losses are a significant component in understanding and assessing the financial performance of our property and casualty insurance business. However, in periods in which there is a very large catastrophic event, such as Hurricane Katrina, its impact makes it difficult to assess the underlying trends in our property and casualty business. Management believes that a discussion of the impact of catastrophes is meaningful during such periods in order for investors to understand the variability in periodic earnings and to evaluate the underlying performance of our underwriting operations. Accordingly, we have presented in the discussion below premium growth percentages and combined loss and expense ratios, excluding the effects of catastrophes.

     Net Premiums Written

          Property and casualty net premiums written were $9.0 billion in the first nine months of 2006 and $3.0 billion in the third quarter, representing decreases of 2% and 1%, respectively, compared with the same periods of 2005.

          Net premiums written by business unit were as follows:

	Nine Months Ended						Quarters Ended
	Sept. 30				% Incr.		Sept. 30				% Incr.
	2006		2005		(Decr.)		2006		2005		(Decr.)
	(in millions)						(in millions)
Personal insurance	$	2,639	$	2,487	6	%	$	913	$	860	6	%
Commercial insurance		3,863		3,760	3			1,244		1,127	10
Specialty insurance		2,167		2,213	(2	)		748		771	(3	)
Total insurance		8,669		8,460	2			2,905		2,758	5
Reinsurance assumed		331		726	(54	)		89		259	(66	)
Total	$	9,000	$	9,186	(2	)	$	2,994	$	3,017	(1	)

Page 18

          Total net premiums written in the third quarter of 2005 reflected $51 million of net reinsurance reinstatement premium costs related to Hurricane Katrina. Total net premiums written in the first nine months of 2006 benefited from a $20 million reduction in the first quarter of previously accrued reinsurance reinstatement premium costs. Excluding the reinsurance reinstatement premium costs in both years, total net premiums written decreased by 3% and 2% in the first nine months and third quarter of 2006, respectively, compared with the same periods in 2005.

          Net premiums written from our insurance business increased 2% in the first nine months of 2006 and 5% in the third quarter compared with the same periods of 2005. Excluding reinsurance reinstatement premium costs of $102 million in the third quarter of 2005 related to Hurricane Katrina as well as the $20 million reduction in such costs in the first quarter of 2006, such growth was 1% and 2%, respectively. Premiums in the United States, which represent more than 75% of our insurance premiums, increased 2% in the first nine months of 2006 and 4% in the third quarter. Excluding the reinsurance reinstatement premium costs related to Hurricane Katrina in both years, premium growth in the U.S. was flat in the first nine months and third quarter. Premiums outside the U.S. increased 4% in the first nine months and 10% in the third quarter; in local currencies, such premiums grew 3% and 7%, respectively.

          The modest overall growth in net premiums written in our insurance business reflected our continued emphasis on underwriting discipline in a competitive market environment. Rates were generally stable, but were under competitive pressure in some classes of business. We continued to retain a high percentage of our existing customers and to renew these accounts at prices we believe to be appropriate relative to the exposures. In addition, while we continued to be selective, we found opportunities to write new business at acceptable rates.

          Net reinsurance assumed premiums written decreased by 54% in the first nine months of 2006 and 66% in the third quarter compared with the same periods of 2005. Excluding net reinstatement premium revenue of $51 million in the third quarter of 2005 related to Hurricane Katrina, premiums declined by 51% and 57%, respectively. The premium decline was in line with our expectations following the sale of the ongoing reinsurance assumed business in December 2005.

     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 the reinsurance.

          As a result of the substantial losses incurred by reinsurers from the catastrophes in the latter half of 2005, the cost of reinsurance has increased significantly, particularly for property coverages, and there is less reinsurance capacity in the marketplace. In addition, the availability of reinsurance for certain coverages, such as terrorism, continues to be limited and expensive.

          The major components of our reinsurance program were renewed in April 2006. On our casualty clash treaty, which operates like a catastrophe treaty, our initial retention remained at $75 million. We reduced the reinsurance coverage at the top of the program by $50 million and increased our participation in the program. This treaty now provides coverage of approximately 55% of losses between $75 million and $150 million per insured event.

Page 19

          On our commercial property per risk treaty, we increased our retention from $15 million to $25 million. This treaty now provides $425 million of coverage per risk in excess of our retention.

          Our property catastrophe treaty for events in the United States was modified to increase our initial retention from $250 million to $350 million and to increase our participation in the program. At the same time, we increased the reinsurance coverage in the northeastern part of the country by $400 million, enhancing our protection in the region where we have our greatest concentration of exposure. The program now provides coverage of approximately 75% of losses (net of recoveries from other available reinsurance) between $350 million and $1.3 billion, with additional coverage of 80% of losses between $1.3 billion and $2.05 billion in the northeastern part of the country.

          Our property catastrophe treaty for events outside the United States was modified to increase our initial retention from $50 million to $75 million. The treaty now provides coverage of approximately 90% of losses (net of recoveries from other available reinsurance) between $75 million and $275 million.

          Our property reinsurance treaties generally contain terrorism exclusions for acts perpetrated by foreign terrorists. Since September 2001, we have changed our underwriting strategies to address terrorism and the limited availability of terrorism reinsurance.

          While the cost of our U.S. property catastrophe treaty has increased, we expect that the overall ceded reinsurance premiums in 2006 for our insurance business will be about the same as those in 2005.

     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.

          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.

Page 20

          Underwriting results were highly profitable in the first nine months and third quarter of 2006. Underwriting results were profitable in the first nine months of 2005 and modestly unprofitable in the third quarter of 2005. Results in the 2005 periods were adversely affected by catastrophes, particularly Hurricane Katrina. The combined loss and expense ratio for our overall property and casualty business was as follows:

	2006									2005
							Excluding									Excluding
				Impact of			Impact of						Impact of			Impact of
	Total			Catastrophes			Catastrophes			Total			Catastrophes			Catastrophes
NINE MONTHS ENDED SEPTEMBER 30
Loss ratio		55.8	%		1.5	%		54.3	%		65.1	%		5.9	%		59.2	%
Expense ratio		28.7			(.1	)		28.8			28.2			.2			28.0
Combined ratio		84.5	%		1.4	%		83.1	%		93.3	%		6.1	%		87.2	%
QUARTERS ENDED SEPTEMBER 30
Loss ratio		56.9	%		1.5	%		55.4	%		74.4	%		16.5	%		57.9	%
Expense ratio		28.6			—			28.6			27.8			.5			27.3
Combined ratio		85.5	%		1.5	%		84.0	%		102.2	%		17.0	%		85.2	%

          Catastrophe losses of $145 million in the first nine months of 2006 were offset in part by the $20 million reduction in previously accrued reinsurance reinstatement premium costs related to Hurricane Katrina. Catastrophe losses in the first nine months of 2005 were $513 million and net reinsurance reinstatement premium costs related to Hurricane Katrina were $51 million.

          Catastrophe losses were $44 million in the third quarter of 2006. In the third quarter of 2005, catastrophe losses amounted to $472 million, $415 million of which related to Hurricane Katrina, and net reinsurance reinstatement premium costs related to Hurricane Katrina were $51 million. In our insurance business, we incurred net losses of $335 million related to Hurricane Katrina as well as reinstatement premium costs of $102 million, for an aggregate cost of $437 million. In our reinsurance assumed business, we incurred net losses of $80 million and recognized net reinstatement premium revenue of $51 million, for a net cost of $29 million.

          The loss ratio, excluding the effect of catastrophes, improved significantly in the first nine months and third quarter of 2006 compared with the same periods in 2005, reflecting the favorable experience resulting from our disciplined underwriting in recent years.

          The expense ratio increased in the first nine months and third quarter of 2006 compared with the same periods in 2005 as net premiums written decreased whereas compensation and other operating costs increased.

Page 21

     Review of Underwriting Results by Business Unit

     Personal Insurance

          Net premiums written from personal insurance coverages, which represented 29% of premiums written in the first nine months of 2006, increased by 6% in both the first nine months and third quarter of 2006 compared with the same periods in 2005. Net premiums written for the classes of business within the personal insurance segment were as follows:

	Nine Months Ended						Quarters Ended
	Sept. 30						Sept. 30
	2006		2005		% Incr.		2006		2005		% Incr.
	(in millions)						(in millions)
Automobile	$	511	$	486		5%	$	174	$	169		3%
Homeowners		1,706		1,584		8		609		564		8
Other		422		417		1		130		127		2
Total personal	$	2,639	$	2,487		6	$	913	$	860		6

          Net premiums written in the homeowners business in the third quarter of 2005 reflected $18 million of reinsurance reinstatement premium costs related to Hurricane Katrina. Excluding the reinstatement premium costs, premium growth in 2006 for our personal insurance segment was 5% for the first nine months and 4% in the third quarter and growth in our homeowners business was 6% and 5%, respectively.

          Premiums from our personal automobile business increased as a result of selective growth initiatives outside the United States. Automobile premiums in the U.S. declined due to our maintaining underwriting discipline in a more competitive marketplace. Premium growth in our homeowners business was driven by increased insurance-to-value and slightly higher rates. The in-force policy count for this class was unchanged during the first nine months of 2006 compared with the same period in 2005. Our other personal business, which includes insurance for excess liability, yacht and accident coverages, had minimal growth in the first nine months of 2006 due to lower premiums in our accident business compared with the same period in 2005.

Page 22

          Our personal insurance business produced highly profitable underwriting results in the first nine months and third quarter of 2006. Results in the corresponding periods in 2005 were less profitable due in large part to a more adverse impact of catastrophes, particularly Hurricane Katrina. The combined loss and expense ratios for the classes of business within the personal insurance segment were as follows:

	2006									2005
							Excluding									Excluding
				Impact of			Impact of						Impact of			Impact of
	Total			Catastrophes			Catastrophes			Total			Catastrophes			Catastrophes
NINE MONTHS ENDED SEPTEMBER 30
Automobile		89.6	%		.4	%		89.2	%		97.7	%		1.1	%		96.6	%
Homeowners		74.3			6.6			67.7			81.5			9.4			72.1
Other		95.3			(.5	)		95.8			91.9			(.4	)		92.3
Total personal		80.8	%		4.2	%		76.6	%		86.5	%		6.1	%		80.4	%
QUARTERS ENDED SEPTEMBER 30
Automobile		93.1	%		.6	%		92.5	%		102.4	%		3.0	%		99.4	%
Homeowners		76.6			6.2			70.4			90.6			22.8			67.8
Other		102.8			—			102.8			97.9			.5			97.4
Total personal		84.1	%		4.1	%		80.0	%		94.3	%		15.4	%		78.9	%

          Our personal automobile business produced more profitable results in the first nine months and third quarter of 2006 compared with the corresponding periods in 2005. Results in 2006 benefited from lower claim frequency and modest favorable loss development related to prior accident years. Results in the third quarter of 2005 were adversely affected by reserve strengthening in the liability component related to prior accident years.

          Homeowners results were highly profitable in the first nine months and third quarter of 2006. Results were less profitable in the corresponding 2005 periods, which were adversely affected by catastrophes, particularly Hurricane Katrina. Results in both years benefited from better pricing and a reduction in water damage losses primarily through contract wording changes related to mold coverage and loss remediation measures that we have implemented over the past few years.

          Other personal coverages produced profitable results in the first nine months of 2006 and 2005, but more so in 2005. Results in the third quarter of 2006 were modestly unprofitable compared with profitable results in the same period of 2005. The less profitable results in the 2006 periods were due to deterioration in our excess liability business. The accident and yacht businesses continued to be profitable.

Page 23

     Commercial Insurance

          Net premiums written from commercial insurance, which represented 43% of our premiums written in the first nine months of 2006, increased by 3% in the first nine months of 2006 and 10% in the third quarter compared with the same periods a year ago. Net premiums written for the classes of business within the commercial insurance segment were as follows:

	Nine Months Ended						Quarters Ended
	Sept. 30				% Incr.		Sept. 30				% Incr.
	2006		2005		(Decr.)		2006		2005		(Decr.)
	(in millions)						(in millions)
Multiple peril	$	968	$	935	4	%	$	323	$	294	10	%
Casualty		1,303		1,321	(1	)		408		411	(1	)
Workers’ compensation		694		726	(4	)		222		230	(3	)
Property and marine		898		778	15			291		192	52
Total commercial	$	3,863	$	3,760	3		$	1,244	$	1,127	10

          Net premiums written in the third quarter of 2005 reflected $84 million of reinsurance reinstatement premium costs related to Hurricane Katrina. Net premiums written in the first nine months of 2006 benefited from a $20 million reduction in the first quarter of previously accrued reinstatement premium costs. Excluding the reinsurance reinstatement premium costs in both years, net premiums written for the classes of business within the commercial insurance segment were as follows:

	Nine Months Ended						Quarters Ended
	Sept. 30				% Incr.		Sept. 30				% Incr.
	2006		2005		(Decr.)		2006		2005		(Decr.)
	(in millions)						(in millions)
Multiple peril	$	968	$	949	2	%	$	323	$	308	5	%
Casualty		1,303		1,321	(1	)		408		411	(1	)
Workers’ compensation		694		726	(4	)		222		230	(3	)
Property and marine		878		848	4			291		262	11
Total commercial	$	3,843	$	3,844	—		$	1,244	$	1,211	3

          Premium growth in our commercial insurance business has been constrained by a competitive marketplace. However, after declining modestly in the first quarter of 2006, premiums increased modestly in both the second and third quarters. Rates were generally stable in the first nine months of 2006, but were under competitive pressure in some classes of business, particularly non-catastrophe-exposed property risks and certain casualty risks. Retention levels remained strong, but were slightly lower than those in the first nine months of 2005. New business volume in the first nine months of 2006 was comparable to the 2005 levels. We continued to maintain our underwriting discipline in the competitive market, renewing business and writing new business only where we believe we are getting acceptable rates and appropriate terms and conditions for the exposures. As a result of insurers paying higher reinsurance prices while retaining more risk and as the new industry catastrophe models are implemented, we expect to see a rate environment for the remainder of 2006 similar to that which we have seen thus far this year.

Page 24

          Our commercial insurance business produced highly profitable underwriting results in the first nine months and third quarter of 2006. Results in the first nine months of 2005 were profitable, while results in the third quarter were highly unprofitable. Results in both 2005 periods were adversely affected by catastrophes, particularly Hurricane Katrina. The combined loss and expense ratios for the classes of business within the commercial insurance segment were as follows:

	2006									2005
							Excluding									Excluding
				Impact of			Impact of						Impact of			Impact of
	Total			Catastrophes			Catastrophes			Total			Catastrophes			Catastrophes
NINE MONTHS ENDED SEPTEMBER 30
Multiple peril		77.5	%		3.8	%		73.7	%		89.4	%		9.0	%		80.4	%
Casualty		94.7			.1			94.6			97.1			.2			96.9
Workers’ compensation		81.3			.5			80.8			84.6			(.1	)		84.7
Property and marine		73.6			(2.0	)		75.6			104.2			35.2			69.0
Total commercial		83.2	%		.6	%		82.6	%		94.2	%		10.0	%		84.2	%
QUARTERS ENDED SEPTEMBER 30
Multiple peril		81.9	%		2.8	%		79.1	%		103.3	%		27.9	%		75.4	%
Casualty		97.3			—			97.3			96.7			.5			96.2
Workers’ compensation		81.2			1.3			79.9			84.1			(.2	)		84.3
Property and marine		74.3			(1.1	)		75.4			192.0			120.9			71.1
Total commercial		85.4	%		.7	%		84.7	%		112.8	%		29.7	%		83.1	%

          Excluding the effect of catastrophes, the profitability of our commercial insurance business in 2005 was comparable to that in 2006. Results in both years benefited from the cumulative effect of price increases, better terms and conditions and more stringent risk selection in recent years. Results in both years also benefited from low non-catastrophe property losses.

          Multiple peril results were highly profitable in the first nine months and third quarter of 2006. Results were profitable in the first nine months of 2005 and unprofitable in the third quarter of 2005. Results in both periods in 2005 were adversely affected by catastrophes, particularly Hurricane Katrina. Excluding the effect of catastrophes, the property component of this business was exceptionally profitable in both years due to very favorable loss experience. Results for the liability component were profitable in the first nine months of both years but more so in 2006.

          Our casualty business produced similarly profitable results in the first nine months and third quarter of 2006 and 2005. The automobile component of this business was highly profitable in both years, but more so in 2006. The primary liability component was less profitable in the first nine months of 2006 compared with the same period in 2005. Results in the third quarter of 2006 were unprofitable due to several large losses related to prior accident years. The excess liability component improved in 2006, but remained unprofitable. Results in both years were adversely affected by unfavorable loss development related to older accident years.

Page 25

          Workers’ compensation results were highly profitable in the first nine months and third quarter of 2006 and 2005, but more so in 2006. Results in both years benefited from our disciplined risk selection during the past several years.

          Property and marine results were highly profitable in the first nine months and third quarter of 2006 compared with unprofitable results in the first nine months of 2005 and highly unprofitable results in the third quarter of 2005. Results in the 2005 periods were adversely affected by catastrophes, particularly Hurricane Katrina. Excluding the effect of catastrophes, results in 2005 were comparable to those in 2006. Results in both years benefited from few large non-catastrophe losses.

     Specialty Insurance

          Net premiums written from specialty insurance, which represented 24% of our premiums written in the first nine months of 2006, decreased by 2% in the first nine months of 2006 and 3% in the third quarter compared with the same periods a year ago. Net premiums written for the classes of business within the specialty insurance segment were as follows:

	Nine Months Ended						Quarters Ended
	Sept. 30				% Incr.		Sept. 30				% Incr
	2006		2005		(Decr.)		2006		2005		(Decr.)
	(in millions)						(in millions)
Professional liability	$	1,942	$	2,035	(5	)%	$	671	$	698	(4	)%
Surety		225		178	26			77		73	5
Total specialty	$	2,167	$	2,213	(2	)	$	748	$	771	(3	)

          Effective July 1, 2005, we sold the renewal rights on our hospital professional liability and managed care errors and omissions business. Excluding this business, our professional liability net premiums written were flat in the first nine months of 2006 and decreased by 1% in the third quarter compared with the same periods in 2005. Competitive pressure on rates and our commitment to maintain underwriting discipline continued to constrain growth in the professional liability classes. Rates for most professional liability classes were stable in the first nine months of 2006. However, rates in the for-profit directors and officers liability component were modestly lower. Excluding the business that was sold, retention levels in the first nine months of 2006 were comparable to 2005 levels. New business volume in the first nine months of 2006 was modestly lower than 2005 levels, reflecting continued competition. We continued to get acceptable rates and appropriate terms and conditions on both new business and renewals. In line with our strategy in recent years, we continued to focus on small and middle market publicly traded and privately held companies.

          The significant growth in net premiums written for our surety business in the first nine months of 2006 was due in large part to the non-renewal during 2005 of a high excess reinsurance treaty. Growth in the third quarter was due primarily to an increase in business from existing customers.

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          Our specialty insurance business produced highly profitable underwriting results in the first nine months and third quarter of 2006. Such results were more profitable compared with the same periods of 2005. The combined loss and expense ratios for the classes of business within the specialty insurance segment were as follows:

	Periods Ended Sept. 30
	Nine Months						Third Quarter
	2006			2005			2006			2005
Professional liability		92.8	%		100.7	%		91.0	%		99.1	%
Surety		45.1			73.0			39.5			30.1
Total specialty		88.7	%		98.9	%		86.4	%		93.8	%

          Our professional liability business improved substantially in the first nine months and third quarter of 2006, producing profitable results compared with near breakeven results in the similar periods of 2005. Results in both years benefited from the cumulative effect of price increases, lower policy limits and better terms and conditions in recent years. Results in the 2006 periods also benefited from favorable loss development related to prior accident years. Conversely, results in the 2005 periods were adversely affected by unfavorable loss development related to accident years prior to 2003. The adverse development was predominantly from claims that arose due to corporate failures and allegations of management misconduct and accounting irregularities. The fidelity component of our professional liability business was highly profitable in the first nine months and third quarter of both years.

          Surety results were highly profitable in the first nine months and third quarter of both 2006 and 2005. Our surety business tends to be characterized by infrequent but potentially high severity losses. Results in the first nine months of 2005 were adversely affected by one $60 million loss in the first quarter.

     Reinsurance Assumed

          Net premiums from our reinsurance assumed business, which represented 4% of premiums written in the first nine months of 2006, decreased by 54% in the first nine months of 2006 and 66% in the third quarter compared with the similar periods in 2005. Excluding the net reinstatement premium revenue of $51 million in the third quarter of 2005 related to Hurricane Katrina, such premiums declined 51% and 57%, respectively. This significant decrease in premiums was expected in light of the sale in December 2005 of our continuing reinsurance assumed business, including renewal rights, to Harbor Point Limited. Harbor Point has the right for a transition period of up to two years to underwrite specific reinsurance business on our behalf. We retain a portion of such business and cede the balance to Harbor Point in return for a fronting commission.

          The combined loss and expense ratio for our reinsurance assumed business was 98.5% in the first nine months of 2006 and 94.3% in the third quarter compared with 94.8% and 103.3%, respectively, in the prior year. Results in the third quarter of 2005 were adversely affected by catastrophes, particularly Hurricane Katrina.

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     Regulatory Developments

          To promote and distribute our insurance products, we rely on independent brokers and agents. Accordingly, our business is dependent on the willingness of these brokers and agents to recommend our products to their customers. We have agreements in place with certain insurance agents and brokers under which, in addition to the standard commissions that we pay, we have agreed to pay commissions that are contingent on the volume and/or the profitability of business placed with us.

          We are involved in the ongoing investigations of certain business practices in the property and casualty insurance industry 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, among other things, (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, we have received subpoenas and requests for information from various regulators. We are cooperating fully with these investigations. Although no regulatory action has been initiated against us, it is possible that one or more regulatory authorities will bring an action against us with respect to some or all of the issues that are the focus of these ongoing investigations. In May 2006, we were informed by the Attorney General of the State of Ohio that he intended to file an action against several industry participants, including us, with respect to certain of these issues. No such action has been filed to date. Chubb and certain of its subsidiaries have been named in legal proceedings brought by private plaintiffs arising out of these investigations. These legal proceedings are further described in Note (8) of the Notes to Consolidated Financial Statements.

          As a result of the investigations referred to above, a few major insurance companies have entered into settlement agreements with some of the regulators with respect to some of the issues under investigation. Pursuant to these settlements, the companies involved agreed to pay substantial amounts in settlement. These companies are also prohibited from paying contingent commissions relating to the placement of any excess casualty insurance policy through 2008. In addition, these companies have agreed not to pay contingent commissions on any line of business, product or segment if any of the settling Attorneys General determine that more than 65% of the annual U.S. premiums for insurance in that line, product or segment were written by insurers who either (1) do not pay contingent commissions in that line, product or segment or (2) have signed an agreement with an Attorney General containing this requirement. These companies are also required to support legislation and regulation to abolish contingent commissions and increase disclosure of compensation paid to agents and brokers. At least one of these companies has also agreed to require agents and brokers to make certain disclosures to insureds regarding compensation received in connection with the placement or renewal of insurance. Certain brokers and agents also have entered into settlement agreements with various regulators pursuant to which they have agreed not to accept contingent commissions for some or all lines of business. Other industry participants may enter into similar or different settlements in the future.

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          In addition, a number of states have announced that they are looking at compensation arrangements and considering regulatory action or reform in this area. The rules that would be imposed if these actions or reforms were adopted range in nature from disclosure requirements to prohibition of certain forms of compensation to imposition of new duties on agents, brokers or insurance companies in dealing with customers. These or other developments may require changes to market practices relative to contingent commissions. It is possible that changes to the manner in which we interact with and compensate brokers and agents and the extent to which insurance industry participants respond to or implement the business changes outlined above could have a material adverse impact on our ability to renew business or write new business, which could have a material adverse effect on our results of operations or financial condition.

          We cannot predict at this time the ultimate outcome of the investigations and legal proceedings referred to above, including any potential amounts that we may be required to pay in connection with them. However, it is possible that such payments could have a material adverse effect on our results of operations in particular quarterly or annual periods.

     Loss Reserves

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

          Our loss reserves include the accumulation of individual case estimates for claims that have been reported and estimates of claims that have been incurred but not reported as well as estimates of the expenses associated with processing and settling all reported and unreported claims. 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 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 loss reserves include significant amounts related to asbestos and toxic waste claims, Hurricane Katrina and the September 11, 2001 attack. The components of our loss reserves were as follows:

	September 30,		December 31,
	2006		2005
	(in millions)
Gross loss reserves
Related to asbestos and toxic waste claims	$	1,038	$	1,121
Related to Hurricane Katrina		308		967
Related to September 11 attack		375		413
All other loss reserves		20,821		19,981
		22,542		22,482
Reinsurance recoverable
Related to asbestos and toxic waste claims		48		50
Related to Hurricane Katrina		205		756
Related to September 11 attack		330		354
All other reinsurance recoverable		2,201		2,609
		2,784		3,769
Net loss reserves	$	19,758	$	18,713

          We have settled a large percentage of our claims from Hurricane Katrina. As a result, there have been many adjustments, both favorable and unfavorable, to our loss estimates for individual claims from this event. In the first nine months of 2006, these adjustments produced a $150 million reduction in our gross loss estimate and a related $140 million reduction in reinsurance recoverable.

          The components of our net loss reserves were as follows:

	September 30,		December 31,
	2006		2005
	(in millions)
Reserves related to asbestos and toxic waste claims	$	990	$	1,071
Reserves related to Hurricane Katrina		103		211
Reserves related to September 11 attack		45		59
All other loss reserves
Personal insurance		1,731		1,692
Commercial insurance		8,086		7,475
Specialty insurance		7,413		6,827
Reinsurance assumed		1,390		1,378
Net loss reserves	$	19,758	$	18,713

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          Loss reserves, net of reinsurance recoverable, increased by $1.0 billion during the first nine months of 2006. The loss reserves related to asbestos and toxic waste claims, Hurricane Katrina and the September 11 attack are significant components of our total loss reserves, but they may distort the growth trend in the loss reserves. Excluding such loss reserves, our net loss reserves increased by $1.2 billion during the first nine months of 2006. The most significant increases occurred in the long tail liability classes of business within commercial and specialty insurance.

          Based on all information currently available, we believe that the aggregate loss reserves of our property and casualty subsidiaries at September 30, 2006 were adequate to cover claims for losses that had occurred, including both those known to us and those yet to be reported. In establishing such reserves, we consider facts currently known and the present state of the law and coverage litigation. However, given the judicial decisions and legislative actions that have broadened the scope of coverage and expanded theories of liability in the past and the possibilities of similar interpretations in the future, particularly as they relate to asbestos claims and, to a lesser extent, toxic waste claims, it is possible that management’s estimate of the ultimate liability for losses that had occurred as of September 30, 2006 may increase in future periods. Such increases in estimates could have a material adverse effect on the Corporation’s future operating results. However, management does not expect that any such increases would have a material adverse effect on the Corporation’s consolidated financial condition or liquidity.

     Investment Results

          Property and casualty investment income before taxes increased by 11% in both the first nine months and the third quarter of 2006 compared with the same periods in 2005. Growth was due to an increase in invested assets since the third quarter of 2005. The increase in invested assets was due to substantial cash flow from operations over the period.

          The effective tax rate on investment income was 19.9% in the first nine months of 2006 compared with 19.7% in the same period in 2005. The effective tax rate fluctuates as a result of our holding a different proportion of our investment portfolio in tax-exempt securities during each period.

          On an after-tax basis, property and casualty investment income increased by 11% in the first nine months of 2006 and 10% in the third quarter. 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.

Corporate and Other

          Corporate and other includes investment income earned on corporate invested assets, interest expense and other expenses not allocated to our operating subsidiaries and the results of our real estate and other non-insurance subsidiaries. The results of Chubb Financial Solutions (CFS), which were previously reported separately, are now included in corporate and other. CFS’s business was primarily structured credit derivatives, principally as a counterparty in portfolio credit default swaps. CFS has been in run-off since April 2003.

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          Corporate and other also included income from our investment in a corporate joint venture, Allied World Assurance Company, Ltd. Since we acquired an interest in Allied World in 2001, we have used the equity method of accounting for this investment. In July 2006, Allied World sold previously unissued shares of common stock through an initial public offering. As a result of the public offering, we no longer consider Allied World to be a corporate joint venture. Accordingly, the equity method of accounting is no longer used for this investment. Instead, the investment in Allied World is now classified as an equity security. As such, it is carried at market value as of the balance sheet date with unrealized appreciation or depreciation credited or charged to comprehensive income. In the future, income from our investment in Allied World will only include any dividends we receive and gains or losses from any sale of our investment.

          Corporate and other produced a loss before taxes of $67 million in the first nine months of 2006 compared with a loss of $156 million in the first nine months of 2005. The higher loss in the 2005 period was due to three factors. First, we recognized a $43 million real estate impairment loss in the first quarter of 2005, which is discussed below. Second, in the first nine months of 2005, we recognized breakeven results from our investment in Allied World compared with income in the first nine months of 2006; the results of Allied World in the third quarter of 2005 included losses from Hurricane Katrina, our share of which was approximately $45 million. Finally, investment income was higher in the first nine months of 2006 compared with the same period in 2005 due primarily to higher average corporate invested assets.

     Real Estate

          Our real estate operations had a loss before taxes of $10 million in the first nine months of 2006 compared with a loss of $45 million in the first nine months of 2005. These results are included in the corporate and other results.

          During the first quarter of 2005, we committed to a plan to sell a parcel of land in New Jersey that we had previously intended to hold and develop. The decision to sell the property was based on our assessment of the current real estate market and our concern about zoning issues. As a result of our decision to sell this property, we reassessed the recoverability of its carrying value. Based on our reassessment, we recognized an impairment loss of $43 million to reduce the carrying value of the property to its estimated fair value.

          In addition to the aforementioned parcel of land that we plan to sell, we own approximately $140 million of land that we expect will be developed in the future. Our real estate assets also include approximately $125 million of commercial properties and land parcels under lease.

          The recoverability of the carrying value of our real estate assets, other than the parcel of land that we plan to sell, is assessed based on our ability to fully recover costs through a future revenue stream. The assumptions used reflect future improvement in demand for office space, an increase in rental rates and the ability and intent to obtain financing in order to hold and develop such remaining properties and protect our interests over the long term. Management believes that it has made adequate provisions for impairment of real estate assets. However, if the assets are not sold or developed or if leased properties do not perform as presently contemplated, it is possible that additional impairment losses may be recognized that would have a material adverse effect on the Corporation’s results of operations.

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     Chubb Financial Solutions

          Portfolio credit default swaps are derivatives and are carried in the financial statements at estimated fair value, which represents management’s best estimate of the cost to exit our positions. Changes in fair value are included in income in the period of the change. CFS had breakeven results in the first nine months of 2006 compared with a loss before taxes of $9 million in the first nine months of 2005.

          CFS’s aggregate exposure, or retained risk, from each of its in-force portfolio credit default swaps is referred to as notional amount. Notional amounts are used to express the extent of involvement in swap transactions. These amounts are used to calculate the exchange of contractual cash flows and are not necessarily representative of the potential for gain or loss. The notional amounts are not recorded on the balance sheet.

          The notional amount of CFS’s credit default swaps was $1.0 billion at September 30, 2006. Our realistic loss exposure is a very small portion of the $1.0 billion notional amount as our position is senior to subordinated interests of about $600 million in the aggregate. In addition, using our internal ratings models, we estimate that the credit ratings of the individual portfolio credit default swaps at September 30, 2006 were AAA.

          In addition to portfolio credit default swaps, CFS entered into a derivative contract linked to an equity market index that terminates in 2012 and a few other insignificant transactions.

          The notional amount and fair value of our future obligations under derivative contracts by type of risk were as follows:

	Notional Amount				Fair Value
	Sept. 30,		Dec. 31,		Sept. 30,		Dec. 31,
	2006		2005		2006		2005
	(in billions)				(in millions)
Credit default swaps
Corporate securities	$	.1	$	.2	$	1	$	1
Asset-backed securities.		.9		.8		1		1
		1.0		1.0		2		2
Other		.3		.3		7		7
	$	1.3	$	1.3	$	9	$	9

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Realized Investment Gains and Losses

          Net investment gains realized were as follows:

	Periods Ended September 30
	Third Quarter					Nine Months
	2006			2005		2006			2005
				(in millions)
Net realized gains (losses)
Equity securities	$	43		$	77	$	205		$	181
Fixed maturities		(5	)		9		(9	)		5
Personal Lines Insurance Brokerage		—			16		—			16
		38			102		196			202
Other than temporary impairment
Equity securities		—			1		7			1
Fixed maturities		—			2		3			4
		—			3		10			5
Realized investment gains before tax	$	38		$	99	$	186		$	197
Realized investment gains after tax	$	25		$	63	$	121		$	126

          Of the net realized gains on equity securities, $176 million and $118 million in the first nine months of 2006 and 2005, respectively, related to our share of gains recognized by limited partnerships in which we have an interest.

          In September 2005, we sold Personal Lines Insurance Brokerage, Inc. Under the terms of the sale, we recognized a gain of $16 million.

          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. In evaluating whether a decline in value of any investment is temporary or other than temporary, we consider various quantitative criteria and qualitative factors including 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, our intent and ability to hold the investment for a period of time sufficient to allow us to recover our cost, general market conditions and industry or sector specific factors. If a decline in the fair value of an individual security is deemed to be other than temporary, the difference between cost and estimated fair value is charged to income as a realized investment loss. The fair value of the investment becomes its new cost basis.

Income Taxes

          As a result of progress toward the settlement of certain tax matters, we recognized a $10 million tax benefit in the third quarter of 2006.

          In connection with the sale of a subsidiary a number of years ago, we agreed to indemnify the buyer for certain pre-closing tax liabilities. During the first quarter of 2005, we settled this obligation with the purchaser. Accordingly, we reduced our income tax liability, which resulted in the recognition of a benefit of $22 million.

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Capital Resources and Liquidity

          Capital resources and liquidity represent the overall financial strength of the Corporation and its ability to generate cash flows from its operating subsidiaries, borrow funds at competitive rates and raise new capital to meet operating and growth needs.

     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 September 30, 2006, the Corporation had shareholders’ equity of $13.6 billion and total debt of $2.5 billion.

          The Board of Directors approved a two-for-one stock split in the form of a stock dividend payable to shareholders of record on March 31, 2006. Share and per share amounts have been adjusted to reflect the stock split.

          In June 2003, Chubb issued $460 million of unsecured 2.25% senior notes due August 16, 2008 and 18.4 million purchase contracts to purchase its common stock. The notes and purchase contracts were issued together in the form of 7% equity units, each of which initially represented $25 principal amount of notes and one purchase contract. In May 2006, the notes were successfully remarketed as required by their terms. The interest rate on the notes was reset to 5.472% from 2.25%, effective May 16, 2006. The remarketed notes mature on August 16, 2008. Each purchase contract obligated the holder to purchase, on or before August 16, 2006, for a settlement price of $25, a variable number of shares of Chubb’s common stock. The number of shares purchased was determined based on a formula that considered the market price of Chubb’s common stock immediately prior to the time of settlement in relation to the $29.75 per share sale price of the common stock at the time the equity units were offered. Upon settlement of the purchase contracts, Chubb issued 12,883,527 shares of common stock and received proceeds of $460 million.

          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.

          In June 2003, a shelf registration statement that Chubb filed in March 2003 was declared effective by the Securities and Exchange Commission. Under the registration statement, up to $2.5 billion of various types of securities may be issued. At September 30, 2006, approximately $650 million remained under the shelf registration statement.

          In December 2005, the Board of Directors authorized the repurchase of up to 28,000,000 shares of Chubb’s common stock. The authorization has no expiration date.

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          In January 2006, we repurchased 5,100,000 shares of our common stock under an accelerated stock buyback program at an initial price of $48.91 per share, for a total cost of $249 million. The program was completed in March, at which time, under the terms of the agreement, we received a price adjustment based on the volume weighted average price of Chubb’s common stock during the program period. The price adjustment could be settled, at our election, in Chubb’s common stock or cash. We elected to have the counterparty deliver 125,562 additional shares in settlement of the price adjustment. In the second and third quarters of 2006, we repurchased an aggregate 18,595,170 shares in the open market at a cost of $926 million. As of September 30, 2006, 1,391,468 shares remained under the share repurchase authorization. We expect to repurchase all of the shares remaining under this authorization by the end of 2006.

     Ratings

          Chubb and its insurance 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 positive or negative ratings actions by one or more of the rating agencies may occur in the future. If our ratings were downgraded, we may incur higher borrowing costs and may have more limited means to access capital. In addition, 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 our ability to generate sufficient cash flows to meet the short and long term cash requirements of our business operations.

          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 results continued to generate substantial new cash. New cash from operations available for investment by our property and casualty subsidiaries was approximately $1.8 billion in the first nine months of 2006 compared with $2.8 billion in the same period in 2005. New cash available was lower in 2006 due primarily to loss payments during 2006 for which the related reinsurance recoverable has not yet been received as well as lower premium receipts and higher income tax payments compared with the 2005 period.

          Our property and casualty subsidiaries maintain investments in highly liquid, short-term and other marketable securities to provide for immediate cash needs.

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          Chubb’s liquidity requirements in the past have been met by dividends from its property and casualty subsidiaries and the issuance of commercial paper and debt and equity securities. We expect that Chubb’s liquidity requirements in the future will be met by these sources of funds or borrowings from our credit facility.

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 provide maximum support to the insurance underwriting operations. Investment strategies are developed based on many factors including underwriting results and our resulting tax position, regulatory requirements, fluctuations in interest rates and consideration of other market risks. Investment decisions are centrally managed by investment professionals based on guidelines established by management and approved by the boards of directors of Chubb and the respective operating companies.

          Our investment portfolio is primarily comprised of high quality bonds, principally tax exempt, U.S. Treasury and government agency, mortgage-backed securities and corporate issues as well as foreign bonds that support our international operations. In addition, the portfolio includes equity securities, primarily publicly traded common stocks and private equity limited partnerships, held primarily with the objective of capital appreciation.

          In the first nine months of 2006, we invested new cash primarily in tax exempt bonds. To a lesser extent, we also invested in taxable bonds, primarily foreign corporate and government bonds, and equity securities. Our objective is to achieve the appropriate mix of taxable and tax exempt securities in our portfolio to balance both investment and tax strategies.

          The unrealized appreciation before tax of investments carried at market value, which includes fixed maturities classified as available-for-sale and equity securities, was $576 million at September 30, 2006 compared with $478 million at December 31, 2005. Such unrealized appreciation is reflected in a separate component of other comprehensive income, net of applicable deferred income tax.

          The unrealized market appreciation before tax of those fixed maturities carried at amortized cost was $8 million at September 30, 2006 and $11 million at December 31, 2005. Such unrealized appreciation was not reflected in the consolidated financial statements.

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

Change in Accounting Principles

          In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R). The Statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in the funded status in comprehensive income in the year in which the changes occur.

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          The provisions of SFAS No. 158 are effective for the Corporation as of December 31, 2006. Retrospective application is not permitted. Any required adjustment, net of tax, shall be reported as an adjustment of the ending balance of accumulated other comprehensive income. It is expected that the adoption of SFAS No. 158 will reduce shareholders’ equity at December 31, 2006. The amount of such reduction, which is not expected to have a material adverse effect on the Corporation’s financial position, will be determined based on the funded status of the Corporation’s defined benefit postretirement plans as of December 31, 2006. Adoption of the Statement will not have an effect on the Corporation’s results of operations in 2006 or in future years.

Item 4 — Controls and Procedures

          As of September 30, 2006, an evaluation of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures 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, the chief executive officer and chief financial officer concluded that the Corporation’s disclosure controls and procedures were effective as of the evaluation date.

          During the quarter ended September 30, 2006, 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 1 — Legal Proceedings

          A discussion of material developments in legal proceedings is included in the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.

Item 1A — Risk Factors

          Our business is subject to a number of risks, including those identified in Item 1A of our 2005 Annual Report on Form 10-K and of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006 filed with the U.S. Securities and Exchange Commission, 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 period to period. The risks described in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q 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.

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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 September 30, 2006.

					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)
July 2006		1,886,502	$	50.06		1,886,502		12,327,336
August 2006		7,134,768		48.54		7,134,768		5,192,568
September 2006		3,801,100		51.23		3,801,100		1,391,468
Total		12,822,370		49.56		12,822,370

(a)	The stated amounts exclude 7,914 shares, 11,779 shares and 16,071 shares delivered to Chubb during the months of July 2006, August 2006 and September 2006, respectively, by employees of the Corporation to cover option exercise prices and withholding taxes in connection with the Corporation’s stock-based employee compensation plans.
(b)	On December 8, 2005, the Board of Directors authorized the repurchase of up to 28,000,000 shares of common stock. 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 Michael O’Reilly filed herewith.
	—	Section 1350 Certifications.
32.1		Certification by John D. Finnegan filed herewith.
32.2		Certification by Michael O’Reilly filed herewith.

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/ Henry B. Schram
	Henry B. Schram
	Senior Vice-President and Chief Accounting Officer

Date: November 8, 2006