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

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

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		07059
(Address of principal executive offices)		(Zip Code)

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ     NO o

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

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

YES o      NO þ

     The number of shares of common stock outstanding as of June 30, 2008 was 360,557,474.

 

 

THE CHUBB CORPORATION
INDEX

		Page Number
Part I. Financial Information:
Item 1 — Financial Statements:
Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2008 and 2007			1
Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007			2
Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2008 and 2007			3
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007			4
Notes to Consolidated Financial Statements			5
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 4 — Controls and Procedures			32
Part II. Other Information:
Item 1 — Legal Proceedings			33
Item 1A — Risk Factors			33
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 4 — Submission of Matters to a Vote of Security Holders			34
Item 6 — Exhibits			34
Signatures			34
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 JUNE 30

		Second Quarter								Six Months
		2008				2007				2008				2007
		(in millions)
Revenues
Premiums Earned		$	2,986			$	2,964			$	5,962			$	5,949
Investment Income			438				431				877				845
Other Revenues			6				32				12				35
Realized Investment Gains (Losses), Net			(76	)			94				(8	)			211
Total Revenues			3,354				3,521				6,843				7,040
Losses and Expenses
Losses and Loss Expenses			1,749				1,572				3,333				3,152
Amortization of Deferred Policy Acquisition Costs			781				746				1,555				1,510
Other Insurance Operating Costs and Expenses			110				109				226				222
Investment Expenses			8				7				17				19
Other Expenses			5				33				17				37
Corporate Expenses			72				67				137				112
Total Losses and Expenses			2,725				2,534				5,285				5,052
Income Before Federal and Foreign Income Tax			629				987				1,558				1,988
Federal and Foreign Income Tax			160				278				425				569
Net Income		$	469			$	709			$	1,133			$	1,419
Net Income Per Share
Basic		$	1.29			$	1.78			$	3.09			$	3.52
Diluted			1.27				1.75				3.04				3.46
Dividends Declared Per Share			.33				.29				.66				.58

See Notes to Consolidated Financial Statements.

Page 2

THE CHUBB CORPORATION
CONSOLIDATED BALANCE SHEETS

		June 30,				Dec. 31,
		2008				2007
		(in millions)
Assets
Invested Assets
Short Term Investments		$	2,677			$	1,839
Fixed Maturities
Tax Exempt (cost $18,183 and $18,208)			18,258				18,559
Taxable (cost $15,803 and $15,266)			15,673				15,312
Equity Securities (cost $1,845 and $1,907)			1,996				2,320
Other Invested Assets			2,154				2,051
TOTAL INVESTED ASSETS			40,758				40,081
Cash			49				49
Securities Lending Collateral			1,390				1,247
Accrued Investment Income			446				440
Premiums Receivable			2,349				2,227
Reinsurance Recoverable on Unpaid Losses and Loss Expenses			2,355				2,307
Prepaid Reinsurance Premiums			424				392
Deferred Policy Acquisition Costs			1,596				1,556
Deferred Income Tax			606				442
Goodwill			467				467
Other Assets			1,388				1,366
TOTAL ASSETS		$	51,828			$	50,574
Liabilities
Unpaid Losses and Loss Expenses		$	23,192			$	22,623
Unearned Premiums			6,681				6,599
Securities Lending Payable			1,390				1,247
Long Term Debt			4,435				3,460
Dividend Payable to Shareholders			121				110
Accrued Expenses and Other Liabilities			1,876				2,090
TOTAL LIABILITIES			37,695				36,129
Contingent Liabilities (Note 6)
Shareholders’ Equity
Common Stock — $1 Par Value; 371,980,710 and 374,649,923 Shares			372				375
Paid-In Surplus			221				346
Retained Earnings			14,074				13,280
Accumulated Other Comprehensive Income			46				444
Treasury Stock, at Cost — 11,423,236 Shares in 2008			(580	)			—
TOTAL SHAREHOLDERS’ EQUITY			14,133				14,445
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	51,828			$	50,574

See Notes to Consolidated Financial Statements.

Page 3

THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PERIODS ENDED JUNE 30

		Second Quarter								Six Months
		2008				2007				2008				2007
		(in millions)
Net Income		$	469			$	709			$	1,133			$	1,419
Other Comprehensive Income (Loss), Net of Tax
Change in Unrealized Appreciation of Investments			(316	)			(211	)			(464	)			(223	)
Foreign Currency Translation Gains (Losses)			(5	)			46				56				34
Amortization of Net Loss and Prior Service Cost Included in Net Postretirement Benefit Costs			5				4				10				9
			(316	)			(161	)			(398	)			(180	)
Comprehensive Income		$	153			$	548			$	735			$	1,239

See Notes to Consolidated Financial Statements.

Page 4

THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30

		2008				2007
		(in millions)
Cash Flows from Operating Activities
Net Income		$	1,133			$	1,419
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Increase in Unpaid Losses and Loss Expenses, Net			521				373
Increase (Decrease) in Unearned Premiums, Net			21				(24	)
Increase in Premiums Receivable			(122	)			(28	)
Deferred Income Tax			55				113
Amortization of Premiums and Discounts on Fixed Maturities			106				116
Depreciation			33				35
Realized Investment Losses (Gains), Net			8				(211	)
Other, Net			(510	)			(394	)
Net Cash Provided by Operating Activities			1,245				1,399
Cash Flows from Investing Activities
Proceeds from Fixed Maturities
Sales			1,254				1,966
Maturities, Calls and Redemptions			1,184				793
Proceeds from Sales of Equity Securities			137				138
Purchases of Fixed Maturities			(2,952	)			(4,218	)
Purchases of Equity Securities			(113	)			(273	)
Investments in Other Invested Assets, Net			(26	)			1
Increase in Short Term Investments, Net			(824	)			(378	)
Increase in Net Payable from Security Transactions Not Settled			141				179
Purchases of Property and Equipment, Net			(25	)			(20	)
Other, Net			—				10
Net Cash Used in Investing Activities			(1,224	)			(1,802	)
Cash Flows from Financing Activities
Proceeds from Issuance of Long Term Debt			1,200				1,800
Repayment of Long Term Debt			(225	)			(125	)
Proceeds from Issuance of Common Stock Under Stock-Based Employee Compensation Plans			59				85
Repurchase of Shares			(811	)			(1,111	)
Dividends Paid to Shareholders			(232	)			(223	)
Other, Net			(12	)			(18	)
Net Cash Provided by (Used in) Financing Activities			(21	)			408
Net Increase in Cash			—				5
Cash at Beginning of Year			49				38
Cash at End of Period		$	49			$	43

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 included in Chubb’s Annual Report on Form 10-K for the year ended December 31, 2007.

2)

Adoption of New Accounting Pronouncements

     Effective January 1, 2008, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies whenever other accounting pronouncements require or permit assets or liabilities to be measured at fair value. The Statement does not expand the use of fair value to any new circumstances. The adoption of SFAS No. 157 did not have a significant effect on the Corporation’s financial position or results of operations.

3)

Investments

     Short term investments, which have an original maturity of one year or less, are carried at amortized cost, which approximates fair value. Fixed maturities and equity securities, all of which are classified as available-for-sale, are carried at fair value as of the balance sheet date. Fair value is defined as the price that would be received to sell the security in an orderly transaction between market participants.

     Fair values of fixed maturities and equity securities are determined using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs, such as quoted prices for similar securities, that are observable, either directly or indirectly. Where observable inputs are not available, fair value estimates are derived from unobservable inputs. Unobservable inputs reflect the Corporation’s assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.

Page 6

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

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

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

     Level 3 — Inputs that are unobservable.

     The fair value of fixed maturities and equity securities at June 30, 2008 categorized based upon the lowest level of input that was significant to the fair value measurement was as follows:

		Level 1				Level 2				Level 3				Total
		(in millions)
Fixed maturities		$	—			$	33,442			$	489			$	33,931
Equity securities			1,984				—				12				1,996

     The change in unrealized appreciation of fixed maturities and equity securities was as follows:

		Periods Ended June 30
		Second Quarter								Six Months
		2008				2007				2008				2007
		(in millions)
Change in unrealized appreciation or depreciation of fixed maturities		$	(498	)		$	(461	)		$	(452	)		$	(497	)
Change in unrealized appreciation of equity securities			12				136				(262	)			153
			(486	)			(325	)			(714	)			(344	)
Deferred income tax credit			(170	)			(114	)			(250	)			(121	)
Change in unrealized appreciation of investments, net		$	(316	)		$	(211	)		$	(464	)		$	(223	)

4)

Debt

     Chubb repaid $225 million of outstanding 3.95% notes that were due April 1, 2008.

     In May 2008, Chubb issued $600 million of unsecured 5.75% senior notes due May 15, 2018 and $600 million of unsecured 6.5% senior notes due May 15, 2038.

Page 7

5)

Segments Information

     The principal business of the Corporation is the sale of property and casualty insurance. The profitability of the property and casualty insurance business depends on the results of both underwriting and investment operations, 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.

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

Page 8

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

		Periods Ended June 30
		Second Quarter								Six Months
		2008				2007				2008				2007
		(in millions)
Revenues
Property and casualty insurance
Premiums earned
Personal insurance		$	947			$	903			$	1,887			$	1,797
Commercial insurance			1,282				1,281				2,548				2,558
Specialty insurance			738				733				1,488				1,474
Total insurance			2,967				2,917				5,923				5,829
Reinsurance assumed			19				47				39				120
			2,986				2,964				5,962				5,949
Investment income			418				396				836				788
Other revenues			1				4				4				6
Total property and casualty insurance			3,405				3,364				6,802				6,743
Corporate and other			25				63				49				86
Realized investment gains (losses), net			(76	)			94				(8	)			211
Total revenues		$	3,354			$	3,521			$	6,843			$	7,040
Income before income tax
Property and casualty insurance
Underwriting
Personal insurance		$	150			$	111			$	314			$	313
Commercial insurance			74				178				212				322
Specialty insurance			86				176				263				317
Total insurance			310				465				789				952
Reinsurance assumed			14				19				24				62
			324				484				813				1,014
Increase in deferred policy acquisition costs			23				56				36				53
Underwriting income			347				540				849				1,067
Investment income			410				390				820				771
Other income			—				1				3				4
Total property and casualty insurance			757				931				1,672				1,842
Corporate and other loss			(52	)			(38	)			(106	)			(65	)
Realized investment gains (losses), net			(76	)			94				(8	)			211
Total income before income tax		$	629			$	987			$	1,558			$	1,988

Page 9

6) Contingent Liabilities

     Chubb and certain of its subsidiaries have been involved in the 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, Chubb and certain of its subsidiaries have received subpoenas and other requests for information from various regulators. The Corporation has been cooperating fully with these investigations. In December 2006, the Corporation settled with the Attorneys General of New York, Connecticut and Illinois all issues arising out of their investigations. In August 2007, Chubb and certain of its subsidiaries were named as defendants in an action filed by the Ohio Attorney General against several insurers and one broker in the Court of Common Pleas in Cuyahoga County, Ohio. This action alleges violations of Ohio’s antitrust laws. On July 2, 2008, the court denied the Corporation’s and the other defendants’ motions to dismiss the Attorney General’s complaint. The Corporation’s and the other defendants’ answers to the complaint are due on August 16, 2008 and discovery will begin. Although no other Attorney General or regulator has initiated an action against the Corporation, it is possible that such an action may be brought against the Corporation with respect to some or all of the issues that are the focus of these investigations.

     Individual actions and purported class actions arising out of the investigations into the payment of contingent commissions to brokers and agents have been filed in a number of federal and state courts. In August 2005, Chubb and certain of its subsidiaries were named in a putative class action entitled In re Insurance Brokerage Antitrust Litigation in the U.S. District Court for the District of New Jersey. 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. Chubb and certain of its subsidiaries have also been named as defendants in two putative class actions relating to allegations of unlawful use of contingent commission arrangements that were originally filed in state court. The first was filed in February 2005 in Seminole County, Florida. The second was filed in May 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 the In re Insurance Brokerage Antitrust Litigation. Since being transferred to the District of New Jersey, the plaintiff in the former action has been inactive, and that action currently is stayed. The latter action has been voluntarily dismissed. In September 2007, the U.S. District Court for the District of New Jersey dismissed the second amended complaint filed by the plaintiffs in the In re Insurance Brokerage Antitrust Litigation in its entirety. In so doing, the court dismissed the plaintiffs’ Sherman Act and RICO claims with prejudice for failure to state a claim, and it dismissed the plaintiffs’ state law claims without prejudice because it declined to exercise supplemental jurisdiction over them. The plaintiffs have appealed the dismissal of their second amended complaint to the U.S. Court of Appeals for the Third Circuit, and that appeal is currently pending.

Page 10

     In December 2005, Chubb and certain of its subsidiaries were named in a putative class action similar to the In re Insurance Brokerage Antitrust Litigation. The action is pending in the U.S. District Court for the District of New Jersey and has been assigned to the judge who is presiding over the In re Insurance Brokerage Antitrust Litigation. The complaint has never been served in this matter. Separately, in April 2006, Chubb and one of its subsidiaries were named in an action similar to the In re Insurance Brokerage Antitrust Litigation. This action was filed in the U.S. District Court for the Northern District of Georgia and subsequently was transferred by the Judicial Panel on Multidistrict Litigation to the U.S. District Court for the District of New Jersey for consolidation with the In re Insurance Brokerage Antitrust Litigation. This action currently is stayed. In May 2007, Chubb and one of its subsidiaries were named as defendants in another action similar to the In re Insurance Brokerage Antitrust Litigation. This action was filed in the U.S. District Court for the District of New Jersey and consolidated with the In re Insurance Brokerage Antitrust Litigation. This action currently is stayed.

     In October 2007, certain of Chubb’s subsidiaries were named as defendants in an action similar to the In re Insurance Brokerage Antitrust Litigation. This action was filed in the U.S. District Court for the Northern District of Georgia. This action has been identified to the Judicial Panel on Multidistrict Litigation as a potential “tag-along action” to the In re Insurance Brokerage Antitrust Litigation. The Corporation currently anticipates that this action will be transferred by the Judicial Panel on Multidistrict Litigation to the U.S. District Court for the District of New Jersey and consolidated with the In re Insurance Brokerage Antitrust Litigation.

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

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

Page 11

7) Earnings Per Share

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

		Periods Ended June 30
		Second Quarter								Six Months
		2008				2007				2008				2007
		(in millions,
		except for per share amounts)
Basic earnings per share:
Net income		$	469			$	709			$	1,133			$	1,419
Weighted average number of common shares outstanding			364.2				398.8				367.1				403.0
Basic earnings per share		$	1.29			$	1.78			$	3.09			$	3.52
Diluted earnings per share:
Net income		$	469			$	709			$	1,133			$	1,419
Weighted average number of common shares outstanding			364.2				398.8				367.1				403.0
Additional shares from assumed exercise of stock-based compensation awards			5.2				6.9				5.5				7.0
Weighted average number of common shares and potential common shares assumed outstanding for computing diluted earnings per share			369.4				405.7				372.6				410.0
Diluted earnings per share		$	1.27			$	1.75			$	3.04			$	3.46

Page 12

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

     Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition of the Corporation as of June 30, 2008 compared with December 31, 2007 and the results of operations for the six months and three months ended June 30, 2008 and 2007. This discussion should be read in conjunction with the condensed consolidated financial statements and related notes contained in this report and the consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007.

Cautionary Statement Regarding Forward-Looking Information

     Certain statements in this document are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements are made pursuant to the safe harbor provisions of the PSLRA and include statements regarding our loss reserve and reinsurance recoverable estimates; the impact of changes to our reinsurance program; premium volume, rates and terms and conditions of the policies we write; competition; the repurchase of common stock under our share repurchase program; the use of proceeds from recent debt issuances; and our capital adequacy and funding of liquidity needs. 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 and investment income and with respect to other income;

Page 13

•

the adequacy of our loss reserves, including:

	–		our expectations relating to reinsurance recoverables;
	–		the willingness of parties, including us, to settle disputes;
	–		developments in judicial decisions or regulatory or legislative actions relating to coverage and liability, in particular, for asbestos, toxic waste and other mass tort claims;
	–		development of new theories of liability;
	–		our estimates relating to ultimate asbestos liabilities;
	–		the impact from the bankruptcy protection sought by various asbestos producers and other related businesses; and
	–		the effects of proposed asbestos liability legislation, including the impact of claims patterns arising from the possibility of legislation and those that may arise if legislation is not passed;

•		the availability and cost of reinsurance coverage;
•		the occurrence of significant weather-related or other natural or human-made disasters, particularly in locations where we have concentrations of risk;
•		the impact of economic factors on companies on whose behalf we have issued surety bonds, and in particular, on those companies that file for bankruptcy or otherwise experience deterioration in creditworthiness;
•		the effects of disclosures by, and investigations of, companies relating to possible accounting irregularities, practices in the financial services industry, investment losses or other corporate governance issues, including:

	–		claims and litigation arising out of stock option “backdating,” “spring loading” and other equity grant practices by public companies;
	–		the effects on the capital markets and the markets for directors and officers and errors and omissions insurance;
	–		claims and litigation arising out of actual or alleged accounting or other corporate malfeasance by other companies;
	–		claims and litigation arising out of practices in the financial services industry;
	–		claims and litigation relating to uncertainty in the credit and broader financial markets; and
	–		legislative or regulatory proposals or changes;

•		the effects of changes in market practices in the U.S. property and casualty insurance industry, in particular contingent commissions and loss mitigation and finite reinsurance arrangements, arising from any legal or regulatory proceedings, related settlements and industry reform, including changes that have been announced and changes that may occur in the future;
•		the impact of legislative and regulatory developments on our business, including those relating to terrorism and catastrophes;
•		any downgrade in our claims-paying, financial strength or other credit ratings;
•		the ability of our subsidiaries to pay us dividends;

Page 14

•

general economic and market conditions including:

	–		changes in interest rates, market credit spreads and the performance of the financial markets;
	–		currency fluctuations;
	–		the effects of inflation;
	–		changes in domestic and foreign laws, regulations and taxes;
	–		changes in competition and pricing environments;
	–		regional or general changes in asset valuations;
	–		the inability to reinsure certain risks economically; and
	–		changes in the litigation environment; and

•

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

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

Critical Accounting Estimates and Judgments

     The consolidated financial statements include amounts based on informed estimates and judgments of management for transactions that are not yet complete. Such estimates and judgments affect the reported amounts in the financial statements. Those estimates and judgments that were most critical to the preparation of the financial statements involved the determination of loss reserves and the recoverability of related reinsurance recoverables. These estimates and judgments, which are discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2007 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 $1.1 billion in the first six months of 2008 and $469 million in the second quarter compared with $1.4 billion and $709 million, respectively, in the comparable periods of 2007. The lower net income in the 2008 periods was due primarily to two factors. First, underwriting income in our property and casualty insurance business was substantially lower in the 2008 periods compared with the same periods in 2007. Second, we had realized investment losses in the 2008 periods compared with substantial realized investment gains in the 2007 periods.
	•		Underwriting results were highly profitable in the first six months and second quarter of 2008 and 2007, but more so in 2007. Results in the second quarter of 2008 were adversely affected by high catastrophe losses and one large surety loss. The combined loss and expense ratio was 86.2% in the first six months of 2008 and 88.5% in the second quarter compared with 83.1% and 82.7% in the respective 2007 periods.

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	•		During the first six months and second quarter of 2008, we experienced overall favorable development of about $450 million and $235 million, respectively, on loss reserves established as of the previous year end, due primarily to favorable loss trends in certain professional liability and commercial liability classes and lower than expected emergence of losses in the homeowners and commercial property classes. During the first six months and second quarter of 2007, we experienced overall favorable development of about $330 million and $185 million, respectively, primarily in the professional liability classes and the homeowners and commercial property classes as well as in the run-off of the reinsurance assumed business.
	•		In a highly competitive market environment, total net premiums written increased by 1% in the first six months of 2008 and were flat in the second quarter compared with the same periods in 2007. Net premiums written in the United States decreased by 2% in the first six months of 2008 and 3% in the second quarter. Net premiums written outside the United States increased by 13% in the first six months of 2008 and 11% in the second quarter; the growth was largely attributable to the impact of currency fluctuation due to the weakness of the U.S. dollar.
	•		Property and casualty investment income after tax increased 6% in the first six months of 2008 and 4% in the second quarter compared with the same periods in 2007. The growth was due to an increase in invested assets over the past year. For more information on this non-GAAP financial measure, see “Property and Casualty Insurance — Investment Results.”

     A summary of our consolidated net income is as follows:

		Periods Ended June 30
		Second Quarter								Six Months
		2008				2007				2008				2007
		(in millions)
Property and Casualty Insurance		$	757			$	931			$	1,672			$	1,842
Corporate and Other			(52	)			(38	)			(106	)			(65	)
Realized Investment Gains (Losses)			(76	)			94				(8	)			211
Consolidated Income Before Income Tax			629				987				1,558				1,988
Federal and Foreign Income Tax			160				278				425				569
Consolidated Net Income		$	469			$	709			$	1,133			$	1,419

Property and Casualty Insurance

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

		Periods Ended June 30
		Second Quarter								Six Months
		2008				2007				2008				2007
		(in millions)
Underwriting
Net Premiums Written		$	3,047			$	3,058			$	5,983			$	5,925
Decrease (Increase) in Unearned Premiums			(61	)			(94	)			(21	)			24
Premiums Earned			2,986				2,964				5,962				5,949
Losses and Loss Expenses			1,749				1,572				3,333				3,152
Operating Costs and Expenses			904				905				1,798				1,775
Increase in Deferred Policy Acquisition Costs			(23	)			(56	)			(36	)			(53	)
Dividends to Policyholders			9				3				18				8
Underwriting Income			347				540				849				1,067
Investments
Investment Income Before Expenses			418				396				836				788
Investment Expenses			8				6				16				17
Investment Income			410				390				820				771
Other Income			—				1				3				4
Property and Casualty Income Before Tax		$	757			$	931			$	1,672			$	1,842
Property and Casualty Investment Income After Tax		$	327			$	313			$	654			$	618

     Property and casualty income before tax was lower in the first six months and second quarter of 2008 compared with the same periods in 2007. Underwriting income was substantially lower in the 2008 periods compared with the same periods in 2007. The deterioration in 2008 was in the second quarter, due primarily to high catastrophe losses, particularly in the commercial property and marine classes, and one large surety loss. Investment income grew in both 2008 periods compared with the same periods in 2007.

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

Underwriting Results

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

Net Premiums Written

     Net premiums written were $6.0 billion in the first six months of 2008, an increase of 1% compared with the same period of 2007. Net premiums written in the second quarter of 2008 were $3.0 billion, similar to that in the second quarter of 2007.

     Net premiums written by business unit were as follows:

		Six Months Ended												Quarter Ended
		June 30								% Incr.				June 30								% Incr.
		2008				2007				(Decr.)				2008				2007				(Decr.)
		(in millions)												(in millions)
Personal insurance		$	1,892			$	1,815				4	%		$	1,015			$	975				4	%
Commercial insurance			2,641				2,617				1				1,301				1,311				(1	)
Specialty insurance			1,414				1,424				(1	)			711				743				(4	)
Total insurance			5,947				5,856				2				3,027				3,029				—
Reinsurance assumed			36				69				(48	)			20				29				(31	)
Total		$	5,983			$	5,925				1			$	3,047			$	3,058				—

     Net premiums written from our insurance business increased 2% in the first six months of 2008 and were flat in the second quarter compared with the corresponding periods in 2007. Premiums in the United States, which represented 75% of our insurance premiums in the first six months of 2008, decreased by 2% in the first six months and 3% in the second quarter. Premiums outside the U.S. increased by 13% in the first six months and 11% in the second quarter. The growth outside the U.S. was largely attributable to the impact of currency fluctuation due to the weakness of the U.S. dollar; in local currencies, growth outside the U.S. was 4% and 3%, respectively.

     In a highly competitive market environment, we continued our emphasis on underwriting discipline. Rates continued to be under competitive pressure that varied by class of business and geographic area. 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 exposure. However, there continued to be fewer opportunities to write new business at acceptable rates. We expect the market environment to remain competitive during the second half of 2008.

     Net premiums written in the reinsurance assumed business, which is in runoff, were not significant in the first six months or second quarter of 2008 or 2007.

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.

     Reinsurance rates for property risks have declined somewhat in 2008. However, capacity restrictions continued in some segments of the marketplace.

     We renewed our major property reinsurance treaties, which represent the most significant component of our reinsurance program, in April 2008.

     On our commercial property per risk treaty, we increased the reinsurance coverage in the top layer of the treaty. This treaty now provides approximately $560 million of coverage per risk in excess of our $25 million retention.

     The structure of our property catastrophe program for events in the United States was modified, but the overall coverage is similar to the previous program. We purchased $200 million of fully collateralized three-year reinsurance coverage in place of traditional reinsurance. This reinsurance was purchased from East Lane Re II Ltd., which financed the provision of reinsurance through the issuance of $200 million in catastrophe bonds to investors under three separate bond tranches. The current traditional catastrophe reinsurance treaty, in combination with the collateralized coverage, provides coverage of approximately 70% of losses (net of recoveries from other available reinsurance) between $350 million and $1.3 billion, with additional coverage of 60% of losses between $1.3 billion and $2.05 billion in the northeastern part of the United States, where we have our greatest concentration of catastrophe exposure.

     We have additional fully collateralized four-year reinsurance coverage, purchased in 2007, for homeowners-related losses sustained from qualifying hurricane loss events in the northeastern part of the United States. This reinsurance was purchased from East Lane Re Ltd., which financed the provision of reinsurance through the issuance of $250 million in catastrophe bonds to investors under two separate bond tranches. This reinsurance provides coverage in 2008 of approximately 30% of covered losses between $1.35 billion and $2.2 billion.

     We have additional reinsurance from the Florida Hurricane Catastrophe Fund, which is a state-mandated fund designed to reimburse insurers for a portion of their residential catastrophic hurricane losses. Our participation in this program limits our initial retention in Florida for homeowners related losses to approximately $185 million.

     On our property catastrophe treaty for events outside the United States, we increased the reinsurance coverage in the top layer of the treaty by $50 million and modestly increased our participation in the program. The treaty now provides coverage of approximately 85% of losses (net of recoveries from other available reinsurance) between $75 million and $325 million.

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

     The overall cost of our property reinsurance program in the first six months of 2008 was modestly lower than that in the comparable period in 2007. We do not expect the changes we made to our reinsurance program during 2008 to have a material effect on the Corporation’s results of operations, financial condition or liquidity.

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.

     Underwriting results were highly profitable in the first six months and second quarter of 2008 and 2007, but more so in the 2007 periods. The combined loss and expense ratio for our overall property and casualty business was as follows:

		Periods Ended June 30
		Six Months								Second Quarter
		2008				2007				2008				2007
Loss ratio			56.1	%			53.1	%			58.7	%			53.1	%
Expense ratio			30.1				30.0				29.8				29.6
Combined ratio			86.2	%			83.1	%			88.5	%			82.7	%

     The loss ratio in both years reflects favorable loss experience which we believe resulted from our disciplined underwriting in recent years as well as relatively mild loss trends in certain classes of business. However, the loss ratio was higher in the second quarter of 2008 and, as a result, was higher in the first six months of 2008, compared with the respective periods in 2007. The increase in the loss ratio in the second quarter of 2008 was primarily the result of higher catastrophe losses, particularly in the commercial property and marine classes, and one large surety loss.

     Catastrophe losses were $214 million in the first six months of 2008, which represented 3.6 percentage points of the combined ratio, compared with $191 million or 3.2 percentage points in the same period of 2007. Catastrophe losses were $160 million in the second quarter of 2008, which represented 5.4 percentage points of the combined loss and expense ratio, compared with $115 million or 3.9 percentage points in the same period in 2007. The catastrophe losses in the second quarter of 2008 were primarily related to storms in the midwest United States. The catastrophe losses in the second quarter of 2007 were primarily related to storms on the east coast of the United States and in England.

     The expense ratio was similar in the first six months and second quarter of 2008 and 2007, as an increase in commissions was offset by lower operating costs related to the run-off of our reinsurance assumed business. The increase in commissions was due to premium growth outside the United States in countries where commission rates are higher than in the United States as well as modestly higher commission rates in the United States in certain classes of business.

     In lieu of paying contingent commissions, beginning in 2007, we implemented a new guaranteed supplemental compensation program for agents and brokers in the United States with whom we previously had contingent commission agreements. Under this arrangement, agents and brokers are paid a percentage of written premiums on eligible lines of business in a calendar year based upon their prior performance. The change in our commission arrangements created a difference in the timing of expense recognition, which resulted in a one-time benefit to income during the 2007 transition year. The impact of the change in the first six months and second quarter of 2007 was to increase deferred policy acquisition costs by approximately $40 million and $20 million, respectively. The change had no effect on the expense ratio.

Review of Underwriting Results by Business Unit

Personal Insurance

     Net premiums written from personal insurance, which represented 32% of our premiums written in the first six months of 2008, increased by 4% in both the first six months and second quarter of 2008 compared with the same periods in 2007. Net premiums written for the classes of business within the personal insurance segment were as follows:

		Six Months Ended												Quarter Ended
		June 30								% Incr.				June 30								% Incr.
		2008				2007				(Decr.)				2008				2007				(Decr.)
		(in millions)												(in millions)
Automobile		$	303			$	311				(3	)%		$	161			$	164				(2	)%
Homeowners			1,213				1,174				3				674				654				3
Other			376				330				14				180				157				15
Total personal		$	1,892			$	1,815				4			$	1,015			$	975				4

     Personal automobile premiums decreased in the 2008 periods due to a highly competitive U.S. marketplace. Premium growth in our homeowners business was due to increased insurance-to-value. The in-force policy count for this class decreased slightly during the first six months of 2008. Our other personal business includes insurance for excess liability, yacht and accident coverages. The substantial growth in this business was due to a significant increase in accident premiums.

     Our personal insurance business produced highly profitable underwriting results in the first six months and second quarter of both 2008 and 2007. The combined loss and expense ratios for the classes of business within the personal insurance segment were as follows:

		Periods Ended June 30
		Six Months								Second Quarter
		2008				2007				2008				2007
Automobile			89.8	%			88.8	%			86.7	%			82.3	%
Homeowners			77.4				77.4				75.1				83.8
Other			97.7				93.3				101.5				93.8
Total personal			83.3	%			82.3	%			81.9	%			85.3	%

     Our personal automobile business produced highly profitable results in the first six months and second quarter of both 2008 and 2007. Somewhat lower profitability in 2008 in our U.S. personal automobile business was largely offset by improved profitability in our non-U.S. business.

     Homeowners results were highly profitable in the first six months and second quarter of 2008 and 2007 due to favorable loss experience. Results in the second quarter of 2007 were adversely affected by higher catastrophes losses. Catastrophe losses represented 4.7 percentage points of the combined ratio for this class in the first six months of 2008 and 6.7 percentage points in the second quarter compared with 7.2 and 12.2 percentage points, respectively, in the corresponding periods of 2007.

     Other personal results were profitable in the first six months of 2008 but were slightly unprofitable in the second quarter. Results were profitable in both periods in 2007. Our accident business was profitable in the first six months of 2008 and slightly unprofitable in the second quarter compared with highly profitable results in both periods in 2007. Our yacht business was highly profitable in both years, but more so in 2007. Yacht results in 2008 were adversely affected by several large losses. Our excess liability results improved somewhat in 2008 but remained unprofitable. Results in both years were adversely affected by inadequate pricing and, in 2007, by unfavorable prior year loss development. Excess liability rates have increased modestly in the past year.

Commercial Insurance

     Net premiums written from commercial insurance, which represented 44% of our premiums written in the first six months of 2008, increased by 1% in the first six months of 2008 and decreased by 1% in the second 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:

		Six Months Ended												Quarter Ended
		June 30								% Incr.				June 30								% Incr.
		2008				2007				(Decr.)				2008				2007				(Decr.)
		(in millions)												(in millions)
Multiple peril		$	607			$	613				(1	)%		$	312			$	306				2	%
Casualty			896				897				—				436				456				(4	)
Workers’ compensation			461				481				(4	)			213				224				(5	)
Property and marine			677				626				8				340				325				5
Total commercial		$	2,641			$	2,617				1			$	1,301			$	1,311				(1	)

     Premium growth in the first six months of 2008 was constrained due to a highly competitive marketplace, particularly for new business. The slight increase in premiums written was largely attributable to the impact of currency fluctuation on business outside the United States. Growth in the property and marine classes was due to selective initiatives. Overall, rates in the first six months of 2008 were down modestly. Certain classes of business, such as workers’ compensation and large property risks, and geographic areas experienced more competitive pressure than others. Retention levels of our existing customers remained strong, slightly higher than those in the first six months of 2007. However, new business volume in the first six months of 2008 was down from 2007 levels as it has become more difficult to find new opportunities at acceptable rates. We have continued to maintain our underwriting discipline in the highly competitive market, renewing business and writing new business only where we believe we are securing acceptable rates and appropriate terms and conditions for the exposures. We expect continued pressure on rates in the second half of 2008.

     Our commercial insurance business produced profitable underwriting results in the first six months and second quarter of 2008 compared with highly profitable results in the same periods in 2007. The combined loss and expense ratios for the classes of business within the commercial insurance segment were as follows:

		Periods Ended June 30
		Six Months								Second Quarter
		2008				2007				2008				2007
Multiple peril			78.9	%			85.0	%			79.5	%			86.7	%
Casualty			92.1				93.4				91.9				92.4
Workers’ compensation			80.2				74.5				77.8				72.0
Property and marine			107.3				88.4				120.4				83.7
Total commercial			90.5	%			86.7	%			93.7	%			85.4	%

     The less profitable results in 2008 were due in large part to higher catastrophe losses in the second quarter, particularly in the property and marine classes. Catastrophe losses represented 6.1 percentage points of the combined ratio for the first six months of 2008 and 9.2 percentage points for the second quarter compared with 4.2 and 3.3 percentage points, respectively, in the same periods of 2007. Results in both years benefited from favorable loss experience, disciplined risk selection and appropriate terms and conditions in recent years.

     Multiple peril results were highly profitable in the first six months and second quarter of both 2008 and 2007, but more so in 2008. The improvement was mainly in the liability component of this business, largely due to favorable prior year loss development. Results in the property component benefited in both years from very favorable loss experience, particularly outside the United States in 2008. Catastrophe losses represented 4.1 percentage points of the combined ratio for this class in the first six months of 2008 and 5.5 percentage points in the second quarter compared with 3.8 and 5.8 percentage points, respectively, for the comparable periods in 2007.

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     Our casualty business produced similarly profitable results in the first six months and second quarter of both 2008 and 2007. The automobile and primary liability components of this business were highly profitable in both years. The excess liability component produced profitable results in the first six months and second quarter of 2008 and 2007. Excess liability results in both years, but more so in 2008, benefited from favorable prior year loss development. Casualty results in the first six months and second quarter of 2008 were adversely affected by incurred losses of $25 million and $15 million, respectively, related to toxic waste claims. Casualty results in the first six months and second quarter of 2007 were adversely affected by incurred losses of $43 million and $31 million, respectively, related to asbestos and toxic waste claims. Our analysis of asbestos and toxic waste exposures in the relevant periods of 2008 and 2007 resulted in increases in the estimate of our ultimate liabilities.

     Workers’ compensation results were highly profitable in the first six months and second quarter of 2008 and 2007, but more so in the 2007 periods. Results in both years benefited from our disciplined risk selection during the past several years as well as favorable claim cost trends, resulting in part from the positive effect of reforms in California. The less profitable results in 2008 were primarily due to lower earned premiums, which were due to rate reductions associated with state reforms and increased competition.

     Property and marine results were highly unprofitable in the first six months and second quarter of 2008 compared with highly profitable results in the comparable periods of 2007. The deterioration in 2008 was due primarily to higher catastrophe losses, particularly in the second quarter, and, to a lesser extent, a number of large non-catastrophe losses. Catastrophe losses represented 19.8 percentage points of the combined ratio for these classes in the first six months of 2008 and 30.5 percentage points in the second quarter compared with a 13.6 and 7.9 percentage points, respectively, in the corresponding periods of 2007.

Specialty Insurance

     Net premiums written from specialty insurance, which represented 24% of our premiums written in the first six months of 2008, decreased by 1% in the first six months of 2008 and 4% in the second 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:

		Six Months Ended												Quarter Ended
		June 30								% Incr.				June 30								% Incr.
		2008				2007				(Decr.)				2008				2007				(Decr.)
		(in millions)												(in millions)
Professional liability		$	1,230			$	1,246				(1	)%		$	626			$	649				(4	)%
Surety			184				178				3				85				94				(10	)
Total specialty		$	1,414			$	1,424				(1	)		$	711			$	743				(4	)

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     Premium growth in the professional liability classes was constrained due to the continuing competitive pressure on rates, particularly in the directors and officers liability component, and our commitment to maintain underwriting discipline in this environment. While professional liability rates generally decreased in the first six months of 2008, rates increased significantly with respect to directors and officers liability insurance for public financial institutions, particularly for those companies that have been directly implicated in the current credit crisis. Retention levels in the professional liability classes remained strong in the first six months of 2008, comparable to those in the same period in 2007. New business volume in 2008 was also comparable to that in 2007. We continued to get what we believe are acceptable rates and appropriate terms and conditions on both new business and renewals. Overall, we expect the competitive market to continue for the balance of 2008.

     Net premiums written for our surety business were lower in the second quarter of 2008 compared with the same period in 2007 due to the difficult credit and economic environment and a more competitive marketplace. Growth in the first quarter had benefited from several large bonds written during the period.

     Our specialty insurance business produced highly profitable underwriting results in the first six months and second quarter of 2008 and 2007, but more so in 2007. The combined loss and expense ratios for the classes of business within the specialty insurance segment were as follows:

		Periods Ended June 30
		Six Months								Second Quarter
		2008				2007				2008				2007
Professional liability			83.8	%			84.8	%			84.0	%			80.5	%
Surety			81.4				32.0				128.4				32.7
Total specialty			83.6	%			79.4	%			89.3	%			75.6	%

     Our professional liability business produced highly profitable results in the first six months and second quarter of 2008 and 2007. Results in the fiduciary liability and employment practices liability classes were highly profitable in both years. The directors and officers liability class was also profitable in both years; profitability was particularly strong outside the United States in 2008. Results in the errors and omissions liability class were modestly unprofitable in 2008 compared with slightly profitable results in 2007. Collectively, these professional liability classes benefited from a significant amount of favorable prior year loss development in the relevant periods of 2008 and 2007, due to the recognition of the positive loss trends we have been experiencing related to accident years 2005 and prior. These trends were largely the result of a favorable business climate, lower policy limits and better terms and conditions. The fidelity class was highly profitable in 2008 and 2007 due to favorable loss experience. We have set the expected loss ratio for the current accident year for our professional liability business at about breakeven, modestly higher than last year, due in part to the uncertainty surrounding the ongoing credit crisis.

     Surety results in the second quarter of 2008 were highly unprofitable due to one large loss. Despite this, results were highly profitable in the first six months of 2008. Results were exceptionally profitable in the first six months and second quarter of 2007. Our surety business tends to be characterized by infrequent but potentially high severity losses.

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Reinsurance Assumed

     Net premiums written from our reinsurance assumed business, which is in runoff, were not significant in the first six months and second quarter of 2008 or 2007.

     Reinsurance assumed results were profitable in the first six months and second quarter of 2008 and 2007. Results in both years, but particularly in the first quarter of 2007, benefited from significant favorable prior year loss development.

Loss Reserves

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

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

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

Page 26

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

																		Net
		Gross Loss Reserves												Reinsurance				Loss
June 30, 2008		Case				IBNR				Total				Recoverable				Reserves
		(in millions)
Personal insurance
Automobile		$	227			$	201			$	428			$	16			$	412
Homeowners			423				312				735				28				707
Other			433				569				1,002				210				792
Total personal			1,083				1,082				2,165				254				1,911
Commercial insurance
Multiple peril			594				1,053				1,647				40				1,607
Casualty			1,590				4,572				6,162				423				5,739
Workers’ compensation			841				1,354				2,195				243				1,952
Property and marine			899				495				1,394				553				841
Total commercial			3,924				7,474				11,398				1,259				10,139
Specialty insurance
Professional liability			2,011				6,167				8,178				543				7,635
Surety			90				51				141				12				129
Total specialty			2,101				6,218				8,319				555				7,764
Total insurance			7,108				14,774				21,882				2,068				19,814
Reinsurance assumed			377				933				1,310				287				1,023
Total		$	7,485			$	15,707			$	23,192			$	2,355			$	20,837