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

Commission file number 1-8661

THE CHUBB CORPORATION

(Exact name of registrant as specified in its charter)

NEW JERSEY		13-2595722
(State or other jurisdiction of		(I. R. S. Employer
incorporation or organization)		Identification No.)
15 MOUNTAIN VIEW ROAD, WARREN, NEW JERSEY		07059
(Address of principal executive offices)		(Zip Code)

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

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

YES þ       NO o

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

YES þ       NO o

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

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

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

YES o       NO þ

     The number of shares of common stock outstanding as of March 31, 2011 was 292,545,247.

 

 

THE CHUBB CORPORATION
INDEX

		Page Number
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Statements of Income for the Three Months Ended March 31, 2011 and 2010			1
Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010			2
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2011 and 2010			3
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010			4
Notes to Consolidated Financial Statements			5
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 4 - Controls and Procedures			44
Part II. Other Information:
Item 1A — Risk Factors			45
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 6 - Exhibits			47
Signatures			47

Part I. FINANCIAL INFORMATION

Item 1 — Financial Statements

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31

		2011				2010
		(in millions)
Revenues
Premiums Earned		$	2,854			$	2,782
Investment Income			404				410
Other Revenues			2				4
Realized Investment Gains (Losses), Net
Total Other-Than-Temporary Impairment Losses on Investments			(2	)			—
Other-Than-Temporary Impairment Losses on Investments Recognized in Other Comprehensive Income			—				(1	)
Other Realized Investment Gains, Net			162				128
Total Realized Investment Gains, Net			160				127
Total Revenues			3,420				3,323
Losses and Expenses
Losses and Loss Expenses			1,765				1,730
Amortization of Deferred Policy Acquisition Costs			775				740
Other Insurance Operating Costs and Expenses			107				115
Investment Expenses			11				10
Other Expenses			2				4
Corporate Expenses			75				76
Total Losses and Expenses			2,735				2,675
Income Before Federal and Foreign Income Tax			685				648
Federal and Foreign Income Tax			176				184
Net Income		$	509			$	464
Net Income Per Share
Basic		$	1.71			$	1.39
Diluted			1.70				1.39
Dividends Declared Per Share			.39				.37

See Notes to Consolidated Financial Statements.

THE CHUBB CORPORATION

CONSOLIDATED BALANCE SHEETS

		Mar. 31,				Dec. 31,
		2011				2010
		(in millions)
Assets
Invested Assets
Short Term Investments		$	2,075			$	1,905
Fixed Maturities
Tax Exempt (cost $19,156 and $19,072)			19,806				19,774
Taxable (cost $16,037 and $15,989)			16,668				16,745
Equity Securities (cost $1,305 and $1,285)			1,661				1,550
Other Invested Assets			2,318				2,239
TOTAL INVESTED ASSETS			42,528				42,213
Cash			43				70
Accrued Investment Income			452				447
Premiums Receivable			2,070				2,098
Reinsurance Recoverable on Unpaid Losses and Loss Expenses			1,814				1,817
Prepaid Reinsurance Premiums			330				325
Deferred Policy Acquisition Costs			1,597				1,562
Deferred Income Tax			46				98
Goodwill			467				467
Other Assets			1,342				1,152
TOTAL ASSETS		$	50,689			$	50,249
Liabilities
Unpaid Losses and Loss Expenses		$	23,148			$	22,718
Unearned Premiums			6,242				6,189
Long Term Debt			3,975				3,975
Dividend Payable to Shareholders			115				112
Accrued Expenses and Other Liabilities			1,630				1,725
TOTAL LIABILITIES			35,110				34,719
Contingent Liabilities (Note 6)
Shareholders’ Equity
Common Stock — $1 Par Value; 371,980,460 Shares			372				372
Paid-In Surplus			140				208
Retained Earnings			18,337				17,943
Accumulated Other Comprehensive Income			806				790
Treasury Stock, at Cost — 79,435,213 and 74,707,547 Shares			(4,076	)			(3,783	)
TOTAL SHAREHOLDERS’ EQUITY			15,579				15,530
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	50,689			$	50,249

See Notes to Consolidated Financial Statements.

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31

		2011				2010
		(in millions)
Net Income		$	509			$	464
Other Comprehensive Income (Loss), Net of Tax
Change in Unrealized Appreciation of Investments			(58	)			107
Change in Unrealized Other-Than-Temporary Impairment Losses on Investments			2				3
Foreign Currency Translation Gains (Losses)			61				(28	)
Amortization of Net Actuarial Loss and Prior Service Cost Included in Net Postretirement Benefit Costs			11				10
			16				92
Comprehensive Income		$	525			$	556

See Notes to Consolidated Financial Statements.

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31

		2011				2010
		(in millions)
Cash Flows from Operating Activities
Net Income		$	509			$	464
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Increase in Unpaid Losses and Loss Expenses, Net			298				298
Increase (Decrease) in Unearned Premiums, Net			5				(17	)
Decrease in Premiums Receivable			28				70
Amortization of Premiums and Discounts on Fixed Maturities			45				46
Depreciation			14				16
Realized Investment Gains, Net			(160	)			(127	)
Other, Net			(248	)			(129	)
Net Cash Provided by Operating Activities			491				621
Cash Flows from Investing Activities Proceeds from Fixed Maturities
Sales			562				1,000
Maturities, Calls and Redemptions			725				634
Proceeds from Sales of Equity Securities			38				18
Purchases of Fixed Maturities			(1,240	)			(1,342	)
Purchases of Equity Securities			(41	)			(15	)
Investments in Other Invested Assets, Net			70				8
Increase in Short Term Investments, Net			(167	)			(471	)
Increase (Decrease) in Net Payable from Security Transactions Not Settled			1				(20	)
Purchases of Property and Equipment, Net			(10	)			(13	)
Net Cash Used in Investing Activities			(62	)			(201	)
Cash Flows from Financing Activities
Increase in Funds Held Under Deposit Contracts			12				25
Proceeds from Issuance of Common Stock Under Stock-Based Employee Compensation Plans			39				24
Repurchase of Shares			(395	)			(351	)
Dividends Paid to Shareholders			(112	)			(118	)
Net Cash Used in Financing Activities			(456	)			(420	)
Net Decrease in Cash			(27	)			—
Cash at Beginning of Year			70				51
Cash at End of Period		$	43			$	51

See Notes to Consolidated Financial Statements.

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1) General

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

     The amounts included in this report are unaudited but include those adjustments, consisting of normal recurring items, that management considers necessary for a fair presentation. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the Notes to Consolidated Financial Statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010.

2) Accounting Pronouncements Not Yet Adopted

     In October 2010, the Financial Accounting Standards Board issued new guidance related to the accounting for costs associated with acquiring or renewing insurance contracts. The guidance identifies those costs relating to the successful acquisition of new or renewal insurance contracts that should be capitalized. This guidance is effective for the Corporation for the year beginning January 1, 2012 and may be applied prospectively or retrospectively. The Corporation is in the process of assessing the effect that the implementation of the new guidance will have on its financial position and results of operations. The amount of acquisition costs the Corporation will defer under the new guidance will be less than the amount deferred under the Corporation’s current accounting practice. If prospective application is elected, net income in the year of adoption would be reduced as the amount of acquisition costs eligible for deferral under the new guidance would be lower. Amortization of the balance of deferred policy acquisition costs as of the date of adoption would continue over the period in which the related premiums are earned. If retrospective application is elected, deferred policy acquisition costs and related deferred taxes would be reduced as of the beginning of the earliest period presented in the financial statements with a corresponding reduction to shareholders’ equity.

3) Invested Assets

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

		March 31, 2011
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Appreciation				Depreciation				Value
		(in millions)
Fixed maturities
Tax exempt		$	19,156			$	774			$	124			$	19,806
Taxable
U.S. Government and government agency and authority obligations			807				26				9				824
Corporate bonds			6,303				384				22				6,665
Foreign government and government agency obligations			6,050				163				25				6,188
Residential mortgage-backed securities			1,160				57				4				1,213
Commercial mortgage-backed securities			1,717				62				1				1,778
			16,037				692				61				16,668
Total fixed maturities		$	35,193			$	1,466			$	185			$	36,474
Equity securities		$	1,305			$	419			$	63			$	1,661

		December 31, 2010
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Appreciation				Depreciation				Value
		(in millions)
Fixed maturities
Tax exempt		$	19,072			$	824			$	122			$	19,774
Taxable
U.S. Government and government agency and authority obligations			807				31				9				829
Corporate bonds			6,258				411				21				6,648
Foreign government and government agency obligations			5,943				231				13				6,161
Residential mortgage-backed securities			1,293				63				6				1,350
Commercial mortgage-backed securities			1,688				70				1				1,757
			15,989				806				50				16,745
Total fixed maturities		$	35,061			$	1,630			$	172			$	36,519
Equity securities		$	1,285			$	340			$	75			$	1,550

     At March 31, 2011 and December 31, 2010, the gross unrealized depreciation of fixed maturities included $2 million and $4 million, respectively, of unrealized other-than-temporary impairment losses recognized in accumulated other comprehensive income.

     The amortized cost and fair value of fixed maturities at March 31, 2011 by contractual maturity were as follows:

		Amortized				Fair
		Cost				Value
		(in millions)
Due in one year or less		$	1,746			$	1,773
Due after one year through five years			11,438				11,924
Due after five years through ten years			11,678				12,265
Due after ten years			7,454				7,521
			32,316				33,483
Residential mortgage-backed securities			1,160				1,213
Commercial mortgage-backed securities			1,717				1,778
		$	35,193			$	36,474

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

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

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

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

		March 31				December 31
		2011				2010
		(in millions)
Fixed maturities
Gross unrealized appreciation		$	1,466			$	1,630
Gross unrealized depreciation			185				172
			1,281				1,458
Equity securities
Gross unrealized appreciation			419				340
Gross unrealized depreciation			63				75
			356				265
			1,637				1,723
Deferred income tax liability			573				603
		$	1,064			$	1,120

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

     In determining whether fixed maturities are other than temporarily impaired, the Corporation is required to recognize an other-than-temporary impairment loss when it concludes it has the intent to sell or it is more likely than not it will be required to sell an impaired fixed maturity before the security recovers to its amortized cost value or it is likely it will not recover the entire amortized cost value of an impaired debt security. If the Corporation has the intent to sell or it is more likely than not that the Corporation will be required to sell an impaired fixed maturity before the security recovers to its amortized cost value, the security is written down to fair value and the entire amount of the writedown is included in net income as a realized investment loss. For all other impaired fixed maturities, the impairment loss is separated into the amount representing the credit loss and the amount representing the loss related to all other factors. The amount of the impairment loss that represents the credit loss is included in net income as a realized investment loss and the amount of the impairment loss that relates to all other factors is included in other comprehensive income.

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

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

     The following table summarizes, for all investment securities in an unrealized loss position at March 31, 2011, the aggregate fair value and gross unrealized depreciation, including unrealized other-than-temporary impairment losses, by investment category and length of time that individual securities have continuously been in an unrealized loss position:

		Less Than 12 Months								12 Months or More								Total
						Gross								Gross								Gross
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Depreciation				Value				Depreciation				Value				Depreciation
		(in millions)
Fixed maturities
Tax exempt		$	2,758			$	79			$	262			$	45			$	3,020			$	124
Taxable
U.S. Government and government agency and authority obligations			159				4				46				5				205				9
Corporate bonds			659				14				164				8				823				22
Foreign government and government agency obligations			1,417				24				23				1				1,440				25
Residential mortgage- backed securities			26				1				25				3				51				4
Commercial mortgage- backed securities			40				1				—				—				40				1
			2,301				44				258				17				2,559				61
Total fixed maturities			5,059				123				520				62				5,579				185
Equity securities			42				6				322				57				364				63
		$	5,101			$	129			$	842			$	119			$	5,943			$	248

     At March 31, 2011, approximately 800 individual fixed maturity and equity securities were in an unrealized loss position, of which approximately 770 were fixed maturities. The Corporation does not have the intent to sell and it is not more likely than not that the Corporation will be required to sell these fixed maturities before the securities recover to their amortized cost value. In addition, the Corporation believes that none of the declines in the fair values of these fixed maturities relate to credit losses. The Corporation has the intent and ability to hold the equity securities in an unrealized loss position for a period of time sufficient to allow for the recovery of cost. The Corporation believes that none of the declines in the fair value of these fixed maturities and equity securities were other than temporary at March 31, 2011.

     The following table summarizes, for all investment securities in an unrealized loss position at December 31, 2010, the aggregate fair value and gross unrealized depreciation, including unrealized other-than-temporary impairment losses, by investment category and length of time that individual securities have continuously been in an unrealized loss position:

		Less Than 12 Months								12 Months or More								Total
						Gross								Gross								Gross
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Depreciation				Value				Depreciation				Value				Depreciation
		(in millions)
Fixed maturities
Tax exempt		$	2,498			$	79			$	284			$	43			$	2,782			$	122
Taxable
U.S. Government and government agency and authority obligations			111				3				45				6				156				9
Corporate bonds			474				12				166				9				640				21
Foreign government and government agency obligations			990				12				27				1				1,017				13
Residential mortgage- backed securities			9				1				41				5				50				6
Commercial mortgage- backed securities			38				1				—				—				38				1
			1,622				29				279				21				1,901				50
Total fixed maturities			4,120				108				563				64				4,683				172
Equity securities			69				14				299				61				368				75
		$	4,189			$	122			$	862			$	125			$	5,051			$	247

     The change in unrealized appreciation or depreciation of investments carried at fair value, including the change in unrealized other-than-temporary impairment losses, was as follows:

		Three Months Ended
		March 31
		2011				2010
		(in millions)
Change in unrealized appreciation of fixed maturities		$	(177	)		$	111
Change in unrealized appreciation of equity securities			91				58
			(86	)			169
Deferred income tax (credit)			(30	)			59
		$	(56	)		$	110

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

		Three Months Ended
		March 31
		2011				2010
		(in millions)
Fixed maturities
Gross realized gains		$	13			$	38
Gross realized losses			(11	)			(5	)
Other-than-temporary impairment losses			—				(1	)
			2				32
Equity securities
Gross realized gains			19				9
Other-than-temporary impairment losses			(2	)			—
			17				9
Other invested assets			141				86
		$	160			$	127

(d) As of March 31, 2011 and December 31, 2010, fixed maturities still held by the Corporation for which a portion of their other-than-temporary impairment losses were recognized in other comprehensive income had cumulative credit-related losses of $21 million recognized in net income.

4) Fair Values of Financial Instruments

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

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

(i)

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

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

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

		March 31, 2011								December 31, 2010
		Carrying				Fair				Carrying				Fair
		Value				Value				Value				Value
		(in millions)
Assets
Invested assets
Short term investments		$	2,075			$	2,075			$	1,905			$	1,905
Fixed maturities			36,474				36,474				36,519				36,519
Equity securities			1,661				1,661				1,550				1,550
Liabilities
Long term debt			3,975				4,275				3,975				4,318

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

     At March 31, 2011 and December 31, 2010, the Corporation did not hold financial instruments in its investment portfolio for which a lack of market liquidity impacted the determination of fair value.

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

		Level 1 — Unadjusted quoted prices in active markets for identical assets.
		Level 2 — Other inputs that are observable for the asset, either directly or indirectly.
		Level 3 — Inputs that are unobservable.

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

		March 31, 2011
		Level 1				Level 2				Level 3				Total
		(in millions)
Fixed maturities
Tax exempt		$	—			$	19,798			$	8			$	19,806
Taxable
U.S. Government and government agency and authority obligations			—				824				—				824
Corporate bonds			—				6,485				180				6,665
Foreign government and government agency obligations			—				6,178				10				6,188
Residential mortgage-backed securities			—				1,189				24				1,213
Commercial mortgage-backed securities			—				1,778				—				1,778
			—				16,454				214				16,668
Total fixed maturities			—				36,252				222				36,474
Equity securities			1,653				—				8				1,661
		$	1,653			$	36,252			$	230			$	38,135

		December 31, 2010
		Level 1				Level 2				Level 3				Total
		(in millions)
Fixed maturities
Tax exempt		$	—			$	19,765			$	9			$	19,774
Taxable
U.S. Government and government agency and authority obligations			—				829				—				829
Corporate bonds			—				6,483				165				6,648
Foreign government and government agency obligations			—				6,135				26				6,161
Residential mortgage-backed securities			—				1,329				21				1,350
Commercial mortgage-backed securities			—				1,757				—				1,757
			—				16,533				212				16,745
Total fixed maturities			—				36,298				221				36,519
Equity securities			1,537				—				13				1,550
		$	1,537			$	36,298			$	234			$	38,069

5) Segments Information

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

     The property and casualty insurance subsidiaries underwrite most lines of property and casualty insurance. Underwriting operations consist of four separate business units: personal insurance, commercial insurance, specialty insurance and reinsurance assumed. The personal segment targets the personal insurance market. The personal classes include automobile, homeowners and other personal coverages. The commercial segment includes those classes of business that are generally available in broad markets and are of a more commodity nature. Commercial classes include multiple peril, casualty, workers’ compensation and property and marine. The specialty segment includes those classes of business that are available in more limited markets since they require specialized underwriting and claim settlement. Specialty classes include professional liability coverages and surety. The reinsurance assumed business is effectively in run-off following the transfer of the ongoing business to a reinsurance company in 2005.

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

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

		Three Months Ended
		March 31
		2011				2010
		(in millions)
Revenues
Property and casualty insurance
Premiums earned
Personal insurance		$	957			$	925
Commercial insurance			1,209				1,152
Specialty insurance			687				701
Total insurance			2,853				2,778
Reinsurance assumed			1				4
			2,854				2,782
Investment income			391				396
Total property and casualty insurance			3,245				3,178
Corporate and other			15				18
Realized investment gains, net			160				127
Total revenues		$	3,420			$	3,323
Income (loss) before income tax
Property and casualty insurance
Underwriting
Personal insurance		$	81			$	(24	)
Commercial insurance			(44	)			43
Specialty insurance			135				150
Total insurance			172				169
Reinsurance assumed			5				13
			177				182
Increase in deferred policy acquisition costs			25				22
Underwriting income			202				204
Investment income			381				387
Other income (charges)			5				(7	)
Total property and casualty insurance			588				584
Corporate and other loss			(63	)			(63	)
Realized investment gains, net			160				127
Total income before income tax		$	685			$	648

6) Contingent Liabilities

     Chubb and certain of its subsidiaries have been involved in the investigations by various Attorneys General and other regulatory authorities of several states, the U.S. Securities and Exchange Commission, the U.S. Attorney for the Southern District of New York and certain non-U.S. regulatory authorities with respect to certain business practices in the property and casualty insurance industry including (1) potential conflicts of interest and anti-competitive behavior arising from the payment of contingent commissions to brokers and agents and (2) loss mitigation and finite reinsurance arrangements. In connection with these investigations, Chubb and certain of its subsidiaries received subpoenas and other requests for information from various regulators. The Corporation has cooperated fully with these investigations. The Corporation has settled with several state Attorneys General and insurance departments all issues arising out of their investigations. Nevertheless, it is possible that actions could be brought against the Corporation with respect to some or all of the issues that were the focus of the business practice investigations.

     Individual actions and purported class actions arising out of the investigations into the payment of contingent commissions to brokers and agents have been filed in a number of federal and state courts. On August 1, 2005, Chubb and certain of its subsidiaries were named in a putative class action entitled In re Insurance Brokerage Antitrust Litigation in the U.S. District Court for the District of New Jersey (N.J. District Court). This action, brought against several brokers and insurers on behalf of a class of persons who purchased insurance through the broker defendants, asserts claims under the Sherman Act, state law and the Racketeer Influenced and Corrupt Organizations Act (RICO) arising from the alleged unlawful use of contingent commission agreements. On September 28, 2007, the N.J. District Court dismissed the second amended complaint filed by the plaintiffs in 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 appealed the dismissal of their second amended complaint to the U.S. Court of Appeals for the Third Circuit (Third Circuit). On August 13, 2010, the Third Circuit affirmed in part and vacated in part the N.J. District Court decision and remanded the case back to the N.J. District Court for further proceedings. As a result of the Third Circuit’s decision, the plaintiffs’ state law claims and certain of the plaintiffs’ Sherman Act and RICO claims were reinstated against the Corporation. The Corporation and the other defendants have filed motions to dismiss the reinstated claims. Since that time, several of the defendants agreed to settlements in principle with the plaintiffs. Those settlements are pending approval by the District Court. The Corporation and the other remaining defendants that have not settled with plaintiffs argued their motions to dismiss before the District Court on March 23, 2011. The parties are awaiting the N.J. District Court’s decision.

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

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

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

7) Earnings Per Share

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

		Three Months Ended
		March 31
		2011				2010
		(in millions, except
		for per share amounts)
Basic earnings per share:
Net income		$	509			$	464
Weighted average shares outstanding			298.4				332.8
Basic earnings per share		$	1.71			$	1.39
Diluted earnings per share:
Net income		$	509			$	464
Weighted average shares outstanding			298.4				332.8
Additional shares from assumed exercise of stock-based compensation awards			1.6				2.2
Weighted average shares and potential shares assumed outstanding for computing diluted earnings per share			300.0				335.0
Diluted earnings per share		$	1.70			$	1.39

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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 March 31, 2011 compared with December 31, 2010 and the results of operations for the quarters ended March 31, 2011 and 2010. 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, 2010.

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 cost of reinsurance in 2011; the adequacy of the rates at which we renewed and wrote new business; premium volume, competition and other market conditions in 2011; the runoff of our employer healthcare stop loss business; our receipt of Medicare Part D subsidies; indications of our catastrophe exposure under a newly released version of a catastrophe modeling tool; the repurchase of common stock under our share repurchase program; our capital adequacy and funding of liquidity needs; the impact of a downgrade in our credit or financial strength ratings; and the impact on our financial position and results of operations of the new guidance issued by the Financial Accounting Standards Board related to the accounting for costs associated with acquiring or renewing insurance contracts. Forward-looking statements frequently can be identified by words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “will,” “may,” “should,” “could,” “would,” “likely,” “estimate,” “predict,” “potential,” “continue,” or other similar expressions. Forward-looking statements are made based upon management’s current expectations and beliefs concerning trends and future developments and their potential effects on us. These statements are not guarantees of future performance. Actual results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties, which include, among others, those discussed or identified from time to time in our public filings with the Securities and Exchange Commission and those associated with:

•		global political conditions and the occurrence of terrorist attacks, including any nuclear, biological, chemical or radiological events;
•		the effects of the outbreak or escalation of war or hostilities;
•		premium pricing and profitability or growth estimates overall or by lines of business or geographic area, and related expectations with respect to the timing and terms of any required regulatory approvals;
•		adverse changes in loss cost trends;
•		our ability to retain existing business and attract new business;
•		our expectations with respect to cash flow and investment income and with respect to other income;

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•

the adequacy of loss reserves, including:

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

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

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

•		the effects of changes in market practices in the U.S. property and casualty insurance industry arising from any legal or regulatory proceedings, related settlements and industry reform, including changes that have been announced and changes that may occur in the future;
•		the impact of legislative, regulatory and similar developments on our business, including those relating to terrorism, catastrophes, the financial markets, solvency standards, capital requirements and accounting guidance;
•		any downgrade in our claims-paying, financial strength or other credit ratings;
•		the ability of our subsidiaries to pay us dividends;

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•

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

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

•

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

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

Critical Accounting Estimates and Judgments

          The consolidated financial statements include amounts based on informed estimates and judgments of management for transactions that are not yet complete. Such estimates and judgments affect the reported amounts in the financial statements. Those estimates and judgments that were most critical to the preparation of the financial statements involved the determination of loss reserves and the recoverability of related reinsurance recoverables and the evaluation of whether a decline in value of any investment is temporary or other than temporary. These estimates and judgments, which are discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2010 as supplemented within the following analysis of our results of operations, require the use of assumptions about matters that are highly uncertain and therefore are subject to change as facts and circumstances develop. If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements.

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Overview

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

	•		Net income was $509 million in the first quarter of 2011 compared with $464 million in the same period of 2010. The increase in net income in 2011 was due to higher operating income as well as higher net realized investment gains in the first quarter of 2011 compared with the same period in 2010. We define operating income as net income excluding realized investment gains and losses after tax.
	•		Operating income was $405 million in the first quarter of 2011 compared with $381 million in the same period of 2010. The lower operating income in 2010 was primarily due to higher income taxes incurred as a result of a one-time $22 million income tax charge related to the federal health care legislation enacted in March 2010. Underwriting income and investment income in the first quarter of 2011 were each substantially unchanged from the amounts in the same period in 2010. Management uses operating income, a non-GAAP financial measure, among other measures, to evaluate its performance because the realization of investment gains and losses in any period could be discretionary as to timing and can fluctuate significantly, which could distort the analysis of operating trends.
	•		Underwriting results were similarly profitable in the first quarter of 2011 and 2010. Our combined loss and expense ratio was 93.7% in the first quarter of 2011 compared with 93.6% in the same period of 2010. A lower impact from catastrophe losses in the first quarter of 2011 was offset by a higher current accident year loss ratio excluding catastrophes, due partly to higher non-catastrophe weather-related losses. The impact of catastrophes accounted for 9.5 percentage points of the combined ratio in the first quarter of 2011 compared with 12.3 percentage points in the same period of 2010.
	•		During the first quarter of both 2011 and 2010, we estimate that we experienced overall favorable development of about $220 million on loss reserves established as of the respective previous year end. In both years, the most significant amounts of favorable development occurred in the commercial liability and professional liability classes.
	•		Total net premiums written increased by 3% in the first quarter of 2011 compared with the same period in 2010. Net premiums written in the United States increased by 1% and net premiums written outside the U.S. increased by 10%. The growth in net premiums written in the U.S. in the first quarter of 2011 continued to reflect our emphasis on underwriting discipline in a market environment that remains competitive.

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	•		Property and casualty investment income after tax decreased by 1% in the first quarter of 2011 compared with the same period in 2010, in what continued to be a low yield investment environment. Management uses property and casualty investment income after tax, a non-GAAP financial measure, to evaluate its investment performance because it reflects the impact of any change in the proportion of the investment portfolio invested in tax exempt securities and is therefore more meaningful for analysis purposes than investment income before income tax.
	•		Net realized investment gains before tax were $160 million ($104 million after tax) in the first quarter of 2011 compared with $127 million ($83 million after tax) in the same period of 2010. The net realized gains in the first quarter of 2011 were primarily related to investments in limited partnerships, which generally are reported on a quarter lag. The net realized gains in the first quarter of 2010 were primarily related to investments in limited partnerships and, to a lesser extent, sales of securities.

A summary of our consolidated net income is as follows:

		Quarter Ended March 31
		2011				2010
		(in millions)
Property and casualty insurance		$	588			$	584
Corporate and other			(63	)			(63	)
Consolidated operating income before income tax			525				521
Federal and foreign income tax			120				140
Consolidated operating income			405				381
Realized investment gains after income tax			104				83
Consolidated net income		$	509			$	464

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Property and Casualty Insurance

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

		Quarter Ended March 31
		2011				2010
		(in millions)
Underwriting
Net premiums written		$	2,859			$	2,765
Decrease (increase) in unearned premiums			(5	)			17
Premiums earned			2,854				2,782
Losses and loss expenses			1,765				1,730
Operating costs and expenses			904				862
Increase in deferred policy acquisition costs			(25	)			(22	)
Dividends to policyholders			8				8
Underwriting income			202				204
Investments
Investment income before expenses			391				396
Investment expenses			10				9
Investment income			381				387
Other income (charges)			5				(7	)
Property and casualty income before tax		$	588			$	584
Property and casualty investment income after tax		$	310			$	313

          Property and casualty income before tax was similar in the first quarter of 2011 and 2010. The two major components of property and casualty income before tax, underwriting income and investment income, were each substantially unchanged in the first quarter of 2011 from the amounts in the same period of 2010.

          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.

Page 24

     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 $2.9 billion in the first quarter of 2011 compared with $2.8 billion in the same period of 2010.

          Net premiums written by business unit were as follows:

		Quarter Ended March 31								%Increase
		2011				2010				(Decrease)
		(in millions)
Personal insurance		$	894			$	874				2	%
Commercial insurance			1,326				1,243				7
Specialty insurance			639				646				(1	)
Total insurance			2,859				2,763				3
Reinsurance assumed			—				2				(100	)
Total		$	2,859			$	2,765				3