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Executives

John D. Finnegan - Chairman of the Board, President, Chief Executive Officer

Thomas F. Motamed - Vice Chairman and Chief Operating Officer

John J. Degnan - Vice Chairman and Chief Administrative Officer

Michael O'Reilly - Vice Chairman and Chief Financial Officer

Analysts

Dan Johnson – Citadel Investment Group

Jay Gelb - Lehman Brothers

David Small - Bear Stearns

Charlie Gates - Credit Suisse

Matthew Heimermann - JP Morgan

David Small - Bear Stearns

Al Copersino – Madoff Investment Securities

Jay Cohen - Merrill Lynch

Joshua Shanker - Citigroup

Josh Smith – TIAA-CREF

Connie DeBoger - Boston Company

Presentation

The Chubb Corporation (CB) Q1 2008 Earnings Call April 24, 2008 5:00 PM ET

Operator

Welcome to Chubb Corporation’s first quarter 2008 earnings conference call. (Operator Instructions)

Before we begin, Chubb has asked me to make the following statements. In order to help you understand Chubb, its industry and its results, members of Chubb’s management team will include in today’s presentation forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

It is possible that actual results might differ from estimates and forecasts that Chubb’s management team might make today. Additional information regarding factors that could cause such differences appears in Chubb’s filings with the Securities and Exchange Commission.

Please also note that no portion of this conference call may be reproduced or rebroadcast in any form without the prior written consent of Chubb. Replays of the webcast will be available through May 23, 2008. Those listening after April 24, 2008 should please note that the information and forecast provided in this recording will not necessarily be updated and it is possible that the information will no longer be current.

Now I will turn the conference over to Mr. Finnegan.

John Finnegan

As you read in our press release, we had another solid quarter with excellent underwriting results and strong performance. In the context of the market environment in which we are operating, the impact of the credit crisis on other financial institutions, we’re especially pleased with Chubb’s performance.

Operating income per share was $1.65 up 8% from the first quarter of 2007 and 9% fewer shares outstanding. We had a combined ratio of 83.9, driven again by excellent performance in all three strategic business units. Although interest rates are down, properly and casualty investment income after tax grew 7%, reflecting continued strong cash flow.

And now, Tom Motamed will say a few words about our underwriting results.

Thomas Motamed

We had a great quarter with $502 million dollars in underwriting income. Our combined ratio of 83.9 reflects continued excellent performance by all of our businesses. IN the first quarter, favorable development was about $215 million dollars, which reduced the first quarter’s combined ratio by about 7 percentage points. Mike will break out the favorable development by business unit in a few minutes.

Chubb personal insurance net written premiums grew by 4% in the first quarter and CPI produced a very good combined ratio of 84.8, including 1.7 points of catastrophe losses. In last year’s first quarter, CPI had a combined ratio of 79.3, including 1.3 points of catastrophe losses. Excluding CATs, CPI’s first quarter combined ratio was 83.1 in 2008 and 78 in 2007. The difference is largely accounted for by the significantly higher impact of large fire lawsuits in the first quarter of this year.

Homeowners, which accounts for more than 60% of CPI’s premiums had a 4% increase in net written premiums at a combined ratio of 80.1, including 2.6 points of catastrophe. Personal auto premiums declined 3%, reflecting a very competitive marketplace, the combined ratio of 93.1. Other personalized premiums increased 13% driven by our accident business outside the United States. The combined ratio for other personal was 93.9.

Chubb commercial insurance continues to produce terrific results with a first quarter combined ratio of 87.2 compared to the 88 recorded in the first quarter of last year. CCI had three points of catastrophes this quarter compared with five points in the first quarter of last year. Excluding CAts, CCI’s combined ratio for the first quarter was 84.2 in 2008 and 83 in 2007.

CCI net written premiums were up 3% in the first quarter driven by growth outside the U.S. In the U.S., average renewal rates decreased 5%, about the same as the second half of last year. We retained 85% of the U.S. business up for renewal in the first quarter and the new to lost business ratio was 1:1.

Both numbers were slightly higher than in the second half of last year. Chubb’s specialty insurance delivered a first quarter combined ratio of 78.1 compared to 83.1 last year with terrific results in both professional liability and surety. CSI net written premiums were up 3% for the quarter.

Professional liability had a combined ratio of 83.7 compared to 89 in last year’s first quarter, reflecting significant favorable development related to accident years 2005 and prior as a result of continued positive loss experience. Professional liability net written premiums increased 1%. In the U.S., first quarter average renewal rates were down 4%. The renewal retention rate was 89% and the ratio of new to loss business was 1.5 to 1.

For non-financial institutions, we continue to see aggressive competition in professional liability with rates off by mid to high single digits, depending on the line; however, with respect to public DNO for financial institutions, we have begun to see positive rate movement with mid to high teen increases on average.

As one would expect, those increases are even higher for companies that have been directly implicated in the credit crisis. If the credit crisis spreads, we expect to see some firming in DNO rates in the broader market as we move through the year. At this point, we believe that overall professional liability rates will decline in 2008, but at a slower pace than in 2007.

We continue to have excellent results in surety. In the first quarter, net written premiums grew 18% and the combined ratio was 30.8.

And now, I’ll turn it over to John Degnan.

John Degnan

I want to take a few minutes to update you on our perspective of the credit crisis and its impact on Chubb. We told you during our last call that these claims were dynamic and subject to change, but that we believe we were well positioned to manage the exposures arising out of these events.

Both those observations remain accurate and we continue to monitor developments closely. We are following our customary approach of establishing prudent loss reserves for the immature accident years in our long tale lines of business taking into account all recent development.

There has, obviously, been an up-kick in the number of claims, but they remain in the aggregate unsurprising to us and even quite modest compared to what one would expect on a market share in this area. They do continue to fall into the three types of policies we previously identified errors and omissions, directors and officers, and fiduciary.

On the E&O side, things have remained fairly quiet for us, we continue to benefit from prudent risk selection, and an underwriting strategy implemented over the past few years. In particular, we benefited from strategic decisions to avoid writing insurance for the major sub prime lenders to get out of writing E&O insurance for almost all of the largest global investment banks and the top 30 commercial global banks and to exit a program of E&O insurance from mortgage brokers.

As a consequence, the claims we have received to date generally involve individual investor claims for investment losses. We have largely avoided significant E&O exposures we’ve made the claims against the major investment banks and regulatory investigations involving illegibly deceptive marketing practices. In all, we haven’t had many claims in the E&O area and all but one of the potential implicated policies are at or below $15 million dollars in limits.

As I also mentioned in our last call, not unexpectedly given our underwriting strategies, most of our claims activities, which as I’ve said has been relatively modest to date has been in the DNO class. Of the DNO policies potentially implicated by these claims, more than 75% are excess and about 40% are side-A only. Almost 90% of them have limits that are below $15 million.

Our current position presents a very different profile than we experienced in the 2002 and prior corporate abuse losses. I explained to you during our last call, the DNO underwriting strategies that contributed to our avoiding some of the highest profile cases and our relatively lower severity potential where we do have claims.

We consciously avoided writing DNO for large sub prime lending specialists, we significantly limited our exposure to both investment banks, and global commercial banks and we moved a greater percentage of our DNO book to the middle market at lower limits, the side-A only policy and to excess positions. All of those are playing out positively in the claims received to date.

Finally on the fiduciary front, it has stayed especially quiet for us. We are aware of the reports of file line suits mimicking the allegations of companion security class action lawsuits, but so far we’ve received notice of less than a handful of such suits under Chubb fiduciary policies and the policies potentially implicated have been side-A and excess policies only. Again, this appears to be flex of benefits of our underwriting strategies and risk appetite.

In some, there have been no surprises in the last quarter, although as I acknowledged, this is a dynamic and evolving scenario, which we will continue to monitor closely.

And now, I’ll turn it over to Mike.

Michael O’Reilly

For the quarter, property and casualty investment income after tax increased 7% for $327 million dollars. Property and casualty invested assets increased to $38 billion dollars as of March 31, 2008 from $37.6 billion dollars at year end 2007. Our fixed income portfolio remained heavily weighted in tax exempt bonds and it has an average duration of approximately 4.6 years. Unrealized appreciation in the fixed income portfolio at March 31, 2008 was $443 million dollars. Our alternative investments continue to perform very well.

Book value per share under generally accepted accounting principles at March 31, 2008 was $39.25 compared to $38.56 at year end 2007 and $34.55 a year ago. Book value per share calculated with available for sale fixed maturities at amortized cost was $38.47 compared $37.87 at year end 2007 and $34.28 a year ago

Excellent underwriting income in the first quarter of $502 million dollars was the result of both solid accident year performance in a competitive environment and favorable development from prior accident years.

For the first quarter, we estimate that favorable development on prior year reserves by SCU was as follows, about $20 million dollars in CPI, about $65 million dollars in CCI, and about $120 million in CSI, nearly all of it in professional liability. We also had about $10 million in reinsurance assumed bringing the total favorable development for Chubb to about $215 million for the first quarter. This represents a favorable impact on the first quarter combined ratio of about seven points overall.

For comparison, in the first quarter 2007, we had about $145 million of favorable development for the company overall, including $20 million in CPI, $30 million in CCI, $55 million in CSI, and $40 million in reinsurance assumed.

During the first quarter of 2008 loss reserves increased by $280 million dollars. Reserves and reinsurance assumed, which is now in run-off declined by $31 million dollars. Reserves in the insurance business increased by $311 million dollars, including approximately $110 million dollars related to currency fluctuation.

Turning to capital management, during the first quarter of 2008, we repurchased 11.3 million shares at a total aggregate cost of $582 million dollars. Depending on market conditions, we expect to complete the repurchase of $14.8 million shares remaining under current authorization by the end of this year. Last month, our directors raised the quarterly dividend by 14% to .33 cents per share. This was Chubb’s 26th consecutive annual dividend increase, an indication of our financial strength and resilience in a cyclical industry.

Let me say a few words about our reinsurance program. On April 1, we renewed major property treaties, including the North American cat treaty, the non-U.S. cat treaty, and the commercial property for risk trading. The new program provides coverage similar to 2007, except that we purchase some additional limit. Overall cost of the 2008 program will be about 7% lower than in 2007.

The biggest change from 2007 involved with North American catastrophe program where we purchased $200 million dollars of fully collateralized three-year coverage in place of traditional reinsurance. This new coverage was purchased from East Lane Limited, which has used $200 million dollars in catastrophe bond proceeds to secure its obligations to us under the reinsurance agreements. These bonds were issued in three trounces that match up with the layers in our traditional reinsurance treaty.

This was our second risk link securitization transaction and we really feel like it has the potential to transform the CAT bond market. As our previous CAT bond arrangement, our right to collect is based on our actual losses. In contrast the more industry trigger or index-based trigger, this indemnity trigger essentially eliminates basis risk.

While the indemnity trigger is a distinguishing feature of both of our CAT bond arrangements, what really stands out in this year’s transaction is the breadth of coverage. We succeeded in incorporating coverage for a broader array of perils was both commercial and personal risk than any other CAT bond deal in the marketplace.

In addition, one of the trounces provides coverage for the entire continental U.S. as well as Canada. In addition to providing a cost effective alternative to traditional reinsurance, our CAT bond arrangements at multi-year terms rather than requiring renewal each year, fixed the cost of a portion of our reinsurance coverage for three years and provide fully collateralized protection. Accordingly, we really like the diversification in these CAT bond arrangements bring to our overall reinsurance program.

Now I’ll turn it back to John Finnegan.

John Finnegan

To sum up the first quarter of 2008 was a really good start to the year. Our combined ratio was an excellent 83.9, reflecting strong contributions from all three business units and from both domestic and international operations. Investment income after tax was up 7%.

Operating income per share was up 8% to $1.65 per share. We raised the dividend by 14% and made excellent progress on our share repurchase program. Adjusted book value per share reached $38.47, a 12% increase over the past 12 months.

In summary, our first quarter results represent a great start to 2008. Going forward, we would expect continued soft market to place increasing pressure on margins, especially in the commercial business.

Specialty has also been experiencing rate pressure, but the recent increase in DNO rates for financial institutions gives us some hope that we will see lower rate declines in the overall professional liability business in 2008.

All in all, we expect 2008 to be a very good year. And with that, I’ll open the line to your questions.

Question-and-Answer Session

Operator

(Operator instructions). Your first question comes from Dan Johnson - Citadel Investment Group.

Dan Johnson – Citadel Investment Group

Within the professional lines, you said most of that reserve release was pertaining to your professional lines within CSI. I’m trying to take a look at where our accident and loss, or combined I guess in the way you disclosed it, picks are versus last year and what I’m looking at is it looks like it dropped from an 89 to a little under an 84 in the quarter, but we probably had something like 11 points reserve releases. If I subtract those two out, can we assume that the combined ratio on an accident in your basis has gone up by about 6 or 7 points in professional liability?

John Finnegan

No, not that much, up by about three points.

Dan Johnson – Citadel Investment Group

Well, we’ve got about five points of combined ratio improvement, but we have what it looks like probably 10 points at least of reserve release improvement versus the $55 million.

John Finnegan

There’s some insurety, so you have to take that into account. It’s about 3.5 than it was last year.

Dan Johnson – Citadel Investment Group

On CCI, we noted I think about a 3% or a 4% written premium increase. Loss business was replaced equally with new business and then we had about a 5% rate decline on the 85% of the business retained. If you just sort of do the math, that would leave one with less premium than last year, but we’ve got actually 3% more. What am I missing in that sort of simplistic analysis?

John Finnegan

I think the 1:1 is a U.S. only figure, right? So, the bottom line, the CCI growth is essentially currency.

Dan Johnson – Citadel Investment Group

Finally can we just talk about at the major three division levels what the actual gross written premium change was since you provide us the net and the data?

John Finnegan

We normally don’t report gross written premium, but if you look at on a year-by-year basis, I mean there really isn’t a lot of difference between the seated premium that we’ve given to reinsures in over the last several years. So I don’t think there’s any difference in the trends between what gross and netters are doing and as I think most of you know, I mean Chubb really considers itself to be a gross underwriter, so we don’t use the reinsurance markets for very much at all.

Operator

Your next question is from Jay Gelb - Lehman Brothers.

Jay Gelb - Lehman Brothers

First, John, given yesterday’s significant transaction in the property casualty sector, I was wondering what your thoughts are in terms of what that could mean for Chubb’s position in the marketplace or if that gives you any thoughts about the MNA environment?

John Finnegan

If they paid a 50% premium that didn’t wet my appetite for MNA, I’d say, but I’ll let Tom address the impact which I think is relatively insignificant for us in the marketplace.

Thomas Motamed

We don’t think it’s a big deal relative to us and our strategy, whether it is product line or geography. You know, we run into those two companies occasionally, they’re not our key competitors, but we expect there’ll be some disruption with these types of acquisitions and mergers and we keep our eyes out for the right opportunities at the right price.

Jay Gelb - Lehman Brothers

Next, on capital management, the pace of the buybacks has been pretty significant and you’re almost halfway through the buyback that you’d complete by the end of the year. Is there any reason why that might slow as we go through the year?

John Finnegan

It’s hard to say, Jay. We don’t really try to time it on an even quarter basis. I mean we had a $28 million share authorization, you know, we bought a little over $11 million shares. We got sort of $14 in change to go at the end of March. Market conditions were pretty favorable during the first quarter through buying back shares and so we did that. So I would expect that as we go through the year, you’re going to see variability by quarter, but our plan is that this was an annual plan and we expect to complete it.

Jay Gelb - Lehman Brothers

On the corporate line, it doubled versus a year ago? I was just wondering what the swings were there and what the run rate is going forward.

John Finnegan

Yes, I mean I think the run rate going forward is really four times where we are now. The first quarter rate was very similar to the fourth quarter. Last year, if you remember, we had a lot of financing going on. So we issued the hybrid debt offering, which really started to impact the cost in the second quarter and that obviously continued through the year. So it’s really more of an interest cost issue relating to how we handled our debt financing and refinancing the outstanding debt last year than anything else.

Jay Gelb - Lehman Brothers

So the corporate line on a pre-tax basis could run at about $200 million dollars annually?

John Finnegan

Yes.

Operator

Your next question comes from David Small - Bear Stearns.

David Small - Bear Stearns

When you’re talking about your expectation around DNO losses from the credit crunch, do you assume that the more favorable important environment that we’ve seen recently is going to help in terms of lawsuits when you compare this crisis to the tech bubble bursting?

John Finnegan

Yes, we do. As I said, most of our claims have been in the DNO area and most of those claims are securities, class actions, as opposed to derivative cases. So we would expect that some of that threshold barriers that have been set up by the courts recently in Tel Labs and Dura Pharmaceuticals a few years ago are likely to play out in an increased dismissal rate in the securities class actions in this class of loss as opposed to the 2002 corporate abuse losses.

David Small - Bear Stearns

That’s fair to assume that you’re not putting up the same level of reserve for the claims that you’re seeing now as you might have five years ago.

Thomas Motamed

We’re really not going to say anything more than that. We’re prudently reserving as we always have against these losses, but I could quantify the difference if there was one.

David Small - Bear Stearns

Then maybe could you also talk about the pace of reserve releases. Has that been impacted at all in this cycle by Sarbanes Oxley?

David Finnegan

I don’t really think it has. I mean I guess there’s a little bit of more scrutiny paid to some of the accounting policies and stuff that go on in corporate America generally because of Sarbanes Oxley, but I mean I think companies that really wanted to do the right thing all along had the same policies then as they do now and I think Chubb is in that category.

Sarbanes Oxley was really aimed at the guys that sort of made the numbers up and that was illegal anyway. There’s certainly nothing different going on in terms of our behavior before Sarbanes Oxley compared to now.

Thomas Motamed

From a loss perspective, I think Sarbanes Oxley has had a mildly beneficial impact on the development of accident year results and that’s playing out in the reserve releases. Not any change in Chubb’s philosophy.

David Small - Bear Stearns

And then just the last thing is in your prepared remarks, I believe you said the performance of your alternative investments are performing well. That’s obviously a divergence from what we’ve heard from many others. Could you give us some color on what those alternative investments are?

David Finnegan

There are limited partnerships, some private equities, some distress debt. There’s some real estate, particularly outside the U.S. It’s an collected portfolio that was really opportunistically created, depending upon opportunities that we saw in the investment arena and with managers that we know well whose investing philosophy we understand quite well. It fits in with how we think about investments and there’s a lot of due diligence done before we make one of them. We tend to do follow-on investments with the same managers. So we’re not really surprising there, they’re working well. I mean we like to invest with people that analyze the downside risk more than, you know, before they make an investment thinking about the upside and that’s pretty much how we approach our investment portfolio also.

Thomas Motamed

And remember, they’re not in our operating income numbers, unlike some companies. We look at the 7%; you’re not seeing the alternate investments in there. That’s below the one.

Operator

Your next question comes from Charlie Gates - Credit Suisse.

Charlie Gates - Credit Suisse

I think one of you said with regard to the reinsurance program that you entered into; it was the only such program that eliminated basis risk. Could you explain what that means?

John Finnegan

Charlie, I don’t think I said it was the only program that eliminated basis risk. I did say that our programs eliminated or virtually eliminated and most of the other funds in the marketplace have an industry or some sort of an index trigger to determine payout, where ours is based upon our actual losses.

So if we have $100 million dollar loss that would be applied to our traditional reinsurance treaty, because it attaches at a certain level, we would expect the exact same reimbursement from the current treaty.

Where if you had an industry trigger or an index trigger, your actual payment could be a function of the size of the loss or where the storm came ashore or something else that could determine payment and in some cases you might actually wind up getting paid more than your loss was and in other cases you could wind up getting paid less. So the basis risk is really eliminated in our program, because we actually get paid on our actual losses.

Charlie Gates - Credit Suisse

The pressure you see in commercial lines pricing, to what extent do you see impact on profitability either from changes in terms and conditions or to what extent you see the adverse impact of inflation.

Thomas Motamed

I think the inflationary aspect obviously construction cost, material cost, you know, as those things go up they have an impact on your margins and I forgot what the first thing you said was?

Charlie Gates - Credit Suisse

It was terms and conditions.

Thomas Motamed

Yes. We’re not seeing in the commercial space a lot of change on terms and conditions other than some pressure on sub limits. Clients looking for more quake or flood, that type of thing, but we’re pretty tough on that ourselves, but that’s something you’re seeing in the marketplace. People trying to keep the premiums up by increasing sub limits.

Charlie Gates - Credit Suisse

Could you speak for a moment further on that? I don’t understand the concept with regard to the sub limit.

Thomas Motamed

Let’s take a package policy. You have limits on the buildings. You have liability limits. There are sub limits or smaller limits for various perils like flood, quake, and business income. So what happens in the pricing of an account depending how much of that you buy, the pricing goes up or down. So if somebody has $5 million in earthquake coverage, if there was pressure to increase that to $10, an underwriter might say – okay, I’ll give you $10 million in quake, but people are not charging for that today. They’re just trying to give more limit out to keep the overall premium flat.

Operator

Your next question comes from Matthew Heimermann - JP Morgan.

Matthew Heimermann - JP Morgan

Do you expect or did you see any impact from the Louisiana Supreme Court decision with respect to the treatment of flood for commercial losses related to Katrina?

John Finnegan

Rationality is to turned, but we had so much reinsurance available that if the decision had gone the other way it wasn’t going to have a major impact on us. So we believe and are pleased by the fact that the court reached the right decision in a very politicized environment, no real impact on us.

Matthew Heimermann - JP Morgan

We spend a lot of time talking about FI related DNO, you know. Are there any other broad claims for instance on non-FI DNO that are worth noting?

Thomas Motamed

On professional liability, the new arrives are up a little bit, but that’s given the shift of business unexpected. We’re writing more professional liability lines and more mid market claims, severe claims that we generally track are actually down a percent quarter-over-quarter. By and large, the little up tick and new arrives, but ExCat, and nothing that we’re concerned about.

Operator

Your next question comes from Al Copersino – Madoff Investment Securities.

Al Copersino – Madoff Investment Securities

Your financial institutions DNO and ENO policies, these are claims made policies, I guess almost exclusively. The impact we’ve seen on the credit issues, the housing issues, has been relatively recent. How quickly to you tend to hear from claimants and potential claimants that there could be an issue? What’s the lag time?

John Degnan

The absence of a claims made policy is that it has to be reported during the year in which the policy is outstanding or during any extended reporting period that might apply to that policy. So we hear about them pretty quickly, but it is a long-tale liability line of business and it’s tough to get your arms around the reserves on this type of business as quickly as we would, for example, homeowners loss or auto liability or physical damage loss.

So they tend to play out over a longer period of time. It’s one of the reasons why we run the business so conservatively and prudently establish reserves on a IB&R basis against expected developments. So in terms of frequency, I’m pretty confident that the picture that’s being painted now is an accurate one, in terms of severity almost as confident but not quite.

Al Copersino – Madoff Investment Securities

Is it safe to assume that your ENO and DNO policies are mainly January 1 renewals?

John Degnan

No, no, they renew all through the year. There isn’t any pattern.

Operator

Your next question comes from Jay Cohen - Merrill Lynch.

Jay Cohen - Merrill Lynch

I notice the homeowner’s premiums continuing to grow but at a slower and slower pace and I’m wondering if you can identify what’s behind that? You certainly hear out there that IG is making bigger inroads there, of course Ace just bought the C. Mutual business. Is it competition or is it the economy?

Thomas Motamed

I’d say number one, homeowners is a competitive business these days. A lot of people trying to get into the high network space, but I’d say the primary reason for the slower growth in homeowners is the impact of what we would say the lower expected inflation factor that supplies the policies.

So that adjustment is based on changes in the homes, replacement cost. That’s what we insure. Over the past decade, replacement cost, which really a function of building costs and labor costs, rose dramatically with the building boom. Well, guess what, things are different today. So we’ve began to see a slowdown in the increase of replacement cost and therefore we’re modifying what we’re typically charging for the inflation factor as compared to prior years.

Jay Cohen - Merrill Lynch

Is there a change in your renewal retention business?

Thomas Motamed

I think the retention is probably pretty close. I think new business is a little slower than it’s been and the inflation factor, you know, you take that down a couple points, that affects your growth, but there’s competition out there.

Operator

Your next question comes from Joshua Shanker - Citigroup.

Joshua Shanker - Citigroup

My question basically involves distribution. Are you finding given the news, the brokerage firms, that there’s any mix up in where you’re driving your business from for new business or shift in terms of focus?

Thomas Motamed

Number one, you know, we track where we get our business from, whether it be in the U.S. or outside the U.S. We’ve never really said which brokers or agents we get it from, but our business comes from brokers that really are in the middle market in commercial and right personalized business. So we’re not after the big elephant hunter type accounts, which quite honestly are seeing some pretty good rate decline. So I think that’s what you’re hearing from the brokerage community. So we’re trying to stick to the middle market and personalized business and we have a relatively small number of agents that represent Chubb in the U.S. and what we’re finding is we’re able to do pretty well on the rate side and new business, the loss looks pretty good. It’s just not a great time.

Joshua Shanker - Citigroup

There’s no dramatic shift or even a modest shift that you’re observing from where the business is coming from than where it was coming from one year ago.

Thomas Motamed

After one quarter, I couldn’t say there’s any dramatic shift taking place.

Operator

We’ll hear next from Dan Johnson with Citadel Investment Group.

Dan Johnson - Citadel Investment Group

Thanks for the follow-up. The question was in terms of the reserve releases that we’ve seen year to date, the $215. How does that compare to what you were originally envisioning when you laid out your guidance?

John Finnegan

We didn’t have any specific provision for favorable development in our guidance. We did say at the beginning of the year that in terms of individual business lines that hit our guidance targets in professional liability would require some significant favorable development, but that wouldn’t be required in a commercial or personalized.

Dan Johnson - Citadel Investment Group

It’s not that there’s no reserve release in the guidance. It’s not specified, I guess is a better way to put it.

John Finnegan

Well there’s certainly no specific reserve release in the guidance or specific reserve release in our assumptions. You know, you can get to an earnings guidance number from a variety of ways in terms of mix up of combined rations and lines, but net I think we’re at the same place.

Operator

And we have a follow-up question from Jay Gelb - Lehman Brothers.

Jay Gelb - Lehman Brothers

John, I don’t know if you could give out the financial institution related professional liability within the overall professional liability premium?

John Finnegan

I think that, Jay, actually in the Investor supplement, if you sort of bear with me. I’m getting clarification here. Hold on a minute. Why don’t you follow up with Glen on that?

Jay Gelb - Lehman Brothers

Then on the property CAT program that renewed, I believe you said it was down some percent. Does that reflect changes in the use of traditional reinsurance versus cap-ons or are you saying the rate online is down 7%.

John Finnegan

What I was really referring to was the overall cost, including the CAT bonds and the traditional reinsurance. The cost to us was down about 7%. If you sort of risk adjusted it, because we did buy some more limits and the program isn’t identical. It was really down more like 10 or so. That would be rate. Apples to apples basis, if could calculate it that way.

Jay Gelb - Lehman Brothers

In the prepared remarks, right before you said something, you were talking about the credit crisis and right before you said 40% of the DNO side-A only, you said something was 75%. Do you have that?

John Finnegan

It might be excess, 75% are excess policies, 40% is side-A.

Operator

We’ll have another question from Josh Smith – TIAA-CREF.

Josh Smith – TIAA-CREF

A lot of the players in DNO made the statement that a lot of invested banks don’t have full side-ABC coverage, because it’s just too risky. Can you confirm that you don’t have any of the top six investment banks on the side-ABC cover?

Thomas Motamed

I can’t do that for you now. I mean I don’t have a list in front of me and I wouldn’t want to give you anything that’s misleading. If you’re talking about DNO, it is possible that we would be on the DNO cover for a large investment bank, but at lower limits than we would have been on in the past generally and more often than not at an excess layer.

Josh Smith – TIAA-CREF

But do you agree with the statement that most of the invested banks do not have full side-AB&C DNO?

Thomas Motamed

A lot of them, whether that’s most or not would be hard to say, because we haven’t done an inventory to find out.

Operator

And we have another question from David Small with Bear Stearns.

David Small - Bear Stearns

You mentioned a few times excess on the DNO, could you just maybe give us an average attachment?

Thomas Motamed

No, we’re not going to break out any more details than we’ve given you, because we think numbers in isolation would be very potentially misleading.

David Small - Bear Stearns

Is there any information you could give us to help us understand?

Thomas Motamed

Limits outstanding times the number of policies is kind of a ridiculous way to estimate potential loss scenario. There’s so many variables that you’d have to take into consideration, including frequency in severity, the overall ID&R that it carries, the coverage defenses, the attachment points, the type of claims. Bottom line, are we adequately reserved given what we’re seeing develop here and we’re very confident that we are. To give you either a policy count or a premium buy-in with assumed industries impacted what assumptions are made. Is the credit crisis fully dimensioned yet? Are the contours clear? I think if we started to do that, we would unintentionally, but certainly send out some misleading indicators. So we’ve given you the best we can that we think is fair in terms of helping you assess it. The bottom line is we think we’re adequately reserved and we’re not surprised by anything we’ve seen in the development so far.

David Small - Bear Stearns

Just to clarify that, obviously when you’re setting your initial reserves at the beginning of ’07, you didn’t envision a credit crisis happening. So it is to say that kind of every year when you’re setting your loss ticks for professional lines, you assume that there’s going to be a large event happening and you’re going to take losses there. Is that what you assume?

Thomas Motamed

Should I go through the list for you? I mean corporate abuses, stock option back dating, mutual funds, and credit crisis. I wouldn’t say every year, but with some frequency there are highly volatile severe clusters of claims in this line of business. We accurately dealt with them in the last four or five years and I’m not saying we anticipate it each year, but we certainly anticipated them in setting our loss ticks.

David Small - Bear Stearns

In terms of the new business environment, could you just help us understand kind of what you’re seeing in terms of what companies are willing to do in order to get new business? Are we at an irrational stage of new business environment or do you think it’s still rational?

John Finnegan

I think it’s still irrational. You know, you always have kind of the rogue trader mentality out there. People trying to meet their business plan budget, etc. We think it’s pretty rational. Occasionally, you see something that’s wild, but underwriting is an art. It’s not a science. Some people look at it a little differently. So sometimes we’re surprised, but quite honestly we think it’s more rational than irrational.

Operator

We’ll take our next question from Charlie Gates with Credit Suisse

Charlie Gates – Credit Suisse

To what extent do you see standard market companies, including possibly Chubb, electing to begin to write excess in surplus lines?

John Finnegan

We have a wholesale division that does write excess in surplus lines, but I think, Charlie, what I would tell you is a lot of the business that went into the wholesale marketplace, E&S marketplace, with a softer market environment in retail, that business has now come back out to retail. What is staying there is the real catastrophic stuff, program stuff, the unusual stuff, but the retail market is doing more of that today than it would have done in the hard market.

Charlie Gates – Credit Suisse

I’m not sure what you mean by the retail market, sir.

John Finnegan

In other words, independent agents and brokers that deal with admitted companies like Chubb, non-E&S markets.

Operator

Your next question comes from Connie DeBoger - Boston Company.

Connie DeBoger - Boston Company

I notice in your press release that there wasn’t an update to ’08 guidance. Is it reasonable to assume that everything stands in place in terms of EPS guidance as well as some of the underlying metrics for premium growth and combined ratio?

John Finnegan

We’re off to a great start, but I think it’s too early in the year to begin changing guidance.

Operator

We have another question from Jay Cohen - Merrill Lynch.

Jay Cohen - Merrill Lynch

You have this call today. Travelers had a call today and you describe an underwriting environment that you’re seeing some decreases, but as you just said it’s generally pretty sane and then you talk to the brokers and you hear about the toughest market in 30 years, insanity. It’s like you’re operating in two different industries and I’m wondering if you can reconcile why we’re hearing such an enormous difference between what some of the bigger underwriters are saying and what the brokers are saying.

John Finnegan

One thing you have is that you do have factual basis. You’ve seen that in commercial, for example, our rates were down 5% this quarter. They were down 5% in the last half of 2007. So that’s real data points. You’re not seeing any precipitous decline in our rates. I don’t think you saw them in Traveler’s rates. It’s a tough market, but the numbers aren’t suggesting the kind of precipitous decline that I agree sometimes read about in the newspapers.

You also see in specialty that actually our rate declined. Still 12%, but a couple points better than it was in the second half of last year and maybe could hope that maybe it’s going to get a little bit better than that. So not story for story, there’s some facts here too and I think the facts support what we’re saying, which is it’s a tough market, but it isn’t falling off. Now, there are a number of reasons why you hear these anecdotes and I guess I’ll turn to Tom to talk about where it comes from and why you hear them.

Thomas Motamed

Yes, Jay, as John mentioned. You know, we’re looking at commercial rate declines about 5%, professional about 4%. You know, if we’re looking at a renewal and the broker says to us – hey look, you got to get 20% off on this. We say – we’re not interested. We walk. So that doesn’t show up in our numbers, because that’s lost business. If he retains the business and he writes it at 20% off, then it is 20% off for him, but you know, the better underwriting companies are going to try to say – we’re going to hold the line on pricing.

We’re going to price to exposure and quite honestly, we’re not going to cut the book by 20%, 30%, and 40% just to keep a piece of business and become unprofitable. So I think, you know, it is apples and oranges. They have a higher retention rate than we do. Most brokers will tell you they got retention in the 90’s. So they’re trying to keep everything and when they do the price could go down. They’ll find an underwriter out there who’ll do it for less, but I think that’s the difference. We’re more willing to walk away than they are and when they keep it, they keep it for less premium and ultimately less commission.

Operator

And we have no further questions at this time.

John Finnegan

Well thank you all for joining us, have a good evening.

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Source: The Chubb Corporation Q1 2008 Earnings Call Transcript
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