Management's Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition of the Corporation as of March 31, 2009 compared with December 31, 2008 and the results of operations for the quarters ended March 31, 2009 and 2008. 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, 2008.
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; changes to our ceded reinsurance program, including its cost and terms; property and casualty insurance market conditions, including rates and policy terms and conditions; the continuation of the weak economy; changes in the value of our limited partnership investments; securities in our investment portfolio that may become other-than-temporarily impaired; the impact of the adoption of new accounting pronouncements issued by the Financial Accounting Standards Board; the repurchase of common stock under our share repurchase program; the impact of a downgrade of our credit ratings; and our capital adequacy and funding of liquidity needs. Forward-looking statements are made based upon management's current expectations and beliefs concerning trends and future developments and their potential effects on us. These statements are not guarantees of future performance. Actual results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties, which include, among others, those discussed or identified from time to time in our public filings with the Securities and Exchange Commission and those associated with:
• global political conditions and the occurrence of terrorist attacks, including any nuclear, biological, chemical or radiological events;

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

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

• adverse changes in loss cost trends;

• 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;

• the adequacy of loss reserves, including:

• our expectations relating to reinsurance recoverables;

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

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

• development of new theories of liability;

• our estimates relating to ultimate asbestos liabilities;

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

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

• the availability and cost of reinsurance coverage;

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

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

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

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

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

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

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

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

• legislative or regulatory proposals or changes;

• the effects of changes in market practices in the U.S. property and casualty insurance industry, in particular contingent commissions and loss mitigation and finite reinsurance arrangements, arising from any legal or regulatory proceedings, related settlements and industry reform, including changes that have been announced and changes that may occur in the future;

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

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

• the ability of our subsidiaries to pay us dividends;

• general economic and market conditions including:

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

• currency fluctuations;

• the effects of inflation;

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

• changes in competition and pricing environments;

• regional or general changes in asset valuations;

• the inability to reinsure certain risks economically; and

• changes in the litigation environment; and

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

Chubb assumes no obligation to update any forward-looking information set forth in this document, which speak as of the date hereof. Critical Accounting Estimates and Judgments The consolidated financial statements include amounts based on informed estimates and judgments of management for transactions that are not yet complete. Such estimates and judgments affect the reported amounts in the financial statements. Those estimates and judgments that were most critical to the preparation of the financial statements involved the determination of loss reserves and the recoverability of related reinsurance recoverables 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, 2008 as supplemented within the following analysis of our results of operations, require the use of assumptions about matters that are highly uncertain and therefore are subject to change as facts and circumstances develop. If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements.

Overview
The following highlights do not address all of the matters covered in the other sections of Management's Discussion and Analysis of Financial Condition and Results of Operations or contain all of the information that may be important to Chubb's shareholders or the investing public. This overview should be read in conjunction with the other sections of Management's Discussion and Analysis of Financial Condition and Results of Operations.
• Net income was $341 million in the first quarter of 2009 compared with $664 million in the same period of 2008. The lower net income in 2009 was due primarily to two factors. First, we had significant realized investment losses in 2009 compared with realized investment gains in 2008. Second, underwriting income in our property and casualty insurance business, while still substantial, was lower in 2009 compared with 2008.

• Underwriting results were highly profitable in the first quarter of both 2009 and 2008, but more so in 2008. Our combined loss and expense ratio was 88.1% in the first quarter of 2009 and 83.9% in the comparable period in 2008. The less profitable results in 2009 were due in large part to the cumulative impact of rate reductions experienced in our commercial and professional liability classes over the past several years as well as a lower amount of favorable prior year loss development.

• During the first quarter of 2009, we estimate that we experienced overall favorable development of about $130 million on loss reserves established as of the previous year end, primarily in the professional liability and commercial property classes. During the first quarter of 2008, we estimate that we experienced overall favorable development of about $215 million, primarily in the professional liability, homeowners and commercial property classes.

• Total net premiums written decreased by 7% in the first quarter of 2009 compared with the same period in 2008, largely attributable to the impact of currency fluctuation on business written outside the United States due to the strength of the U.S. dollar in the first quarter of 2009 compared to the first quarter of 2008. The general downturn in the economy also contributed to the decline in premiums in 2009. We have continued our emphasis on underwriting discipline in a market environment that remains competitive.

• Property and casualty investment income after tax decreased 6% in the first quarter of 2009. The decline was due primarily to the effects of currency fluctuation on income from our non-U.S. investments as well as lower yields, especially on short term investments. For more information on this non-GAAP financial measure, see "Property and Casualty Insurance - Investment Results."

• Net realized investment losses before taxes were $266 million in the first quarter of 2009 compared with net realized gains before taxes of $68 million in the first quarter of 2008. The net realized losses in 2009 were primarily attributable to losses from investments in limited partnerships, which are reported on a quarter lag. The net realized gains in 2008 were primarily attributable to gains from investments in limited partnerships.

A summary of our consolidated net income is as follows:

                                                   Quarter Ended March 31
                                                    2009             2008
                                                        (in millions)
         Property and Casualty Insurance         $       759       $     915
         Corporate and Other                             (63 )           (54 )
         Realized Investment Gains (Losses)             (266 )            68

         Consolidated Income Before Income Tax           430             929
         Federal and Foreign Income Tax                   89             265


         Consolidated Net Income                 $       341       $     664

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
                                                         2009              2008
                                                              (in millions)
  Underwriting
  Net Premiums Written                                $     2,743       $     2,936
  Decrease in Unearned Premiums                                83                40

  Premiums Earned                                           2,826             2,976

  Losses and Loss Expenses                                  1,615             1,584
  Operating Costs and Expenses                                843               894
  Increase in Deferred Policy Acquisition Costs               (16 )             (13 )
  Dividends to Policyholders                                    8                 9


  Underwriting Income                                         376               502


  Investments
  Investment Income Before Expenses                           386               418
  Investment Expenses                                           7                 8


  Investment Income                                           379               410


  Other Income                                                  4                 3


  Property and Casualty Income Before Tax             $       759       $       915


  Property and Casualty Investment Income After Tax   $       306       $       327

Property and casualty income before tax was lower in the first quarter of 2009 compared to the same period in 2008. The lower income in 2009 was attributable to a decrease in underwriting income, and to a lesser extent, lower investment income. The decrease in underwriting income in 2009 was due in large part to the cumulative impact of rate reductions experienced in our commercial and professional liability classes over the past several years as well as a lower amount of favorable prior year loss development. The decrease in investment income in 2009 was due to the effects of currency fluctuation on income from our non-U.S. investments as well as lower yields, especially on short term investments.

The profitability of the property and casualty insurance business depends on the results of both our underwriting and investment operations. We view these as two distinct operations since the underwriting functions are managed separately from the investment function. Accordingly, in assessing our performance, we evaluate underwriting results separately from investment results.
Underwriting Results
We evaluate the underwriting results of our property and casualty insurance business in the aggregate and also for each of our separate business units.
Net Premiums Written
Net premiums written were $2.7 billion in the first quarter of 2009, compared with $2.9 billion in the same period of 2008.
Net premiums written by business unit were as follows:

                                    Quarter Ended March 31          % Increase
                                    2009              2008          (Decrease)
                                         (in millions)
          Personal insurance     $       843       $       877               (4 )%
          Commercial insurance         1,260             1,340               (6 )
          Specialty insurance            630               703              (10 )

          Total insurance              2,733             2,920               (6 )
          Reinsurance assumed             10                16              (38 )

          Total                  $     2,743       $     2,936               (7 )

Net premiums written decreased by 7% in the first quarter of 2009 compared with the comparable period in 2008. The decrease was primarily due to the impact of currency fluctuation on business written outside the United States due to the strengthening of the U.S. dollar that began in the latter part of 2008. The general downturn in the economy also contributed to the decline in premiums in 2009.
During the first quarter of 2009, we continued our emphasis on underwriting discipline in a competitive market. Overall, renewal rates in the U.S. commercial and professional liability businesses increased slightly in the first quarter of 2009, following several years of decline. We continued to retain a high percentage of our existing customers and to renew those accounts at what we believe are acceptable rates relative to the risks. We have seen some additional opportunities to write new business due to the market disruption that began in the second half of 2008 as a result of the broader issues in the financial markets and the economies of the United States and other countries. However, the positive effect of these new opportunities has been offset by the decrease in demand for insurance caused by the general downturn in the economy that has continued in 2009.

Reinsurance Ceded
Our premiums written are net of amounts ceded to reinsurers who assume a portion of the risk under the insurance policies we write that are subject to reinsurance.
Reinsurance rates for property risks have increased somewhat in 2009. Capacity restrictions continued in some segments of the marketplace.
The most significant component of our ceded reinsurance program is property reinsurance of which we purchase two coverages: catastrophe and property per risk. We renewed our major traditional property catastrophe treaties and our commercial property per risk treaty in April 2009.
For the United States and Canada, we refer to our traditional catastrophe reinsurance treaty as the North American catastrophe treaty. In recent years, we have reduced the amount of reinsurance purchased under this treaty and replaced it with multi-year, collateralized reinsurance coverage funded through the issuance of securitized risk linked securities, known as catastrophe bonds.
In 2009, we modified the structure of our North American catastrophe treaty. For the 2009 treaty, our initial retention is $500 million per occurrence. We did not renew the coverage for 45% of covered losses between $350 million and $500 million we had under the 2008 treaty. We also converted a northeastern United States-only layer into a layer that covers all of the United States and Canada. The overall impact of these changes was to slightly reduce the maximum amount that we can recover per occurrence under the North American catastrophe treaty.
For United States and Canadian exposures, the North American catastrophe treaty and catastrophe bond coverage purchased in 2008 collectively provide coverage of approximately 72% of losses (net of recoveries from other available reinsurance) between $500 million and $1.15 billion and 60% of losses between $1.15 billion and $1.65 billion.
The first of the catastrophe bond coverages, which we purchased in 2007, is a $250 million, four-year reinsurance arrangement that provides coverage for homeowners-related hurricane losses in the northeastern part of the United States, where we have our greatest concentration of catastrophe exposure. The second of the catastrophe bond coverages, which we purchased in 2008, is a $200 million, three-year reinsurance arrangement that provides coverage for homeowners and commercial exposures. A portion of this coverage is limited to loss events in the northeastern part of the United States and the remainder provides coverage for losses occurring anywhere in the continental United States or Canada. Our third catastrophe bond coverage, which we purchased in 2009, is a $150 million, three-year reinsurance arrangement that provides coverage for homeowners-related hurricane losses in Florida.
For events in the northeastern part of the United States, we have additional reinsurance that covers approximately 35% of losses (net of recoveries from other available reinsurance) between $1.15 billion and $2.05 billion. This coverage is provided through a combination of our North American catastrophe reinsurance treaty and the catastrophe bond coverage that we purchased in 2008. Additionally, the catastrophe bond coverage purchased in 2007 provides coverage for approximately 30% of homeowners-related hurricane losses between $1.45 billion and $2.25 billion.

In addition to the United States and Canadian coverages described above, for hurricane events in Florida, we have a combination of reinsurance coverages. We have reinsurance from the Florida Hurricane Catastrophe Fund (FHCF), which is a state-mandated fund designed to reimburse insurers for a portion of their residential catastrophic hurricane losses. Our participation in this program limits our initial retention in Florida for homeowners-related losses to approximately $185 million and provides coverage of 90% of covered losses between $185 million and $685 million. This treaty renews June 1, 2009 and our retention and coverage limits will be modified based on our updated exposure data. We currently expect to purchase the state-mandated coverage in amounts similar to our current coverage. Additionally, the 2009 catastrophe bond provides coverage of 50% of homeowners-related hurricane losses between $850 million and $1,150 million.
For any catastrophe losses, we are subject to certain coinsurance requirements that affect the interaction of some elements of our catastrophe reinsurance program.
Our property catastrophe treaty for events outside the United States was renewed with only modest changes in coverage. We increased both our initial retention and the reinsurance coverage in the top layer of the treaty by $25 million and increased our participation in the program. The treaty now provides coverage of approximately 75% of losses (net of recoveries from other available reinsurance) between $100 million and $350 million.
Our commercial property per risk treaty was renewed with no significant changes in coverage. This treaty provides approximately $560 million of coverage per risk in excess of our $25 million retention.
Our property reinsurance treaties generally contain terrorism exclusions for acts perpetrated by foreign terrorists, and for nuclear, biological, chemical and radiological loss causes whether such acts are perpetrated by foreign or domestic terrorists.
We expect that the overall cost of our property reinsurance program in 2009 will be modestly higher than that in 2008. We do not expect the changes we made to our reinsurance program during 2009 to have a material effect on the Corporation's results of operations, financial condition or liquidity.
Profitability
The combined loss and expense ratio, expressed as a percentage, is the key measure of underwriting profitability traditionally used in the property and casualty insurance business. Management evaluates the performance of our underwriting operations and of each of our business units using, among other measures, the combined loss and expense ratio calculated in accordance with statutory accounting principles. It is the sum of the ratio of losses and loss expenses to premiums earned (loss ratio) plus the ratio of statutory underwriting expenses to premiums written (expense ratio) after reducing both premium amounts by dividends to policyholders. When the combined ratio is under 100%, underwriting results are generally considered profitable; when the combined ratio is over 100%, underwriting results are generally considered unprofitable.
Statutory accounting principles applicable to property and casualty insurance companies differ in certain respects from generally accepted accounting principles (GAAP). Under statutory accounting principles, policy acquisition and other underwriting expenses are recognized immediately, not at the time premiums are earned. Management uses underwriting results determined in accordance with GAAP, among other measures, to assess the overall performance of our underwriting operations. To convert statutory underwriting results to a GAAP basis, policy acquisition expenses are deferred and amortized over the period in which the related premiums are earned. Underwriting income determined in accordance with GAAP is defined as premiums earned less losses and loss expenses incurred and GAAP underwriting expenses incurred.

Underwriting results were highly profitable in the first quarter of 2009 and 2008, but more so in 2008. The combined loss and expense ratio for our overall property and casualty business was as follows:

                                         Quarter Ended March 31
                                          2009             2008
                     Loss ratio             57.3 %           53.4 %
                     Expense ratio          30.8             30.5

                     Combined ratio         88.1 %           83.9 %

The loss ratio was higher in the first quarter of 2009 compared with the same period in 2008. The relatively low loss ratio in both years reflects the favorable loss experience which we believe resulted from our disciplined underwriting in recent years as well as relatively mild loss trends in certain classes of business. The higher loss ratio in the first quarter of 2009 compared with the first quarter of 2008 was due to the cumulative impact of rate reductions experienced in our commercial and professional liability classes over the past several years as well as a lower amount of favorable prior year loss development.
Catastrophe losses were $26 million in the first quarter of 2009, which represented 0.9 of a percentage point of the combined loss and expense ratio, compared with $54 million, or 1.8 percentage points, in the same period in 2008.
The expense ratio was slightly higher in the first quarter of 2009 compared with the same period in 2008, due primarily to an increase in the commission ratio. The increase was due to premium growth outside the United States in countries where commission rates are higher than in the United States as well as modestly higher commission rates in the United States in certain classes of business.
Review of Underwriting Results by Business Unit Personal Insurance
Net premiums written from personal insurance, which represented 31% of our premiums written in the first quarter of 2009, decreased by 4% in the first quarter of 2009 compared with the same period in 2008 due to the impact of currency fluctuation on business written outside the U.S. Excluding the impact of currency fluctuation, premiums from personal insurance increased slightly. Net premiums written for the classes of business within the personal insurance segment were as follows:

                                 Quarter Ended March 31         % Increase
                                  2009              2008        (Decrease)
                                      (in millions)
              Automobile       $       131         $   142               (8 )%
              Homeowners               514             539               (5 )
              Other                    198             196                1

              Total personal   $       843         $   877               (4 )
. . .