UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2006

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

For the transition period from                                          to                                           

THE CHUBB CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

YES þ     NO o

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

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

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

YES o     NO þ

     The number of shares of common stock outstanding as of June 30, 2006 was 410,809,367.

 

 

THE CHUBB CORPORATION
INDEX

		Page Number
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2006 and 2005			1
Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005			2
Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2006 and 2005			3
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005			4
Notes to Consolidated Financial Statements			5
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 4 - Controls and Procedures			33
Part II. Other Information:
Item 1 – Legal Proceedings			34
Item 1A – Risk Factors			34
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 4 - Submission of Matters to a Vote of Security Holders			35
Item 6 - Exhibits			36
Signatures			36

Page 1

Part I. FINANCIAL INFORMATION

Item 1 — Financial Statements

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
PERIODS ENDED JUNE 30

		Second Quarter								Six Months
		2006				2005				2006				2005
						(in millions except
						for per share amounts)
Revenues
Premiums Earned		$	2,970			$	3,019			$	5,989			$	6,054
Investment Income			392				349				773				683
Other Revenues			41				31				41				66
Realized Investment Gains			42				53				148				98
Total Revenues			3,445				3,452				6,951				6,901
Losses and Expenses
Insurance Losses and Loss Expenses			1,679				1,819				3,297				3,654
Amortization of Deferred Policy Acquisition Costs			713				743				1,446				1,474
Other Insurance Operating Costs and Expenses			133				126				260				279
Investment Expenses			10				7				20				16
Other Expenses			28				26				44				86
Corporate Expenses			48				47				98				96
Total Losses and Expenses			2,611				2,768				5,165				5,605
Income Before Federal and Foreign Income Tax			834				684				1,786				1,296
Federal and Foreign Income Tax			236				189				516				331
Net Income		$	598			$	495			$	1,270			$	965
Net Income Per Share
Basic		$	1.45			$	1.26			$	3.07			$	2.48
Diluted			1.41				1.23				2.99				2.41
Dividends Declared Per Share			.25				.21	1/2			.50				.43

See Notes to Consolidated Financial Statements.

Page 2

THE CHUBB CORPORATION

CONSOLIDATED BALANCE SHEETS

		June 30,				Dec. 31,
		2006				2005
		(in millions)
Assets
Invested Assets
Short Term Investments		$	1,459			$	1,899
Fixed Maturities
Held-to-Maturity — Tax Exempt (market $170 and $216)			162				205
Available-for-Sale
Tax Exempt (cost $16,370 and $15,449)			16,354				15,750
Taxable (cost $14,852 and $14,515)			14,555				14,568
Equity Securities (cost $2,434 and $2,088)			2,578				2,212
TOTAL INVESTED ASSETS			35,108				34,634
Cash			38				36
Securities Lending Collateral			1,457				2,077
Accrued Investment Income			410				391
Premiums Receivable			2,453				2,319
Reinsurance Recoverable on Unpaid Losses and Loss Expenses			3,152				3,769
Prepaid Reinsurance Premiums			277				244
Deferred Policy Acquisition Costs			1,486				1,445
Real Estate Assets			335				367
Investment in Partially Owned Company			261				260
Deferred Income Tax			664				623
Goodwill			467				467
Other Assets			1,666				1,429
TOTAL ASSETS		$	47,774			$	48,061
Liabilities
Unpaid Losses and Loss Expenses		$	22,586			$	22,482
Unearned Premiums			6,452				6,361
Securities Lending Payable			1,457				2,077
Long Term Debt			2,462				2,467
Dividend Payable to Shareholders			103				90
Accrued Expenses and Other Liabilities			2,075				2,177
TOTAL LIABILITIES			35,135				35,654
Contingent Liabilities (Note 6)
Shareholders’ Equity
Common Stock — $1 Par Value; 410,809,367 and 210,432,298 Shares			411				210
Paid-In Surplus			1,671				2,364
Retained Earnings			10,663				9,600
Accumulated Other Comprehensive Income (Loss)
Unrealized Appreciation (Depreciation) of Investments, Net of Tax			(169	)			311
Foreign Currency Translation Gains, Net of Tax			63				57
Treasury Stock, at Cost – 1,393,900 Shares in 2005			—				(135	)
TOTAL SHAREHOLDERS’ EQUITY			12,639				12,407
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	47,774			$	48,061

See Notes to Consolidated Financial Statements.

Page 3

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PERIODS ENDED JUNE 30

		Second Quarter								Six Months
		2006				2005				2006				2005
						(in millions)
Net Income		$	598			$	495			$	1,270			$	965
Other Comprehensive Income (Loss)
Change in Unrealized Appreciation or Depreciation of Investments, Net of Tax			(256	)			299				(480	)			29
Foreign Currency Translation Gains (Losses), Net of Tax			8				(36	)			6				(29	)
			(248	)			263				(474	)			—
Comprehensive Income		$	350			$	758			$	796			$	965

See Notes to Consolidated Financial Statements.

Page 4

THE CHUBB CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30

		2006				2005
		(in millions)
Cash Flows from Operating Activities
Net Income		$	1,270			$	965
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Increase in Unpaid Losses and Loss Expenses, Net			721				786
Increase in Unearned Premiums, Net			17				115
Increase in Premiums Receivable			(134	)			(122	)
Decrease (Increase) in Reinsurance Recoverable on Paid Losses			(234	)			12
Change in Deferred Income Tax			116				79
Amortization of Premiums and Discounts on Fixed Maturities			115				106
Depreciation			43				48
Realized Investment Gains			(148	)			(98	)
Other, Net			(424	)			1
Net Cash Provided by Operating Activities			1,342				1,892
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities			1,603				3,305
Proceeds from Maturities of Fixed Maturities			781				857
Proceeds from Sales of Equity Securities			311				277
Purchases of Fixed Maturities			(3,546	)			(5,751	)
Purchases of Equity Securities			(502	)			(389	)
Decrease (Increase) in Short Term Investments, Net			440				(154	)
Increase (Decrease) in Net Payable from Security Transactions Not Settled			211				(2	)
Purchases of Property and Equipment, Net			(33	)			(19	)
Other, Net			—				71
Net Cash Used in Investing Activities			(735	)			(1,805	)
Cash Flows from Financing Activities
Decrease in Funds Held Under Deposit Contracts			(15	)			(253	)
Proceeds from Issuance of Common Stock Under Stock-Based Employee Compensation Plans			143				318
Repurchase of Shares			(539	)			—
Dividends Paid to Shareholders			(194	)			(159	)
Net Cash Used in Financing Activities			(605	)			(94	)
Net Increase (Decrease) in Cash			2				(7	)
Cash at Beginning of Year			36				42
Cash at End of Period		$	38			$	35

See Notes to Consolidated Financial Statements.

Page 5

THE CHUBB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1) General

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

     The amounts included in this report are unaudited but include those adjustments, consisting of normal recurring items, that management considers necessary for a fair presentation. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the Notes to Consolidated Financial Statements included in the Corporation’s 2005 Annual Report on Form 10-K.

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

2) Adoption of New Accounting Pronouncements

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

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

Page 6

3) Investments

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

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

		Periods Ended June 30
		Second Quarter								Six Months
		2006				2005				2006				2005
		(in millions)
Change in unrealized appreciation of equity securities		$	(6	)		$	30			$	20			$	18
Change in unrealized appreciation or depreciation of fixed maturities			(297	)			430				(667	)			26
			(303	)			460				(647	)			44
Deferred income tax (credit)			(47	)			161				(167	)			15
Change in unrealized appreciation or depreciation of investments, net		$	(256	)		$	299			$	(480	)		$	29

4) Debt

     In June 2003, Chubb issued $460 million of unsecured 2.25% senior notes due August 16, 2008 and 18.4 million purchase contracts to purchase Chubb’s common stock on or before August 16, 2006. The notes and purchase contracts were issued together in the form of 7% equity units. Each equity unit initially represented one purchase contract and $25 principal amount of senior notes. In May 2006, the notes were successfully remarketed as required by their terms. The interest rate on the notes was reset to 5.472% from 2.25%, effective May 16, 2006. The remarketed notes are due August 16, 2008. Chubb did not receive any proceeds from the remarketing of the notes. Instead, the proceeds from the remarketing will be used to satisfy the holders’ obligation under the purchase contracts to purchase Chubb’s common stock on August 16, 2006.

Page 7

5) Segments Information

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

     The property and casualty insurance subsidiaries (P&C Group) underwrite most lines of property and casualty insurance. Underwriting operations consist of four separate business units: personal insurance, commercial insurance, specialty insurance and reinsurance assumed. The personal segment targets the personal insurance market. The personal classes include automobile, homeowners and other personal coverages. The commercial segment includes those classes of business that are generally available in broad markets and are of a more commodity nature. Commercial classes include multiple peril, casualty, workers’ compensation and property and marine. The specialty segment includes those classes of business that are available in more limited markets since they require specialized underwriting and claim settlement. Specialty classes include professional liability coverages and surety. The reinsurance assumed business is effectively in runoff following the sale, in December 2005, of the ongoing business to a Bermuda based reinsurance company, Harbor Point Limited. Harbor Point has the right for a transition period of up to two years to underwrite specific reinsurance business on the P&C Group’s behalf. The P&C Group retains a portion of this business and cedes the balance to Harbor Point.

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

     Corporate and other includes the results of Chubb Financial Solutions (CFS), which were previously reported separately. CFS’s business was primarily structured credit derivatives, principally as a counterparty in portfolio credit default swaps. CFS has been in run-off since April 2003.

Page 8

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

		Periods Ended June 30
		Second Quarter								Six Months
		2006				2005				2006				2005
		(in millions)
Revenues
Property and casualty insurance Premiums earned
Personal insurance		$	844			$	801			$	1,681			$	1,594
Commercial insurance			1,255				1,268				2,534				2,525
Specialty insurance			742				727				1,491				1,449
Total insurance			2,841				2,796				5,706				5,568
Reinsurance assumed			129				223				283				486
			2,970				3,019				5,989				6,054
Investment income			368				332				725				653
Total property and casualty insurance			3,338				3,351				6,714				6,707
Corporate and other			65				48				89				96
Realized investment gains			42				53				148				98
Total revenues		$	3,445			$	3,452			$	6,951			$	6,901
Income (loss) before income tax Property and casualty insurance Underwriting
Personal insurance		$	154			$	133			$	338			$	267
Commercial insurance			171				168				427				337
Specialty insurance			82				8				170				(22	)
Total insurance			407				309				935				582
Reinsurance assumed			—				17				16				58
			407				326				951				640
Increase in deferred policy acquisition costs			37				4				29				9
Underwriting income			444				330				980				649
Investment income			358				325				706				638
Other income (charges)			1				1				6				(2	)
Total property and casualty insurance			803				656				1,692				1,285
Corporate and other loss			(11	)			(25	)			(54	)			(87	)
Realized investment gains			42				53				148				98
Total income before income tax		$	834			$	684			$	1,786			$	1,296

Page 9

6) Contingent Liabilities

     Chubb and certain of its subsidiaries are involved in the ongoing investigations of business practices in the property and casualty insurance industry relating to, among other things, (1) the payment of contingent commissions to brokers and agents and (2) loss mitigation and finite reinsurance arrangements. In connection with these investigations, Chubb and certain of its subsidiaries have received subpoenas and other information requests from the Attorneys General and insurance regulators of several states, as well as from several foreign regulatory authorities, the U.S. Securities and Exchange Commission and the U.S. Attorney for the Southern District of New York. The Corporation is cooperating fully in such investigations. Although no regulatory action has been initiated against the Corporation, it is possible that one or more regulatory authorities will bring an action against the Corporation with respect to some or all of the issues that are the focus of these ongoing investigations. In May 2006, the Corporation was informed by the Attorney General of the State of Ohio that he intended to file an action against several industry participants, including the Corporation, with respect to certain of these issues. No such action has been filed to date.

     Purported class actions arising out of the investigations into the payment of contingent commissions to brokers and agents have been filed in a number of state and federal courts. On August 1, 2005, Chubb and certain of its subsidiaries were named in a putative class action entitled In re Insurance Brokerage Antitrust Litigation in the U.S. District Court for the District of New Jersey. This action, brought against several brokers and insurers on behalf of a class of persons who purchased insurance through the broker defendants, asserts claims under the Sherman Act and state law and the Racketeer Influenced and Corrupt Organizations Act (“RICO”) arising from the alleged unlawful use of contingent commission agreements. The complaint seeks treble damages, injunctive and declaratory relief, and attorneys’ fees.

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

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

Page 10

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

7) Earnings Per Share

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

		Periods Ended June 30
		Second Quarter								Six Months
		2006				2005				2006				2005
		(in millions
		except for per share amounts)
Basic earnings per share:
Net income		$	598			$	495			$	1,270			$	965
Weighted average number of common shares outstanding			413.7				392.8				413.8				389.6
Basic earnings per share		$	1.45			$	1.26			$	3.07			$	2.48
Diluted earnings per share:
Net income		$	598			$	495			$	1,270			$	965
Weighted average number of common shares outstanding			413.7				392.8				413.8				389.6
Additional shares from assumed exercise of stock-based compensation awards			6.7				7.3				6.8				7.4
Additional shares from assumed issuance of common stock upon settlement of purchase contracts and mandatorily exercisable warrants			3.7				4.4				3.5				3.7
Weighted average number of common shares and potential common shares assumed outstanding for computing diluted earnings per share			424.1				404.5				424.1				400.7
Diluted earnings per share		$	1.41			$	1.23			$	2.99			$	2.41

Page 11

8) Shareholders’ Equity

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

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

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

		Six Months Ended
		June 30
		2006				2005
Common stock issued
Balance, beginning of year			210,432,298				195,803,824
Two-for-one stock split			210,432,298				—
Treasury shares cancelled			(7,887,800	)			—
Repurchase of shares			(5,898,362	)			—
Share activity under stock-based employee compensation plans			3,730,933				2,535,127
Balance, end of period			410,809,367				198,338,951
Treasury stock
Balance, beginning of year			1,393,900				3,127,282
Two-for-one stock split			1,393,900				—
Repurchase of shares			5,100,000				—
Cancellation of shares			(7,887,800	)			—
Share activity under stock-based employee compensation plans			—				(3,127,282	)
Balance, end of period			—				—
Common stock outstanding, end of period			410,809,367				198,338,951

Page 12

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

          Certain statements in this document are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements are made pursuant to the safe harbor provisions of the PSLRA and include our loss reserve estimates and reinsurance recoverables; reinsurance pricing; commercial insurance rates; the impact of regulatory investigations and developments on our business; our estimated CFS credit derivatives exposure; the possible recognition of additional impairment losses if real estate is not sold or does not perform as contemplated and the effect thereof on our results of operations; the repurchase of Chubb’s common stock under its share repurchase program; continuation of our financial strength and credit ratings; and the funding of Chubb’s future liquidity needs. Forward-looking statements are made based upon management’s current expectations and beliefs concerning trends and future developments and their potential effects on us. These statements are not guarantees of future performance. Actual results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties, which include, among others, those discussed or identified from time to time in our public filings with the Securities and Exchange Commission and those associated with:

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

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

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

Page 13

•		the impact of economic factors on companies on whose behalf we have issued surety bonds, and in particular, on those companies that have filed for bankruptcy or otherwise experienced deterioration in creditworthiness;
•		the effects of disclosures by, and investigations of, public companies relating to possible accounting irregularities, practices in the financial services industry and other corporate governance issues, including:

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

•		the effects of investigations into market practices, in particular contingent commissions and loss mitigation and finite reinsurance arrangements, in the property and casualty insurance industry together with any legal or regulatory proceedings, related settlements and industry reform or other changes with respect to contingent commissions or otherwise arising therefrom;
•		the impact of legislative and regulatory developments on our business, including those relating to terrorism and large-scale catastrophes;
•		any downgrade in our claims-paying, financial strength or other credit ratings;
•		the ability of our subsidiaries to pay us dividends;
•		general economic and market conditions including:

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

•

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

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

Page 14

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

          The consolidated financial statements include amounts based on informed estimates and judgments of management for transactions that are not yet complete. Such estimates and judgments affect the reported amounts in the financial statements. Those estimates and judgments that were most critical to the preparation of the financial statements involved the determination of loss reserves and the recoverability of related reinsurance recoverables and the recoverability of the carrying value of real estate properties. These estimates and judgments, which are discussed within the following analysis of our results of operations, require the use of assumptions about matters that are highly uncertain and therefore are subject to change as facts and circumstances develop. If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements.

Overview

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

	•		Net income was $1.3 billion in the first six months of 2006 and $598 million in the second quarter compared with $965 million and $495 million, respectively, in the comparable periods of 2005. The increase in net income in the 2006 periods was driven by substantially higher underwriting income in our property and casualty insurance business.
	•		Premiums written decreased by 3% in the first six months of 2006 and 1% in the second quarter. Premiums in our insurance business increased 1% in the first six months of 2006 and 3% in the second quarter. Rates were generally stable, but were under competitive pressure in some classes of business. Premiums in our reinsurance assumed business decreased 48% in the first six months of 2006 and 51% in the second quarter, reflecting the sale of the ongoing business.
	•		Underwriting results were exceptionally profitable in the first six months and second quarter of 2006 as evidenced by the combined loss and expense ratio of 84.0% and 85.2%, respectively, compared with 88.9% and 88.3%, respectively, in the corresponding periods of 2005.
	•		Property and casualty investment income after tax increased by 11% in the first six months of 2006 and 10% in the second quarter. For more information on this non-GAAP financial measure, see “Property and Casualty Insurance — Investment Results.”

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          A summary of our consolidated net income is as follows:

		Periods Ended June 30
		Second Quarter								Six Months
		2006				2005				2006				2005
		(in millions)
Property and Casualty Insurance		$	803			$	656			$	1,692			$	1,285
Corporate and Other			(11	)			(25	)			(54	)			(87	)
Realized Investment Gains			42				53				148				98
Consolidated Income Before Income Tax			834				684				1,786				1,296
Federal and Foreign Income Tax			236				189				516				331
Consolidated Net Income		$	598			$	495			$	1,270			$	965

Property and Casualty Insurance

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

		Periods Ended June 30
		Second Quarter								Six Months
		2006				2005				2006				2005
		(in millions)
Underwriting
Net Premiums Written		$	3,081			$	3,113			$	6,006			$	6,169
Increase in Unearned Premiums			(111	)			(94	)			(17	)			(115	)
Premiums Earned			2,970				3,019				5,989				6,054
Losses and Loss Expenses			1,679				1,819				3,297				3,654
Operating Costs and Expenses			876				869				1,726				1,748
Increase in Deferred Policy Acquisition Costs			(37	)			(4	)			(29	)			(9	)
Dividends to Policyholders			8				5				15				12
Underwriting Income			444				330				980				649
Investments
Investment Income Before Expenses			368				332				725				653
Investment Expenses			10				7				19				15
Investment Income			358				325				706				638
Other Income (Charges)			1				1				6				(2	)
Property and Casualty Income Before Tax		$	803			$	656			$	1,692			$	1,285
Property and Casualty Investment Income After Tax		$	288			$	261			$	567			$	513

          Income before tax from our property and casualty business was substantially higher in the first six months and second quarter of 2006 compared with the comparable periods of 2005. The increase was driven by significantly higher underwriting income, particularly in our specialty insurance business unit. Results in the 2006 periods also benefited from higher investment income.

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

     Underwriting Results

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

     Net Premiums Written

          Property and casualty net premiums written were $6.0 billion in the first six months of 2006 and $3.1 billion in the second quarter, representing decreases of 3% and 1%, respectively, compared with the same periods of 2005.

          Net premiums written by business unit were as follows:

		Six Months Ended												Quarter Ended
		June 30								% Incr.				June 30								% Incr.
		2006				2005				(Decr.)				2006				2005				(Decr.)
		(in millions)												(in millions)
Personal insurance		$	1,726			$	1,627				6	%		$	934			$	871				7	%
Commercial insurance			2,619				2,633				(1	)			1,294				1,268				2
Specialty insurance			1,419				1,442				(2	)			739				743				(1	)
Total insurance			5,764				5,702				1				2,967				2,882				3
Reinsurance assumed			242				467				(48	)			114				231				(51	)
Total		$	6,006			$	6,169				(3	)		$	3,081			$	3,113				(1	)

     Net premiums from our insurance business increased 1% in the first six months of 2006 and 3% in the second quarter compared with the same periods of 2005. Premiums in the United States, which represent more than 75% of our insurance premiums, increased 1% in the first six months and 2% in the second quarter. Premiums outside the U.S. increased 1% in the first six months and 5% in the second quarter; in local currencies, such premiums grew 2% and 1%, respectively.

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

     Net reinsurance assumed premiums decreased by 48% in the first six months of 2006 and 51% in the second quarter compared with the same periods of 2005. The premium decline was the result of our sale of the ongoing reinsurance assumed business in December 2005.

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     Reinsurance Ceded

          Our premiums written are net of amounts ceded to reinsurers who assume a portion of the risk under the insurance policies we write that are subject to the reinsurance.

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

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

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

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

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

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

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

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     Profitability

          The combined loss and expense ratio, expressed as a percentage, is the key measure of underwriting profitability traditionally used in the property and casualty insurance business. Management evaluates the performance of our underwriting operations and of each of our business units using, among other measures, the combined loss and expense ratio calculated in accordance with statutory accounting principles. It is the sum of the ratio of losses and loss expenses to premiums earned (loss ratio) plus the ratio of statutory underwriting expenses to premiums written (expense ratio) after reducing both premium amounts by dividends to policyholders. When the combined ratio is under 100%, underwriting results are generally considered profitable; when the combined ratio is over 100%, underwriting results are generally considered unprofitable.

          Statutory accounting principles applicable to property and casualty insurance companies differ in certain respects from generally accepted accounting principles (GAAP). Under statutory accounting principles, policy acquisition and other underwriting expenses are recognized immediately, not at the time premiums are earned. Management uses underwriting results determined in accordance with GAAP, among other measures, to assess the overall performance of our underwriting operations. To convert statutory underwriting results to a GAAP basis, policy acquisition expenses are deferred and amortized over the period in which the related premiums are earned. Underwriting income determined in accordance with GAAP is defined as premiums earned less losses and loss expenses incurred and GAAP underwriting expenses incurred.

          Underwriting results were highly profitable in the first six months and second quarter of 2006 and 2005. Results in 2006 were exceptionally profitable, with each of our insurance business units being more profitable in the first six months compared with the corresponding period of 2005. The combined loss and expense ratio for our overall property and casualty business was as follows:

		Periods Ended June 30
		Six Months								Second Quarter
		2006				2005				2006				2005
Loss ratio			55.2	%			60.5	%			56.7	%			60.3	%
Expense ratio			28.8				28.4				28.5				28.0
Combined ratio			84.0	%			88.9	%			85.2	%			88.3	%

          Catastrophe losses of $101 million in the first six months of 2006 were offset in part by a $20 million reduction in reinsurance reinstatement premium costs related to Hurricane Katrina. The net impact accounted for 1.4 percentage points of the combined ratio. Catastrophe losses in the first six months of 2005 were $41 million, which represented 0.7 of a percentage point of the combined ratio. Catastrophe losses were $80 million in the second quarter of 2006, which represented 2.7 percentage points of the combined ratio, compared with $21 million or 0.7 of a percentage point in 2005. The catastrophe losses in 2006 related to a number of storms and tornados in the United States.

          The loss ratio improved significantly in the first six months and second quarter of 2006 compared with the same periods in 2005, despite the higher catastrophe losses. The improvement reflected the favorable experience resulting from our disciplined underwriting in recent years.

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          The expense ratio increased in the first six months and second quarter of 2006 compared with the same periods in 2005 as net premiums written decreased whereas salaries and operating costs increased. The increase in salaries and operating costs in the first six months of 2006 was offset in part by lower accrued contingent commissions. We accrued contingent commissions in the first six months of 2005 at a higher rate than we ultimately paid after we concluded the agreements with our brokers and agents.

     Review of Underwriting Results by Business Unit

     Personal Insurance

          Net premiums from personal insurance coverages, which represented 29% of premiums written in the first six months of 2006, increased by 6% in the first six months of 2006 and 7% in the second quarter compared with the same periods in 2005. Net premiums written for the classes of business within the personal insurance segment were as follows:

		Six Months Ended												Quarter Ended
		June 30												June 30
		2006				2005				% Incr.				2006				2005				% Incr.
		(in millions)												(in millions)
Automobile		$	337			$	317				6%			$	182			$	171				6%
Homeowners			1,097				1,020				8				609				568				7
Other			292				290				1				143				132				8
Total personal		$	1,726			$	1,627				6			$	934			$	871				7

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

          Our personal insurance business produced highly profitable underwriting results in the first six months and second quarter of both 2006 and 2005. The combined loss and expense ratios for the classes of business within the personal insurance segment were as follows:

		Periods Ended June 30
		Six Months								Second Quarter
		2006				2005				2006				2005
Automobile			87.9	%			95.3	%			85.9	%			95.2	%
Homeowners			73.1				76.9				72.6				73.7
Other			91.6				89.1				92.6				91.6
Total personal			79.1	%			82.7	%			78.5	%			81.0	%

          Our personal automobile business produced more profitable results in the first six months and second quarter of 2006 compared with the same periods in 2005. The improvement was due to a combination of lower claim frequency and modest favorable loss development related to prior accident years.

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          Homeowners results were highly profitable in the first six months and second quarter of 2006 and 2005, but more so in 2006 despite higher catastrophe losses. Results in both years benefited from better pricing and a reduction in water damage losses primarily through contract wording changes related to mold coverage and loss remediation measures that we have implemented over the past few years. Results in 2006 also benefited from fewer non-catastrophe claims compared with the first six months of 2005. Catastrophe losses represented 6.7 percentage points of the combined ratio for this class in the first six months of 2006 and 7.6 percentage points in the second quarter compared with 2.5 percentage points in both comparable periods of 2005.

          Other personal coverages produced profitable results in the first six months and second quarter of 2006 and 2005; however, results were somewhat less profitable in the 2006 periods due to higher incurred losses in the excess liability component.

     Commercial Insurance

          Net premiums from commercial insurance, which represented 43% of our premiums written in the first six months of 2006, decreased by 1% in the first six months of 2006 and increased by 2% in the second quarter compared with the same periods a year ago. Net premiums written for the classes of business within the commercial insurance segment were as follows:

		Six Months Ended												Quarter Ended
		June 30								% Incr.				June 30								% Incr.
		2006				2005				(Decr.)				2006				2005				(Decr.)
		(in millions)												(in millions)
Multiple peril		$	645			$	641				1%			$	319			$	305				5%
Casualty			895				910				(2)				455				458				(1)
Workers’ compensation			472				496				(5)				216				218				(1)
Property and marine			607				586				4				304				287				6
Total commercial		$	2,619			$	2,633				(1)			$	1,294			$	1,268				2

          Premium growth in our commercial insurance business has been constrained by an increasingly competitive marketplace. However, after declining 3% in the first quarter of 2006, premiums grew 2% in the second quarter. Property and marine premiums in the first six months of 2006 benefited from a $20 million reduction in reinsurance reinstatement premium costs in the first quarter related to Hurricane Katrina. Rates were generally stable in the first six months of 2006, but were under competitive pressure in some classes of business. Retention levels remained strong, but were slightly lower than those in the first six months of 2005. New business volume in the first six months was also down from 2005 levels, reflecting continued competition. However, new business in the second quarter was up from that in the first quarter and was at about the same level as that in the second quarter of 2005. We continued to maintain our underwriting discipline in the competitive market, renewing business and writing new business only where we were able to get acceptable rates and appropriate terms and conditions. As a result of insurers paying higher reinsurance prices while retaining more risk and as the new industry catastrophe models are implemented, we expect to see a generally stable commercial rate environment in the second half of 2006.

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          Our commercial insurance business produced highly profitable underwriting results in the first six months and second quarter of 2006 and 2005. These profitable results were due in large part to the cumulative effect of price increases, better terms and conditions and more stringent risk selection in recent years. Results in both years also benefited from low property losses.

          The combined loss and expense ratios for the classes of business within the commercial insurance segment were as follows:

		Periods Ended June 30
		Six Months								Second Quarter
		2006				2005				2006				2005
Multiple peril			75.4	%			82.8	%			80.4	%			83.3	%
Casualty			93.4				97.3				92.4				100.9
Workers compensation			81.3				84.9				84.7				84.1
Property and marine			73.2				70.8				80.9				71.3
Total commercial			82.1	%			85.3	%			85.4	%			86.7	%

          Multiple peril results were highly profitable in the first six months and second quarter of 2006 and 2005, particularly in 2006 despite higher catastrophe losses. The more profitable results in 2006 were driven by improvement in the liability component of this business. The property component was exceptionally profitable in the first six months of both years due to very favorable loss experience. Results in the property component were less profitable in the second quarter of 2006 than in the comparable period in 2005 due to higher catastrophe losses. Catastrophe losses represented 4.3 points of the combined ratio for this class in the first six months of 2006 and 9.0 points in the second quarter. Catastrophe losses were negligible for this class in the corresponding periods of 2005.

          Our casualty business produced profitable results in the first six months of 2006 and 2005, but more so in 2006 due primarily to improvement in the automobile component of this business. While the automobile component was highly profitable in both years, results were exceptionally profitable in the second quarter of 2006. The primary liability component was similarly profitable in both years. The excess liability component produced similarly unprofitable results in 2006 and 2005; results in the second quarter of both years were adversely affected by several large losses related to older accident years.

          Workers’ compensation results were highly profitable in the first six months and second quarter of 2006 and 2005. Results in both years benefited from our disciplined risk selection during the past several years.

          Property and marine results were highly profitable in the first six months and second quarter of both years, but more so in 2005. Results in both years benefited from few large losses. Results in 2006 also benefited from the $20 million reduction in reinsurance reinstatement premium costs in the first quarter related to Hurricane Katrina. As a result, catastrophes had a 2.4 percentage point favorable impact on the combined ratio for this class in the first six months of 2006. Catastrophe losses had a 3.0 percentage point unfavorable impact on the combined ratio in the first six months of 2005. Catastrophe losses represented 3.2 percentage points of the combined ratio in the second quarter of 2006 compared with 4.7 percentage points in the same period of 2005. Excluding the impact of catastrophes, the combined ratio was 75.6% in the first six months of 2006 and 77.7% in the second quarter compared with 67.8% and 66.6%, respectively, in 2005.

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Specialty Insurance

     Net premiums from specialty insurance, which represented 24% of our premiums written in the first six months of 2006, decreased by 2% in the first six months of 2006 and 1% in the second quarter compared with the same periods a year ago. Net premiums written for the classes of business within the specialty insurance segment were as follows:

		Six Months Ended												Quarter Ended
		June 30								% Incr.				June 30								% Incr.
		2006				2005				(Decr.)				2006				2005				(Decr.)
		(in millions)												(in millions)
Professional liability		$	1,271			$	1,337			(5	)%			$	656			$	691			(5	)%
Surety			148				105			41					83				52			60
Total specialty		$	1,419			$	1,442			(2	)			$	739			$	743			(1	)

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

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

     Our specialty insurance business produced profitable underwriting results in the first six months and second quarter of 2006 compared with modestly unprofitable results in the first six months of 2005 and modestly profitable results in the second quarter of 2005. The combined loss and expense ratios for the classes of business within the specialty insurance segment were as follows:

		Periods Ended June 30
		Six Months								Second Quarter
		2006				2005				2006				2005
Professional liability			93.7	%			101.5	%			92.0	%			101.4	%
Surety			48.0				101.3				58.7				54.2
Total specialty			89.8	%			101.6	%			89.0	%			98.3	%

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     Our professional liability business improved substantially in the first six months and second quarter of 2006, producing profitable results compared with modestly unprofitable results in the similar periods of 2005. Results in both years benefited from the cumulative effect of price increases, lower policy limits and better terms and conditions in recent years. Results in 2006 also benefited from favorable loss development in the second quarter related to prior accident years. Conversely, results in the 2005 periods were adversely affected by unfavorable loss development related to accident years 2002 and prior. The adverse development was predominantly from claims that arose due to corporate failures and allegations of management misconduct and accounting irregularities. The fidelity component of our professional liability business was highly profitable in the first six months and second quarter of both years.

     Surety results were highly profitable in the first six months of 2006 compared with near-breakeven results in the same period in 2005. Results were highly profitable in the second quarter of both years. Our surety business tends to be characterized by infrequent but potentially high severity losses. Results in the first six months of 2005 were adversely affected by one $60 million loss in the first quarter.

Reinsurance Assumed

     Net premiums from our reinsurance assumed business, which represented 4% of premiums written in the first six months of 2006, decreased by 48% in the first six months of 2006 and 51% in the second quarter compared with the similar periods in 2005. This significant decrease in premiums was expected in light of the sale in December 2005 of our continuing reinsurance assumed business, including renewal rights, to Harbor Point Limited. Harbor Point has the right for a transition period of up to two years to underwrite specific reinsurance business on our behalf. We retain a portion of such business and cede the balance to Harbor Point in return for a fronting commission.

     The combined loss and expense ratio for our reinsurance assumed business was 100.4% in the first six months of 2006 and 105.1% in the second quarter compared with 89.6% and 91.3%, respectively, in the prior year. Results in 2006 were adversely affected by the substantial decline in premiums without a commensurate decrease in expenses. Results in 2005 benefited from the favorable settlement of one loss in the first quarter and the commutation of a contract in the second quarter.

Regulatory Developments

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

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     We are involved in the ongoing investigations of certain business practices in the property and casualty insurance industry by various Attorneys General and other regulatory authorities of several states, the U.S. Securities and Exchange Commission, the U.S. Attorney for the Southern District of New York and certain non-U.S. regulatory authorities with respect to, among other things, (1) potential conflicts of interest and anti-competitive behavior arising from the payment of contingent commissions to brokers and agents and (2) loss mitigation and finite reinsurance arrangements. In connection with these investigations, we have received subpoenas and requests for information from various regulators. We are cooperating fully with these investigations. Although no regulatory action has been initiated against us, it is possible that one or more regulatory authorities will bring an action against us with respect to some or all of the issues that are the focus of these ongoing investigations. In May 2006, we were informed by the Attorney General of the State of Ohio that he intended to file an action against several industry participants, including us, with respect to certain of these issues. No such action has been filed to date. Chubb and certain of its subsidiaries have been named in legal proceedings brought by private plaintiffs arising out of these investigations. These legal proceedings are further described in Note (6) of the Notes to Consolidated Financial Statements.

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

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

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

Loss Reserves

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

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

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

     Our loss reserves include significant amounts related to asbestos and toxic waste claims, Hurricane Katrina and the September 11, 2001 attack. The components of our loss reserves were as follows:

		June 30,				December 31,
		2006				2005
		(in millions)
Gross loss reserves
Related to asbestos and toxic waste claims		$	1,059			$	1,121
Related to Hurricane Katrina			526				967
Related to September 11 attack			399				413
All other loss reserves			20,602				19,981
			22,586				22,482
Reinsurance recoverable
Related to asbestos and toxic waste claims			49				50
Related to Hurricane Katrina			403				756
Related to September 11 attack			348				354
All other reinsurance recoverable			2,352				2,609
			3,152				3,769
Net loss reserves		$	19,434			$	18,713