CHUBB CORP - 10-K Annual Report

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1999

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO________
Commission File No. 1-8661

THE CHUBB CORPORATION

(Exact name of registrant as specified in its charter)

NEW JERSEY 13-2595722
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)

15 MOUNTAIN VIEW ROAD, P.O. BOX 1615
WARREN, NEW JERSEY 07061-1615
(Address of principal executive offices) (Zip Code)

(908) 903-2000
(Registrant's telephone number)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Common Stock, par value $1 per share New York Stock Exchange
Series A Participating Cumulative
Preferred Stock Purchase Rights New York Stock Exchange
(Title of each class) (Name of each exchange on which registered)

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
(Title of class)

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 X. No. .

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of voting stock held by non-affiliates of the
registrant was $9,734,295,897 as of March 8, 1999.

161,361,903
Number of shares of common stock outstanding as of March 8, 1999

DOCUMENTS INCORPORATED BY REFERENCE

Portions of The Chubb Corporation 1998 Annual Report to Shareholders are
incorporated by reference in Parts I, II and IV of this Form 10-K. Portions of
the definitive Proxy Statement for the Annual Meeting of Shareholders on April
27, 1999 are incorporated by reference in Part III of this Form 10-K.

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PART I.
ITEM 1. BUSINESS

GENERAL

The Chubb Corporation (the Corporation) was incorporated as a business
corporation under the laws of the State of New Jersey in June 1967. The
Corporation is a holding company with subsidiaries principally engaged in the
property and casualty insurance business. The Corporation and its subsidiaries
employed approximately 10,700 persons worldwide on December 31, 1998.

Revenues, income from continuing operations before income tax and assets
for each operating segment for the three years ended December 31, 1998 are
included in Note (16) of the notes to consolidated financial statements
incorporated by reference from the Corporation's 1998 Annual Report to
Shareholders.

The property and casualty insurance subsidiaries provide insurance
coverages principally in the United States, Canada, Europe and parts of
Australia, Latin America and the Far East. Revenues of the property and casualty
insurance subsidiaries by geographic area for the three years ended December 31,
1998 are included in Note (16) of the notes to consolidated financial statements
incorporated by reference from the Corporation's 1998 Annual Report to
Shareholders.

PROPERTY AND CASUALTY INSURANCE

The Property and Casualty Insurance Group (the Group) is composed of
Federal Insurance Company (Federal), Pacific Indemnity Company (Pacific
Indemnity), Vigilant Insurance Company (Vigilant), Great Northern Insurance
Company (Great Northern), Chubb Custom Insurance Company (Chubb Custom), Chubb
National Insurance Company (Chubb National), Chubb Indemnity Insurance Company
(Chubb Indemnity), Chubb Insurance Company of New Jersey (Chubb New Jersey),
Texas Pacific Indemnity Company, Northwestern Pacific Indemnity Company, Chubb
Insurance Company of Canada, Chubb Insurance Company of Europe, S.A., Chubb
Insurance Company of Australia Limited, Chubb do Brasil Companhia de Seguros and
Chubb Atlantic Indemnity Ltd.

Federal is the manager of Vigilant, Pacific Indemnity, Great Northern,
Chubb National, Chubb Indemnity and Chubb New Jersey. Federal also provides
certain services to other members of the Group. Acting subject to the
supervision and control of the Boards of Directors of the members of the Group,
the Chubb & Son division of Federal provides day to day executive management and
operating personnel and makes available the economy and flexibility inherent in
the common operation of a group of insurance companies.

The Group presently underwrites most forms of property and casualty
insurance. All members of the Group write non-participating policies. Several
members of the Group also write participating policies, particularly in the
workers' compensation class of business, under which dividends are paid to the
policyholders.

Premiums Written

An analysis of the Group's premiums written during the past three years is
shown in the following table:

DIRECT REINSURANCE REINSURANCE NET
PREMIUMS PREMIUMS PREMIUMS PREMIUMS
WRITTEN ASSUMED(A) CEDED(A) WRITTEN
YEAR -------- ----------- ----------- --------
(IN MILLIONS)

1996............................. $5,166.5 $436.8 $ 829.5 $4,773.8
1997............................. 5,524.4 162.9 239.3 5,448.0
1998............................. 5,842.0 141.9 480.4 5,503.5

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(a) Intercompany items eliminated.

Reinsurance premiums assumed and ceded have been affected by changes in
reinsurance agreements with the Royal & Sun Alliance Insurance Group plc (Sun
Alliance). These changes are described in Note (13) of the notes to consolidated
financial statements incorporated by reference from the Corporation's 1998
Annual Report to Shareholders.

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The net premiums written during the last five years for major classes of
the Group's business are incorporated by reference from page 16 of the
Corporation's 1998 Annual Report to Shareholders.

One or more members of the Group are licensed and transact business in each
of the 50 states of the United States, the District of Columbia, Puerto Rico,
the Virgin Islands, Canada, Europe and parts of Australia, Latin America and the
Far East. In 1998, approximately 83% of the Group's direct business was produced
in the United States, where the Group's businesses enjoy broad geographic
distribution with a particularly strong market presence in the Northeast. The
five states accounting for the largest amounts of direct premiums written were
New York with 13%, California with 10%, New Jersey with 6% and Pennsylvania and
Texas each with 5%. No other state accounted for 5% or more of such premiums.
Approximately 10% of the Group's direct premiums written was produced in Europe
and 4% was produced in Canada.

Underwriting Results

A frequently used industry measurement of property and casualty insurance
underwriting results is the combined loss and expense ratio. This ratio is the
sum of the ratio of incurred losses and related loss adjustment expenses to
premiums earned (loss ratio) plus the ratio of 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. Investment income,
other non-underwriting income or expense and income taxes are not reflected in
the combined ratio. The profitability of property and casualty insurance
companies depends on income from both underwriting operations and investments.

The net premiums and the loss, expense and combined loss and expense ratios
of the Group for the last five years are shown in the following table:

NET PREMIUMS COMBINED
(IN MILLIONS) LOSS AND
---------------------- EXPENSE EXPENSE
LOSS RATIOS RATIOS
YEAR WRITTEN EARNED RATIOS ------- --------

1994............................. $ 3,951.2 $ 3,776.3 67.0% 32.5% 99.5%
1995............................. 4,306.0 4,147.2 64.7 32.1 96.8
1996............................. 4,773.8 4,569.3 66.2 32.1 98.3
1997............................. 5,448.0 5,157.4 64.5 32.4 96.9
1998............................. 5,503.5 5,303.8 66.3 33.5 99.8
--------- --------- ------- ------- ---------
Total for five years ended
December 31, 1998............. $23,982.5 $22,954.0 65.7% 32.6% 98.3%
========= ========= ======= ======= =========

The combined loss and expense ratios during the last five years for major
classes of the Group's business are incorporated by reference from page 16 of
the Corporation's 1998 Annual Report to Shareholders.

Another frequently used measurement in the property and casualty insurance
industry is the ratio of statutory net premiums written to policyholders'
surplus. At December 31, 1998 and 1997, such ratio for the Group was 1.95 and
2.13, respectively.

Producing and Servicing of Business

In the United States and Canada, the Group is represented by approximately
4,000 independent agents and accepts business on a regular basis from an
estimated 525 insurance brokers. In most instances, these agents and brokers
also represent other companies which compete with the Group. The offices
maintained by the Group assist these agents and brokers in producing and
servicing the Group's business. In addition to the administrative offices in
Warren, New Jersey, the Group operates 5 zone offices and branch and service
offices throughout the United States and Canada.

The Group's overseas business is developed by its foreign agents and
brokers through local branch offices of the Group and by its United States and
Canadian agents and brokers. In conducting its

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overseas business, the Group reduces the risks relating to currency fluctuations
by maintaining investments in those foreign currencies in which the Group
transacts business, with characteristics similar to the liabilities in those
currencies. The net asset or liability exposure to the various foreign
currencies is regularly reviewed.

Business for the Group is also produced through participation in a number
of underwriting pools and syndicates including, among others, Associated
Aviation Underwriters, Cargo Reinsurance Association, American Cargo War Risk
Reinsurance Exchange and American Accident Reinsurance Group. Such pools and
syndicates provide underwriting capacity for risks which an individual insurer
cannot prudently underwrite because of the magnitude of the risk assumed or
which can be more effectively handled by one organization due to the need for
specialized loss control and other services.

Reinsurance

In accordance with the normal practice of the insurance industry, the Group
assumes and cedes reinsurance with other insurers or reinsurers. Reinsurance is
ceded to provide greater diversification of business and minimize the Group's
maximum net loss arising from large risks or from hazards of potential
catastrophic events.

A large portion of the Group's reinsurance is effected under contracts
known as treaties under which all risks meeting prescribed criteria are
automatically covered. Most of the Group's treaty reinsurance arrangements
consist of excess of loss and catastrophe contracts with other insurers or
reinsurers which protect against a specified part or all of certain types of
losses over stipulated amounts arising from any one occurrence or event. In
certain circumstances, reinsurance is also effected by negotiation on individual
risks. The amount of each risk retained by the Group is subject to maximum
limits which vary by line of business and type of coverage. Retention limits are
continually reviewed and are revised periodically as the Group's capacity to
underwrite risks changes. Additional information related to the Group's
reinsurance programs is included in Item 7 of this report on pages 16 and 17.
Reinsurance contracts do not relieve the Group of its primary obligation to the
policyholders.

The collectibility of reinsurance is subject to the solvency of the
reinsurers. The Group is selective in regard to its reinsurers, placing
reinsurance with only those reinsurers with strong balance sheets and superior
underwriting ability. The Group monitors the financial strength of its
reinsurers on an ongoing basis. As a result, uncollectible amounts have not been
significant.

The Group has an exposure to insured losses caused by hurricanes,
earthquakes, winter storms, windstorms and other catastrophic events. The
frequency and severity of catastrophes are unpredictable. The extent of losses
from a catastrophe is a function of both the total amount of insured exposure in
an area affected by the event and the severity of the event. The Group
continually assesses its concentration of underwriting exposures in catastrophe
prone areas and develops strategies to manage this exposure through individual
risk selection, subject to regulatory constraints, and through the purchase of
catastrophe reinsurance. The Group has invested in modeling techniques that
allow it to better monitor catastrophe exposures. In addition, the Group
maintains records showing concentrations of risk in catastrophe prone areas such
as California (earthquake and brush fires) and the Southeast coast of the United
States (hurricanes). The Group's current catastrophe reinsurance program
provides coverage for individual catastrophic events of approximately 73% of
losses between $100 million and $450 million in the United States and
approximately 88% of losses between $25 million and $125 million outside the
United States.

Unpaid Claims and Claim Adjustment Expenses and Related Amounts Recoverable
from Reinsurers

Insurance companies are required to establish a liability in their accounts
for the ultimate costs (including claim adjustment expenses) of claims which
have been reported but not settled and of claims which have been incurred but
not reported. Insurance companies are also required to report as assets the
portion of such liability that will be recovered from reinsurers.

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The process of establishing the liability for unpaid claims and claim
adjustment expenses is a complex and imprecise science that reflects significant
judgmental factors. This is true because claim settlements to be made in the
future will be impacted by changing rates of inflation and other economic
conditions, changing legislative, judicial and social environments and changes
in the Group's claim handling procedures. In many liability cases, significant
periods of time, ranging up to several years or more, may elapse between the
occurrence of an insured loss, the reporting of the loss to the Group and the
settlement of the loss. Approximately 60% of the Group's net unpaid claims and
claim adjustment expenses at December 31, 1998 were for IBNR--claims which had
not yet been reported to the Group, some of which were not yet known to the
insured, and for future development on reported claims. In spite of this
imprecision, financial reporting requirements dictate that insurance companies
report a single amount as the estimate of unpaid claims and claim adjustment
expenses as of each evaluation date. These estimates are continually reviewed
and updated. Any resulting adjustments are reflected in current operating
results.

The Group's estimates of losses for reported claims are established
judgmentally on an individual case basis. Such estimates are based on the
Group's particular experience with the type of risk involved and its knowledge
of the circumstances surrounding each individual claim. These estimates are
reviewed on a regular basis or as additional facts become known. The reliability
of the estimation process is monitored through comparison with ultimate
settlements.

The Group's estimates of losses for unreported claims are principally
derived from analyses of historical patterns of the development of paid and
reported losses by accident year for each class of business. This process relies
on the basic assumption that past experience, adjusted for the effects of
current developments and likely trends, is an appropriate basis for predicting
future outcomes. For certain classes of business where anticipated loss
experience is less predictable because of the small number of claims and/or
erratic claim severity patterns, the Group's estimates are based on both
expected and actual reported losses. Salvage and subrogation estimates are
developed from patterns of actual recoveries.

The Group's estimates of unpaid claim adjustment expenses are based on
analyses of the relationship of projected ultimate claim adjustment expenses to
projected ultimate losses for each class of business. Claim staff has discretion
to override these expense formulas where judgment indicates such action is
appropriate.

The Group's estimates of reinsurance recoverable related to reported and
unreported claims and claim adjustment expenses represent the portion of such
liabilities that will be recovered from reinsurers. Amounts recoverable from
reinsurers are recognized as assets at the same time and in a manner consistent
with the liabilities associated with the reinsured policies.

The anticipated effect of inflation is implicitly considered when
estimating liabilities for unpaid claims and claim adjustment expenses.
Estimates of the ultimate value of all unpaid claims are based in part on the
development of paid losses, which reflect actual inflation. Inflation is also
reflected in the case estimates established on reported open claims which, when
combined with paid losses, form another basis to derive estimates of reserves
for all unpaid claims. There is no precise method for subsequently evaluating
the adequacy of the consideration given to inflation, since claim settlements
are affected by many factors.

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The following table provides a reconciliation of the beginning and ending
liability for unpaid claims and claim adjustment expenses, net of reinsurance
recoverable, and a reconciliation of the ending net liability to the
corresponding liability on a gross basis for the years ended December 31, 1998,
1997 and 1996:

YEARS ENDED DECEMBER 31
---------------------------------
1998 1997 1996
---- ---- ----
(IN MILLIONS)

Net liability, beginning of year.................... $ 8,564.6 $7,755.9 $7,614.5
--------- -------- --------
Net incurred claims and claim adjustment expenses
Provision for claims occurring in the current
year........................................... 3,712.1 3,372.3 3,053.6
Decrease in estimates for claims occurring in
prior years.................................... (218.4) (65.3) (42.8)
--------- -------- --------
3,493.7 3,307.0 3,010.8
--------- -------- --------
Net payments for claims and claim expenses related
to
Current year...................................... 1,210.7 1,080.0 980.0
Prior years....................................... 1,797.7 1,418.3 1,889.4
--------- -------- --------
3,008.4 2,498.3 2,869.4
--------- -------- --------
Net liability, end of year.......................... 9,049.9 8,564.6 7,755.9
Reinsurance recoverable, end of year................ 1,306.6 1,207.9 1,767.8
--------- -------- --------
Gross liability, end of year........................ $10,356.5 $9,772.5 $9,523.7
========= ======== ========

As reestimated at December 31, 1998, the liability for unpaid claims and
claim adjustment expenses, net of reinsurance recoverable, as established at the
previous year-end was redundant by $218.4 million. This compares with favorable
development of $65.3 million and $42.8 million during 1997 and 1996,
respectively. Such redundancies were reflected in the Group's operating results
in these respective years. Each of the past three years benefited from favorable
claim severity trends for certain liability classes; this was offset each year
in varying degrees by incurred losses relating to asbestos and toxic waste
claims. The higher favorable development in 1998 compared with the prior years
was due to substantially lower incurred losses related to asbestos and toxic
waste claims, the continued favorable loss experience for executive protection
coverages and favorable development on certain excess liability case reserves
set up several years ago.

As a result of the changes to the reinsurance agreements with Sun Alliance,
there were portfolio transfers of gross loss reserves and reinsurance
recoverable as of January 1, 1996 and 1997. The effect of these portfolio
transfers was a decrease in gross loss reserves of $183.8 million and $209.3
million and a decrease in reinsurance recoverable of $470.0 million and $244.3
million in 1997 and 1996, respectively.

Unpaid claims and claim adjustment expenses, net of reinsurance
recoverable, increased by $485.3 million in 1998 compared with $808.7 million
and $141.4 million in 1997 and 1996, respectively. The increases in 1997 and
1996 include the effect of the portfolio transfers with Sun Alliance. The 1996
increase would have been greater except that loss reserves were reduced as the
result of payments of $461.5 million during the year related to the settlement
of asbestos-related claims against Fibreboard Corporation. The Fibreboard
reserves and related loss payments are presented in the table on page 7. The
Fibreboard settlement is further discussed in Item 7 of this report on pages 21
and 22.

Excluding the Fibreboard reserves and the effect of the portfolio
transfers, loss reserves, net of reinsurance recoverable, increased by $485.3
million or 6% in 1998, $516.5 million or 7% in 1997, and $562.9 million or 9% in
1996. Substantial reserve growth has occurred each year in those liability
classes, primarily excess liability and executive protection, that are
characterized by delayed loss reporting and extended periods of settlement.
These coverages represent a significant portion of the Group's business. The
Group continues to emphasize early and accurate reserving, inventory management
of claims and suits, and control of the dollar value of settlements. The number
of outstanding claims at year-end 1998 was approximately 4% higher than the
number at year-end 1997, which was in turn 3% higher than that at year-end 1996.

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The uncertainties relating to unpaid claims, particularly for asbestos and
toxic waste claims on insurance policies written many years ago, are discussed
in Item 7 of this report on pages 20 through 23.

The following table provides a reconciliation of the beginning and ending
liability for unpaid claims and claim adjustment expenses, net of reinsurance
recoverable, related to asbestos and toxic waste claims for the years ended
December 31, 1998, 1997 and 1996. Reinsurance recoveries related to such claims
are not significant.

YEARS ENDED DECEMBER 31
--------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ -------------------------------- ------------------------------
FIBREBOARD ALL FIBREBOARD ALL FIBREBOARD ALL
RELATED OTHER TOTAL RELATED OTHER TOTAL RELATED OTHER TOTAL
---------- ----- ----- ---------- ----- ----- ---------- ----- -----
(IN MILLIONS)

Net liability, beginning
of year................. $548.7 $543.7 $1,092.4 $542.7 $415.9 $ 958.6 $999.2 $343.8 $1,343.0
Net incurred claims and
claim adjustment
expenses................ -- 67.8 67.8 6.0 119.2 125.2 5.0 145.7 150.7
Net payments for claims... -- 84.5 84.5 -- (8.6)(a) (8.6) 461.5 73.6 535.1
------ ------ -------- ------ ------ -------- ------ ------ --------
Net liability, end of
year.................... $548.7 $527.0 $1,075.7 $548.7 $543.7 $1,092.4 $542.7 $415.9 $ 958.6
====== ====== ======== ====== ====== ======== ====== ====== ========

(a) As a result of the termination of the reinsurance agreements with Sun
Alliance, there was a portfolio transfer of asbestos and toxic waste loss
reserves as of January 1, 1997. The effect of the portfolio transfer was to
increase loss reserves by $55.6 million and decrease paid losses by the same
amount. The loss portfolio transfer had no effect on incurred claims and
claim adjustment expenses.

The method by which asbestos claims are established by the Group's claim
staff was changed in 1998. Previously, claims were generally established for
each lawsuit. Since the change was implemented in 1998, one master claim is
generally established for all similar claims and lawsuits involving an insured.
Prior year claim counts were not adjusted to conform to the new methodology. A
counted claim can have from one to thousands of claimants. Management does not
believe the following claim count data is meaningful for analysis purposes.

There were approximately 2,000 asbestos claims outstanding at December 31,
1998 compared with 3,700 asbestos claims outstanding at December 31, 1997 and
3,900 asbestos claims outstanding at December 31, 1996. In 1998, approximately
500 claims were opened and 2,200 claims were closed, including claims "closed"
to adjust the data base to the new methodology. In 1997, approximately 1,300
claims were opened and 1,500 claims were closed. In 1996, approximately 1,800
claims were opened and 2,600 claims were closed. Indemnity payments per claim
have varied over time due primarily to variations in insureds, policy terms and
types of claims. Management cannot predict whether indemnity payments per claim
will increase, decrease or remain the same.

There were approximately 650 toxic waste claims outstanding at December 31,
1998 compared with 800 toxic waste claims outstanding at December 31, 1997 and
1996. Approximately 250 claims were opened in 1998, 300 claims were opened in
1997 and 400 claims were opened in 1996. There were approximately 400 claims
closed in 1998 and 300 claims closed in 1997 and 1996. Generally, a toxic waste
claim is established for each lawsuit, or alleged equivalent, against an insured
where potential liability has been determined to exist under a policy issued by
a member of the Group. Because indemnity payments to date for toxic waste claims
have not been significant in the aggregate and have varied from claim to claim,
management cannot determine whether past claims experience will prove to be
representative of future claims experience.

The table on page 9 presents the subsequent development of the estimated
year-end liability for unpaid claims and claim adjustment expenses, net of
reinsurance recoverable, for the ten years prior to 1998. The top line of the
table shows the estimated liability for unpaid claims and claim adjustment
expenses recorded at the balance sheet date for each of the indicated years.
This liability represents the estimated amount of losses and loss adjustment
expenses for claims arising in all prior years that are unpaid at the balance
sheet date, including losses that had been incurred but not yet reported to the
Group.

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The upper section of the table shows the reestimated amount of the
previously recorded net liability based on experience as of the end of each
succeeding year. The estimate is increased or decreased as more information
becomes known about the frequency and severity of claims for each individual
year. The increase or decrease is reflected in the current year's operating
results. The "cumulative deficiency (redundancy)" as shown in the table
represents the aggregate change in the reserve estimates from the original
balance sheet dates through December 31, 1998. The amounts noted are cumulative
in nature; that is, an increase in a loss estimate that related to a prior
period occurrence generates a deficiency in each intermediate year. For example,
a deficiency recognized in 1993 relating to losses incurred prior to December
31, 1988, such as the $675.0 million increase in loss reserves related to the
Fibreboard settlement, would be included in the cumulative deficiency amount for
each year in the period 1988 through 1992. Yet, the deficiency would be
reflected in operating results only in 1993. The effect of changes in estimates
of the liabilities for claims occurring in prior years on income before income
taxes in each of the past three years is shown in the reconciliation table on
page 6.

In each of the years 1988 through 1997, there was favorable development for
certain liability classes as the result of favorable claim severity trends. In
each of these years, this favorable development was offset, in varying degrees,
by unfavorable development related to asbestos and toxic waste claims. The years
1988 through 1992 in particular reflect the effects of the $675.0 million
increase in loss reserves related to the Fibreboard settlement. The cumulative
net deficiencies experienced relating to asbestos and toxic waste claims were
also, to varying degrees, the result of: (1) an increase in the actual number of
claims filed; (2) an increase in the number of unasserted claims estimated; (3)
an increase in the severity of actual and unasserted claims; and (4) an increase
in litigation costs associated with such claims.

Conditions and trends that have affected development of the liability for
unpaid claims and claim adjustment expenses in the past will not necessarily
recur in the future. Accordingly, it is not appropriate to extrapolate future
redundancies or deficiencies based on the data in this table.

The middle section of the table on page 9 shows the cumulative amount paid
with respect to the reestimated liability as of the end of each succeeding year.
For example, in the 1988 column, as of December 31, 1998 the Group had paid
$3,159.3 million of the currently estimated $4,601.9 million of claims and claim
adjustment expenses that were unpaid at the end of 1988; thus, an estimated
$1,442.6 million of losses incurred through 1988 remain unpaid as of December
31, 1998, approximately 75% of which relates to asbestos and toxic waste claims.

The lower section of the table on page 9 shows the gross liability,
reinsurance recoverable and net liability recorded at each year-end beginning
with 1992 and the reestimation of these amounts as of December 31, 1998. Amounts
for years prior to the implementation of Statement of Financial Accounting
Standards No. 113, Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts, have not been presented.

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ANALYSIS OF CLAIM AND CLAIM ADJUSTMENT EXPENSE DEVELOPMENT

DECEMBER 31
-------------------------------------------------------------------------------------
YEAR ENDED 1988 1989 1990 1991 1992 1993 1994 1995
---------- ---- ---- ---- ---- ---- ---- ---- ----
(IN MILLIONS)

Net Liability for Unpaid Claims and
Claim Adjustment Expenses........... $3,374.3 $3,880.1 $4,301.1 $4,743.9 $5,267.6 $6,450.0 $6,932.9 $7,614.5

Net Liability Reestimated as of:
One year later..................... 3,360.5 3,846.2 4,272.3 4,716.3 5,932.4 6,420.3 6,897.1 7,571.7
Two years later.................... 3,336.0 3,854.2 4,244.7 5,368.5 5,904.1 6,363.1 6,874.5 7,520.9
Three years later.................. 3,359.8 3,839.8 4,933.0 5,336.5 5,843.5 6,380.4 6,829.8 7,256.8
Four years later................... 3,385.1 4,567.4 4,941.7 5,302.6 5,894.6 6,338.1 6,605.4
Five years later................... 4,203.9 4,602.5 4,969.5 5,389.5 5,863.3 6,150.1
Six years later.................... 4,265.2 4,686.3 5,079.3 5,375.3 5,738.4
Seven years later.................. 4,387.6 4,800.4 5,094.2 5,303.9
Eight years later.................. 4,522.5 4,817.2 5,058.8
Nine years later................... 4,550.7 4,810.6
Ten years later.................... 4,601.9

Cumulative Net Deficiency
(Redundancy)........................ 1,227.6 930.5 757.7 560.0 470.8 (299.9) (327.5) (357.7)

Cumulative Net Deficiency Related to
Asbestos and Toxic Waste Claims..... 2,098.1 1,969.1 1,824.1 1,576.3 1,416.4 640.7 525.5 343.7

Cumulative Amount of
Net Liability Paid as of:
One year later..................... 761.6 880.4 919.1 931.2 1,039.9 1,272.0 1,250.7 1,889.4
Two years later.................... 1,226.3 1,383.9 1,407.2 1,479.9 1,858.5 1,985.7 2,550.7 2,678.2
Three years later.................. 1,555.1 1,715.9 1,808.7 2,083.0 2,332.3 3,015.8 3,073.7 3,438.8
Four years later................... 1,778.8 1,958.6 2,292.0 2,386.9 3,181.4 3,264.5 3,589.8
Five years later................... 1,966.1 2,346.9 2,490.2 3,125.8 3,323.0 3,624.2
Six years later.................... 2,307.9 2,500.9 3,174.7 3,200.4 3,603.5
Seven years later.................. 2,422.7 3,120.6 3,200.4 3,412.7
Eight years later.................. 3,009.5 3,126.5 3,380.5
Nine years later................... 3,014.2 3,278.2
Ten years later.................... 3,159.3

Gross Liability, End of Year......... $7,220.9 $8,235.4 $8,913.2 $9,588.2
Reinsurance Recoverable, End of
Year............................... 1,953.3 1,785.4 1,980.3 1,973.7
-------- -------- -------- --------
Net Liability, End of Year........... $5,267.6 $6,450.0 $6,932.9 $7,614.5
======== ======== ======== ========

Reestimated Gross Liability.......... $7,753.4 $8,152.3 $8,797.5 $9,395.8
Reestimated Reinsurance Recoverable.. 2,015.0 2,002.2 2,192.1 2,139.0
-------- -------- -------- --------
Reestimated Net Liability............ $5,738.4 $6,150.1 $6,605.4 $7,256.8
======== ======== ======== ========

Cumulative Gross Deficiency
(Redundancy)....................... $ 532.5 $ (83.1) $ (115.7) $ (192.4)
======== ======== ======== ========

DECEMBER 31
-------------------------------
YEAR ENDED 1996 1997 1998
---------- ---- ---- ----

Net Liability for Unpaid Claims and
Claim Adjustment Expenses........... $7,755.9 $8,564.6 $ 9,049.9
Net Liability Reestimated as of:
One year later..................... 7,690.6 8,346.2
Two years later.................... 7,419.6
Three years later..................
Four years later...................
Five years later...................
Six years later....................
Seven years later..................
Eight years later..................
Nine years later...................
Ten years later....................
Cumulative Net Deficiency
(Redundancy)........................ (336.3) (218.4)
Cumulative Net Deficiency Related to
Asbestos and Toxic Waste Claims..... 193.0 67.8
Cumulative Amount of
Net Liability Paid as of:
One year later..................... 1,418.3 1,797.7
Two years later.................... 2,488.2
Three years later..................
Four years later...................
Five years later...................
Six years later....................
Seven years later..................
Eight years later..................
Nine years later...................
Ten years later....................
Gross Liability, End of Year......... $9,523.7 $9,772.5 $10,356.5
Reinsurance Recoverable, End of
Year............................... 1,767.8 1,207.9 1,306.6
-------- -------- ---------
Net Liability, End of Year........... $7,755.9 $8,564.6 $ 9,049.9
======== ======== =========
Reestimated Gross Liability.......... $9,278.3 $9,605.2
Reestimated Reinsurance Recoverable.. 1,858.7 1,259.0
-------- --------
Reestimated Net Liability............ $7,419.6 $8,346.2
======== ========
Cumulative Gross Deficiency
(Redundancy)....................... $ (245.4) $ (167.3)
======== ========

- ---------------

The cumulative deficiencies for the years 1988 through 1992 include the effect
of the $675.0 million increase in claims and claim adjustment expenses related
to the Fibreboard settlement.

9
10

Members of the Group are required to file annual statements with insurance
regulatory authorities prepared on an accounting basis prescribed or permitted
by such authorities (statutory basis). The differences between the liability for
unpaid claims and claim adjustment expenses, net of reinsurance recoverable,
reported in the accompanying consolidated financial statements in accordance
with generally accepted accounting principles (GAAP) and that reported in the
annual statutory statements of the U.S. subsidiaries are as follows:

DECEMBER 31
--------------------
1998 1997
---- ----
(IN MILLIONS)

Net liability reported on a statutory basis -- U.S.
subsidiaries.............................................. $8,470.4 $8,086.3
Additions (reductions):
Unpaid claims and claim adjustment expenses of foreign
subsidiaries........................................... 659.7 553.9
Other reserve differences................................. (80.2) (75.6)
-------- --------
Net liability reported on a GAAP basis...................... $9,049.9 $8,564.6
======== ========

Investments

Investment decisions are centrally managed by investment professionals
based on guidelines established by management and approved by the board of
directors for each member of the Group.

The main objectives in managing the investment portfolio of the Group are
to maximize after-tax investment income and total investment returns while
minimizing credit risks in order to provide maximum support to the insurance
underwriting operations. To accomplish this, the investment function must be
highly integrated with the operating functions and capable of responding to the
changing conditions in the marketplace. Investment strategies are developed
based on many factors including underwriting results and the Group's resulting
tax position, regulatory requirements, fluctuations in interest rates and
consideration of other market risks.

The investment portfolio of the Group is primarily comprised of high
quality bonds, principally tax-exempt, U.S. Treasury, government agency,
mortgage-backed securities and corporate issues. In addition, the portfolio
includes equity securities held primarily with the objective of capital
appreciation.

In 1998, the Group invested new cash primarily in tax-exempt bonds and, to
a lesser extent, equity securities. In 1997, the Group invested new cash
primarily in tax-exempt bonds and, to a lesser extent, corporate bonds and
mortgage-backed securities. In 1996, the Group invested new cash primarily in
mortgage-backed securities and tax-exempt bonds. In each year, the Group tried
to achieve the appropriate mix in its portfolio to balance both investment and
tax strategies. At December 31, 1998, 71% of the Group's fixed maturity
portfolio was invested in tax-exempt bonds compared with 68% at December 31,
1997 and 1996.

The investment results of the Group for each of the past three years are
shown in the following table.

AVERAGE PERCENT EARNED
INVESTED INVESTMENT ----------------------
ASSETS(A) INCOME(B) BEFORE TAX AFTER TAX
YEAR --------- ---------- ---------- ---------
(IN MILLIONS)

1996............................. $10,333.8 $646.1 6.25% 5.27%
1997............................. 11,725.9 711.2 6.07 5.05
1998............................. 12,795.7 748.9 5.85 4.96

- ---------------
(a) Average of amounts for the years presented with fixed maturity
securities at amortized cost and equity securities at market value.

(b) Investment income after deduction of investment expenses, but before
applicable income tax.

10
11

REAL ESTATE GROUP

The Real Estate Group is composed of Bellemead Development Corporation and
its subsidiaries. The Real Estate Group is involved in commercial development
activities primarily in New Jersey and residential development activities
primarily in central Florida.

In October 1996, the Corporation announced that the Real Estate Group was
exploring the possible sale of all or a portion of its real estate assets. In
March 1997, Bellemead entered into an agreement with a prospective purchaser to
perform due diligence in anticipation of executing a contract for the sale of
substantially all of its commercial properties. In June 1997, a definitive
agreement was reached with the purchaser. In November 1997, the sale of almost
all of the properties covered by the agreement reached in June was closed for
$736.9 million. The buyer is a joint venture formed by Paine Webber Real Estate
Securities Inc., Morgan Stanley Real Estate Fund II, L.P. and Gale & Wentworth,
L.L.C. Closing on the one remaining property under the agreement is expected to
occur in 1999. In addition to the sale to the joint venture in November 1997,
several other commercial properties as well as residential properties were sold
in 1997 and 1998. The Real Estate Group is continuing to explore the sale of
certain of its remaining properties. The Real Estate Group has retained
approximately $365 million of land, which is expected to be developed in the
future, and approximately $165 million of commercial properties and land parcels
under lease. Additional information related to the Corporation's real estate
operations is included in Item 7 of this report on pages 24 through 26.

DISCONTINUED OPERATIONS

In May 1997, the Corporation completed the sale of Chubb Life Insurance
Company of America and its subsidiaries, Chubb Colonial Life Insurance Company
and Chubb Sovereign Life Insurance Company, to Jefferson-Pilot Corporation for
$875.0 million in cash, subject to various closing adjustments, none of which
were material.

In 1996, the Corporation recognized a loss of $22.0 million relating to the
sale of the life and health insurance subsidiaries. The purchase price was not
adjusted to reflect results of operations subsequent to December 31, 1996. The
discontinued life and health insurance operations did not affect the
Corporation's net income in 1997 and 1998 and will not affect net income in
future periods. Earnings in 1996 from the discontinued life and health insurance
operations were $48.5 million, including realized investment gains of $8.2
million.

REGULATION, PREMIUM RATES AND COMPETITION

The Corporation is a holding company with subsidiaries primarily engaged in
the property and casualty insurance business and is therefore subject to
regulation by certain states as an insurance holding company. All states have
enacted legislation which regulates insurance holding company systems such as
the Corporation and its subsidiaries. This legislation generally provides that
each insurance company in the system is required to register with the department
of insurance of its state of domicile and furnish information concerning the
operations of companies within the holding company system which may materially
affect the operations, management or financial condition of the insurers within
the system. All transactions within a holding company system affecting insurers
must be fair and equitable. Notice to the insurance commissioners is required
prior to the consummation of transactions affecting the ownership or control of
an insurer and of certain material transactions between an insurer and any
person in its holding company system and, in addition, certain of such
transactions cannot be consummated without the commissioners' prior approval.

The Group is subject to regulation and supervision in the states in which
it does business. In general, such regulation is for the protection of
policyholders rather than shareholders. The extent of such regulation varies but
generally has its source in statutes which delegate regulatory, supervisory and
administrative powers to a department of insurance. The regulation, supervision
and administration relate to, among other things, the standards of solvency
which must be met and maintained; the

11
12

licensing of insurers and their agents; restrictions on insurance policy
terminations; unfair trade practices; the nature of and limitations on
investments; premium rates; restrictions on the size of risks which may be
insured under a single policy; deposits of securities for the benefit of
policyholders; approval of policy forms; periodic examinations of the affairs of
insurance companies; annual and other reports required to be filed on the
financial condition of companies or for other purposes; limitations on dividends
to policyholders and shareholders; and the adequacy of provisions for unearned
premiums, unpaid claims and claim adjustment expenses, both reported and
unreported, and other liabilities.

The extent of insurance regulation on business outside the United States
varies significantly among the countries in which the Group operates. Some
countries have minimal regulatory requirements, while others regulate insurers
extensively. Foreign insurers in many countries are faced with greater
restrictions than domestic competitors. In certain countries, the Group has
incorporated insurance subsidiaries locally to improve its position.

The National Association of Insurance Commissioners has a risk-based
capital requirement for property and casualty insurance companies. The
risk-based capital formula is used by state regulatory authorities to identify
insurance companies which may be undercapitalized and which merit further
regulatory attention. The formula prescribes a series of risk measurements to
determine a minimum capital amount for an insurance company, based on the
profile of the individual company. The ratio of a company's actual
policyholders' surplus to its minimum capital requirement will determine whether
any state regulatory action is required. At December 31, 1998, each member of
the Group had more than sufficient capital to meet the risk-based capital
requirement.

Regulatory requirements applying to premium rates vary from state to state,
but generally provide that rates not be "excessive, inadequate or unfairly
discriminatory." Rates for many lines of business, including automobile and
homeowners insurance, are subject to prior regulatory approval in many states.
However, in certain states, prior regulatory approval of rates is not required
for most lines of insurance which the Group underwrites. Ocean marine insurance
rates are exempt from regulation.

Subject to regulatory requirements, the Group's management determines the
prices charged for its policies based on a variety of factors including claim
and claim adjustment expense experience, inflation, tax law and rate changes,
and anticipated changes in the legal environment, both judicial and legislative.
Methods for arriving at prices vary by type of business, exposure assumed and
size of risk. Underwriting profitability is affected by the accuracy of these
assumptions, by the willingness of insurance regulators to approve changes in
those rates which they control and by such other matters as underwriting
selectivity and expense control.

The property and casualty insurance industry is highly competitive both as
to price and service. Members of the Group compete not only with other stock
companies but also with mutual companies, other underwriting organizations and
alternative risk sharing mechanisms. Some competitors obtain their business at a
lower cost through the use of salaried personnel rather than independent agents
and brokers. Rates are not uniform for all insurers and vary according to the
types of insurers and methods of operation. The Group competes for business not
only on the basis of price, but also on the basis of availability of coverage
desired by customers and quality of service, including claim adjustment service.
The Group's products and services are generally designed to serve specific
customer groups or needs and to offer a degree of customization that is of value
to the insured.

There are approximately 3,000 property and casualty insurance companies in
the United States operating independently or in groups and no single company or
group is dominant. According to A.M. Best, the Group is the 12th largest United
States property and casualty insurance group based on 1997 net premiums written.
The relatively large size and underwriting capacity of the Group provide
opportunities not available to smaller companies.

Price competition increased in the property and casualty marketplace during
1987 and has continued through 1998, particularly in the commercial classes. The
Group continues to be selective

12
13

in the writing of new business and to reinforce the sound relationships with
customers who appreciate the stability, expertise and added value the Group
provides.

In all states, insurers authorized to transact certain classes of property
and casualty insurance are required to become members of an insolvency fund. In
the event of the insolvency of a licensed insurer writing a class of insurance
covered by the fund in the state, members are assessed to pay certain claims
against the insolvent insurer. Generally, fund assessments are proportionately
based on the members' written premiums for the classes of insurance written by
the insolvent insurer. In certain states, a portion of these assessments is
recovered through premium tax offsets and policyholder surcharges. In 1998,
assessments to the members of the Group amounted to approximately $8.2 million.
The amount of future assessments cannot be reasonably estimated.

State insurance regulation requires insurers to participate in assigned
risk plans, reinsurance facilities and joint underwriting associations, which
are mechanisms that generally provide applicants with various basic insurance
coverages when they are not available in voluntary markets. Such mechanisms are
most prevalent for automobile and workers' compensation insurance, but a
majority of states also mandate participation in Fair Plans or Windstorm Plans,
which provide basic property coverages. Some states also require insurers to
participate in facilities that provide homeowners and crime insurance.
Participation is based upon the amount of a company's voluntary written premiums
in a particular state for the classes of insurance involved. These involuntary
market plans generally are underpriced and produce unprofitable underwriting
results.

In several states, insurers, including members of the Group, participate in
market assistance plans. Typically, a market assistance plan is voluntary, of
limited duration and operates under the supervision of the insurance
commissioner to provide assistance to applicants unable to obtain commercial and
personal liability and property insurance. The assistance may range from
identifying sources where coverage may be obtained to pooling of risks among the
participating insurers.

Although the federal government and its regulatory agencies generally do
not directly regulate the business of insurance, federal initiatives often have
an impact on the business in a variety of ways. Current and proposed federal
measures which may significantly affect the insurance business include
limitation of Year 2000 liability, tort reform, natural disaster reinsurance,
hazardous waste removal and liability measures, containment of medical costs,
automobile safety regulation, financial services deregulation including the
removal of barriers preventing banks from engaging in the insurance business and
the taxation of insurance companies.

Insurance companies are also affected by a variety of state and federal
legislative and regulatory measures as well as by decisions of their courts that
define and extend the risks and benefits for which insurance is provided. These
include redefinitions of risk exposure in areas such as product liability and
commercial general liability as well as extension and protection of employee
benefits, including workers' compensation and disability benefits.

Legislative and judicial developments pertaining to asbestos and toxic
waste exposures are discussed in Item 7 of this report on pages 20 through 23.

ITEM 2. PROPERTIES

The executive offices of the Corporation and the administrative offices of
the Property and Casualty Group are in Warren, New Jersey. The Property and
Casualty Insurance Group maintains zone administrative and branch offices in
major cities throughout the United States and also has offices in Canada,
Europe, Australia, the Far East and Latin America. Office facilities are leased
with the exception of a building in Branchburg, New Jersey. Management considers
its office facilities suitable and adequate for the current level of operations.
See Note (14) of the notes to consolidated financial statements incorporated by
reference from the Corporation's 1998 Annual Report to Shareholders.

13
14

ITEM 3. LEGAL PROCEEDINGS

The Corporation and its subsidiaries are defendants in various lawsuits
arising out of their businesses. It is the opinion of management that the final
outcome of these matters will not materially affect the consolidated financial
position of the registrant.

Information regarding certain litigation to which property and casualty
insurance subsidiaries of the Corporation are a party is included in Item 7 of
this report on pages 20 through 23.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the shareholders during the last
quarter of the year ended December 31, 1998.

EXECUTIVE OFFICERS OF THE REGISTRANT

YEAR OF
AGE(A) ELECTION(B)
------ -----------

Dean R. O'Hare, Chairman of the Corporation................. 56 1972
Douglas A. Batting, Executive Vice President of Chubb & Son,
a division of Federal..................................... 56 1996
John J. Degnan, President of the Corporation................ 54 1994
Gail E. Devlin, Senior Vice President of the Corporation.... 60 1981
George R. Fay, Executive Vice President of Chubb & Son, a
division of Federal....................................... 50 1999
David S. Fowler, Senior Vice President of the Corporation... 53 1989
Sylvester Green, Executive Vice President of Chubb & Son, a
division of Federal....................................... 58 1998
Henry G. Gulick, Vice President and Secretary of the
Corporation............................................... 55 1975
David B. Kelso, Executive Vice President of the
Corporation............................................... 46 1996
Charles M. Luchs, Executive Vice President of Chubb & Son, a
division of Federal....................................... 59 1996
Andrew A. McElwee, Jr., Senior Vice President of the
Corporation............................................... 44 1997
Glenn A. Montgomery, Senior Vice President of the
Corporation............................................... 46 1997
Thomas F. Motamed, Executive Vice President of the
Corporation............................................... 50 1997
Donn H. Norton, Executive Vice President of the Corporation
(c)....................................................... 57 1985
Michael J. O'Neill, Jr., Senior Vice President and Counsel
of the Corporation........................................ 50 1999
Michael O'Reilly, Executive Vice President of the
Corporation............................................... 55 1976
Robert Rusis, Senior Vice President and General Counsel of
the Corporation........................................... 65 1990
Henry B. Schram, Senior Vice President of the Corporation... 52 1985

- ---------------

(a) Ages listed above are as of April 27, 1999.

(b) Date indicates year first elected or designated as an executive
officer.

(c) Mr. Norton retired as an executive officer of the registrant effective
February 1999.

All of the foregoing officers serve at the pleasure of the Board of
Directors of the Corporation or listed subsidiary and have been employees of the
Corporation or a subsidiary of the Corporation for more than five years except
for David B. Kelso. Prior to joining Chubb in 1996, Mr. Kelso was Executive Vice
President of First Commerce Corporation in New Orleans, where he had also served
as Chief Financial Officer. Mr. Kelso was previously a partner and head of the
North American Banking Practice for The MAC Group (now known as Gemini
Consulting), an international general management consulting firm.

14
15

PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

Incorporated by reference from the Corporation's 1998 Annual Report to
Shareholders, page 65.

ITEM 6. SELECTED FINANCIAL DATA

Selected financial data for the five years ended December 31, 1998 are
incorporated by reference from the Corporation's 1998 Annual Report to
Shareholders, pages 38 and 39.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion presents our past results and our expectations for
the near term future. The supplementary financial information and the
consolidated financial statements and related notes, all of which are integral
parts of the following analysis of our results and our financial position, are
incorporated by reference from the Corporation's 1998 Annual Report to
Shareholders, pages 15, 16 and 40 through 62.

Certain statements in this document, as well as certain statements
incorporated by reference herein, may be considered to be "forward looking
statements" as that term is defined in the Private Securities Litigation Reform
Act of 1995, such as statements that include the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions. Such statements are subject to certain risks
and uncertainties. The factors which could cause actual results to differ
materially from those suggested by any such statements include, but are not
limited to, those discussed or identified from time to time in the Corporation's
public filings with the Securities and Exchange Commission and specifically to:
risks or uncertainties associated with the Corporation's expectations with
respect to premium price increases, the non-renewal of underpriced insurance
accounts, business profitability or growth estimates, as well as with respect to
its activity value analysis program, investment income or cash flow projections,
its announced real estate plans, or the timing or earnings impact of the
announced Executive Risk transaction, and more generally, to: general economic
conditions including changes in interest rates and the performance of the
financial markets, changes in domestic and foreign laws, regulations and taxes,
changes in competition and pricing environments, regional or general changes in
asset valuations, the occurrence of significant natural disasters, the
development of major Year 2000 liabilities, the inability to reinsure certain
risks economically, the adequacy of loss reserves, Euro or currency conversion
transactions, as well as general market conditions, competition, pricing and
restructurings.

Operating income from continuing operations, which excludes realized
investment gains and losses, was $615 million in 1998 compared with $701 million
in 1997 and $434 million in 1996. Operating income in 1998 reflects a first
quarter restructuring charge of $26 million after taxes related to the
implementation of a cost control initiative. Operating income in 1996 reflects a
fourth quarter charge of $160 million after taxes related to the write-down of
the carrying value of certain real estate assets.

Income from continuing operations, which includes realized investment gains
and losses related to such operations, was $707 million in 1998 compared with
$770 million in 1997 and $486 million in 1996.

In May 1997, the Corporation completed the sale of its life and health
insurance operations. The life and health insurance operations have been
classified as discontinued operations.

Net income, which includes the results of the discontinued operations,
amounted to $707 million in 1998 compared with $770 million in 1997 and $513
million in 1996.

15
16

PROPERTY AND CASUALTY INSURANCE

Property and casualty earnings were lower in 1998 compared with 1997. Such
earnings in 1997 were substantially higher than in 1996. Property and casualty
income after taxes was $620 million in 1998 compared with $670 million in 1997
and $561 million in 1996. The decrease in earnings in 1998 was due to a decline
in underwriting results caused in large part by substantially higher catastrophe
losses. Investment income increased in 1998 compared with the prior year. The
increase in earnings in 1997 was due to highly profitable underwriting results
as well as strong growth in investment income compared with 1996. Earnings in
1996 were adversely affected by higher catastrophe losses.

Catastrophe losses were $173 million in 1998, $57 million in 1997 and $142
million in 1996. The 1998 amount was net of reinsurance recoveries of
approximately $150 million relating to Hurricane Georges. We did not have any
recoveries from our catastrophe reinsurance program during 1997 or 1996 since
there were no individual catastrophes for which our losses exceeded the initial
retention. Our initial retention level for each catastrophic event is
approximately $100 million in the United States and generally $25 million
outside the United States.

Reported net premiums written amounted to $5.5 billion in 1998, an increase
of 1% compared with 1997. Reported net premiums written increased 14% in 1997
compared with 1996. Personal coverages accounted for $1.4 billion or 25% of 1998
premiums written and commercial coverages for $4.1 billion or 75%. The reported
growth in premiums written in 1998 and 1997 was affected by changes in certain
reinsurance agreements, which are discussed below.

For many years, a portion of the U.S. insurance business written by the
Corporation's property and casualty subsidiaries was reinsured on a quota share
basis with a subsidiary of the Sun Alliance Group plc. Similarly, a subsidiary
of the Corporation assumed a portion of Sun Alliance's property and casualty
business on a quota share basis. Effective January 1, 1996, the agreements
pertaining to the exchange of reinsurance were amended to reduce the portion of
each company's business reinsured with the other. Consequently, during 1996, the
Corporation's property and casualty subsidiaries retained a greater portion of
the business they wrote directly and assumed less reinsurance from Sun Alliance.
As a result of the 1996 merger of Sun Alliance with Royal Insurance Holdings
plc, these agreements were terminated effective January 1, 1997. Therefore, in
1997, the property and casualty subsidiaries retained an even greater portion of
the business they wrote directly and assumed no reinsurance from Sun Alliance.
There was an additional impact on net premiums written in the first quarter of
1996 and 1997 due to the effect of the portfolio transfers of unearned premiums
as of January 1 of each year resulting from the changes in retention.

A comparison of reported net premiums written with net premiums written
adjusted to reflect the changes to the reinsurance agreements with Sun Alliance
follows:

1998 1997 1996
---- ---- ----
(IN MILLIONS)

Reported net premiums written....................... $5,504 $5,448 $4,774
Premiums assumed from Sun Alliance.................. (4) 203
------ ------ ------
Net premiums written, excluding premiums assumed
from Sun Alliance................................. 5,504 5,452 4,571
Portfolio transfers of unearned premiums............ 175 92
------ ------ ------
Adjusted net premiums written
(1998 compared with 1997)......................... $5,504 5,277
======
Increase in retention -- 1997....................... 392
------ ------
Adjusted net premiums written
(1997 compared with 1996)......................... $4,885 $4,479
====== ======

Net premiums written, as adjusted, increased 4% in 1998 compared with 1997.
Similarly, net premiums written, as adjusted, increased 9% in 1997 compared with
1996.

16
17

After a review of the costs and benefits of our casualty excess of loss
reinsurance program, effective January 1, 1996, we modified the program,
principally for the excess liability and executive protection classes. The
changes included an increase in the initial retention for each loss from $5
million to $10 million and an increase in the initial aggregate amount of losses
retained for each year before reinsurance responds. These changes in our
casualty reinsurance program increased net premiums written in 1996 by
approximately $130 million compared with the prior year. During 1996, we
continued to evaluate the relative costs and benefits of the program. As a
result, effective January 1, 1997, we again modified the program, increasing the
initial retention for each loss from $10 million to $25 million. This change in
our casualty reinsurance program increased net premiums written in 1997 by
approximately $65 million compared with 1996. These changes have had a positive
impact on the cash flows and resulting investment income of the property and
casualty subsidiaries.

Premium growth in personal lines was strong in both 1997 and 1998. In
commercial lines, intense competition in the worldwide marketplace has made
profitable premium growth difficult, particularly in the standard classes, which
include multiple peril, casualty and workers' compensation. In 1998, competitors
continued to place significant pressure on pricing as they attempted to maintain
or increase market share. In an environment where price increases have been
difficult to achieve, we have focused on our specialty lines where we emphasize
the added value we provide to our customers. Strong growth was achieved in both
years in premiums outside the United States, particularly in Europe, our largest
foreign market.

In view of the continuing unprofitability of the standard commercial
classes, we have accelerated actions to achieve price increases. Our priorities
for 1999 are to renew good business at adequate prices and not renew
underperforming accounts where we cannot attain price adequacy. This aggressive
pricing strategy could cause us to lose some business. Therefore, we expect
overall premium growth to be flat in 1999.

Underwriting results were near-breakeven in 1998 compared with profitable
results in 1997 and 1996. The combined loss and expense ratio, the common
measure of underwriting profitability, was 99.8% in 1998 compared with 96.9% in
1997 and 98.3% in 1996.

The loss ratio was 66.3% in 1998 compared with 64.5% in 1997 and 66.2% in
1996. The loss ratio continues to reflect the favorable experience resulting
from the consistent application of our disciplined underwriting standards.
Losses from catastrophes represented 3.3 percentage points of the loss ratio in
1998 compared with 1.1 percentage points in 1997 and 3.1 percentage points in
1996. The significant catastrophes affecting results in 1998 included the winter
ice storms in Canada in the first quarter, the wind and hail storms in the
United States in the second quarter and Hurricane Georges in Puerto Rico in the
third quarter. Catastrophe losses in 1996 resulted primarily from the winter
storms in the eastern part of the United States in the first quarter.

Our expense ratio was 33.5% in 1998 compared with 32.4% in 1997 and 32.1%
in 1996. The increase in the ratio in 1998 was due primarily to an increase in
commission expense caused in part by higher contingent payments and also to
written premiums growing at a somewhat lesser rate than overhead expenses.

During the fourth quarter of 1997, we began an activity value analysis
process to identify and eliminate low-value activities and to improve
operational efficiency in order to reduce expenses and redirect resources to
those current activities and new initiatives having the greatest potential to
contribute to the future results of the Corporation. Implementation began in the
first quarter of 1998 and is substantially completed. This cost control
initiative has resulted in approximately 500 job reductions in the home office
and the branch network through a combination of early retirements, terminations
and attrition. Other savings involve vendor management, consulting expenses and
other operating costs. The initiative is expected to result in annual cost
savings of approximately $150 million, beginning in 1999.

17
18

In the first quarter of 1998, we recorded a restructuring charge of $40
million, or $26 million after taxes, related to the implementation of the cost
control initiative. The restructuring charge relates primarily to costs
associated with providing enhanced pension benefits to employees who accepted an
early retirement incentive offer, severance costs and other costs.

PERSONAL INSURANCE

Reported premiums from personal insurance increased 5% in 1998 compared
with a 26% increase in 1997. The effect on net premiums written of the changes
to the reinsurance agreement with Sun Alliance was as follows:

1998 1997 1996
---- ---- ----
(IN MILLIONS)

Reported net premiums written............................... $1,365 $1,306 $1,039
Portfolio transfers of unearned premiums.................... 66 31
------ ------ ------
Adjusted net premiums written
(1998 compared with 1997)................................. $1,365 1,240
======
Increase in retention -- 1997............................... 139
------ ------
Adjusted net premiums written
(1997 compared with 1996)................................. $1,101 $1,008
====== ======

Net premiums written, as adjusted, increased 10% in 1998 compared with 1997
and 9% in 1997 compared with 1996. We continued to grow our homeowners and other
non-automobile business in non-catastrophe prone areas while maintaining our
disciplined approach to pricing and risk selection. Personal automobile premiums
grew as a result of an increase in the number of in-force policies for
high-value automobiles.

Our personal insurance business produced substantial underwriting profits
in each of the past three years. The combined loss and expense ratio was 85.6%
in 1998 compared with 83.1% in 1997 and 91.7% in 1996.

The profitability of our homeowners business each year is affected
substantially by the amount of catastrophe losses we incur. Homeowners results
were profitable by a similar margin in 1998 and 1997 as a reduction in the
frequency of non-catastrophe related losses in 1998 substantially offset an
increase in catastrophe losses. Results for this class were unprofitable in 1996
as catastrophe losses, particularly those caused by the winter storms, adversely
affected results. Catastrophe losses represented 8.5 percentage points of the
loss ratio for this class in 1998 compared with 2.9 percentage points in 1997
and 16.7 percentage points in 1996.

Our automobile business produced substantial profits in each of the last
three years. Results in each year benefited from stable loss frequency and
severity.

Other personal coverages, which include insurance for personal valuables
and excess liability, were highly profitable in each of the past three years.
Personal excess liability profitability increased in 1997 due to favorable loss
experience but decreased somewhat in 1998 due to an increase in the frequency of
large losses.

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COMMERCIAL INSURANCE

Reported premiums from commercial insurance were virtually unchanged in
1998 compared with 1997. Reported premiums in 1997 were 17% higher than in 1996.
The effect on net premiums written of the changes to the reinsurance agreement
with Sun Alliance was as follows:

1998 1997 1996
---- ---- ----
(IN MILLIONS)

Reported net premiums written............................... $4,139 $4,146 $3,532
Portfolio transfers of unearned premiums.................... 109 61
------ ------ ------
Adjusted net premiums written
(1998 compared with 1997)................................. $4,139 4,037
======
Increase in retention -- 1997............................... 253
------ ------
Adjusted net premiums written
(1997 compared with 1996)................................. $3,784 $3,471
====== ======

Net premiums written, as adjusted, increased 3% in 1998 compared with 1997
and 9% in 1997 compared with 1996. Our strategy of working closely with our
customers and our ability to differentiate our products have enabled us to renew
a large percentage of our business. Growth was achieved in 1998 in our executive
protection business due to an emphasis on new products. Financial services
consolidation together with competition has constrained growth in our financial
institutions business. Premium growth in the standard commercial classes
continues to be hindered by the intense competition that has driven prices to
increasingly unprofitable levels. Premium growth in 1997 for the excess
liability component of our casualty coverages and for our executive protection
coverages benefited from the changes to our casualty excess of loss reinsurance
program. Premium growth in 1998 and 1997 was stronger outside the United States.

Our commercial insurance business produced unprofitable results in 1998
compared with near breakeven underwriting results in 1997 and 1996. The combined
loss and expense ratio was 104.5% in 1998 compared with 100.7% in 1997 and 99.7%
in 1996.

Multiple peril results were unprofitable in each of the past three years
due, in large part, to inadequate prices. Results for this class in 1998
deteriorated in the property component due to higher catastrophe losses. In the
liability component, there was an increase in the frequency of large losses in
1998. However, this was offset by negligible multiple peril incurred losses in
1998 relating to asbestos and toxic waste claims on insurance policies written
many years ago compared with the substantial incurred losses in 1997 relating to
such claims. Results for the multiple peril class were similar in 1997 and 1996
as an improvement in 1997 in the property component, due in part to an absence
of catastrophe losses, was offset by higher losses in the liability component
resulting from an increase in the frequency of large losses and higher incurred
losses relating to asbestos and toxic waste claims. Catastrophe losses
represented 8.6 percentage points of the loss ratio for this class in 1998
compared with 1.5 percentage points in 1997 and 4.8 percentage points in 1996.

Results for our casualty business were similarly unprofitable in each of
the past three years. In each year, casualty results were adversely affected by
incurred losses relating to asbestos and toxic waste claims, but more so in
1996. The excess liability component of our casualty coverages was slightly
unprofitable in 1998 compared with profitable results in 1997 and 1996 due to
declining prices and an increase in the frequency of losses. Excess liability
results in 1998 benefited from favorable development on certain case reserves
set up several years ago. Results for the primary liability component were
unprofitable in each of the past three years, but more so in 1997 and 1996 due
to a higher frequency of losses in those years. Results in the automobile
component were more unprofitable in 1998 than in 1997 compared with breakeven
results in 1996. The deterioration in 1997 and again in 1998 was due to an
increase in the frequency of large losses.

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Workers' compensation results were unprofitable in each of the past three
years. Results deteriorated in 1997 and again in 1998 due in large part to the
cumulative effect of price reductions over the past several years. Results were
also adversely affected in 1998 by several large losses.

Property and marine results were unprofitable in 1998 and 1997, but more so
in 1998, compared with profitable results in 1996. Results in 1998 and 1997 were
adversely affected by an increase in the frequency of large losses, including
several large overseas losses. Results in all three years were adversely
affected by catastrophe losses. Catastrophe losses for this class represented
5.7 percentage points of the loss ratio in 1998 compared with 4.9 percentage
points in 1997 and 4.5 percentage points in 1996.

Executive protection results were highly profitable in each of the past
three years due to favorable loss experience, particularly in the directors and
officers and fiduciary components. Our financial institutions business was also
profitable during the same period due to the favorable loss experience in the
fidelity component of this business. Such profitability was somewhat lower in
1997 due to several large losses in the non-fidelity portion of this business.

Our other commercial classes produced near breakeven results in 1998
compared with profitable results in 1997 and near breakeven results in 1996. The
deterioration in 1998 was attributable to our aviation business, which produced
highly unprofitable results. The improvement in 1997 was primarily attributable
to our surety and accident business.

REINSURANCE ASSUMED

Reinsurance assumed is treaty reinsurance that was assumed from Sun
Alliance. The reinsurance agreement with Sun Alliance was terminated effective
January 1, 1997. However, due to the lag in our reporting of such business, net
premiums written in the first quarter of 1997 included $90 million related to
business we assumed from Sun Alliance in the second half of 1996. Net premiums
written for this segment were reduced by $94 million and $65 million in the
first quarter of 1997 and 1996, respectively, due to the effect of the portfolio
transfers of unearned premiums back to Sun Alliance as of January 1 of each
year.

Underwriting results for this segment in 1997, which represent our share of
the Sun Alliance business for the last six months of 1996, were near breakeven.
Underwriting results were also near breakeven in 1996.

LOSS RESERVES

Loss reserves are our property and casualty subsidiaries' largest
liability. At the end of 1998, gross loss reserves totaled $10.4 billion
compared with $9.8 billion and $9.5 billion at year-end 1997 and 1996,
respectively. Reinsurance recoverable on such loss reserves was $1.3 billion at
year-end 1998 compared with $1.2 billion and $1.8 billion at the end of 1997 and
1996, respectively.

As a result of the changes to the reinsurance agreements with Sun Alliance,
there were portfolio transfers of gross loss reserves and reinsurance
recoverable as of January 1, 1997 and 1996. The effect of these portfolio
transfers was a decrease in gross loss reserves of $184 million and $209 million
and a decrease in reinsurance recoverable of $470 million and $244 million in
1997 and 1996, respectively.

Loss reserves, net of reinsurance recoverable, increased by $485 million or
6% in 1998 compared with $809 million or 10% in 1997. Excluding the effect of
the 1997 portfolio transfer, net loss reserves increased by $523 million or 7%
in 1997. Substantial reserve growth has occurred each year in those liability
classes, primarily excess liability and executive protection, that are
characterized by delayed loss reporting and extended periods of settlement.

During 1998, we experienced overall favorable development of $218 million
on loss reserves established as of the previous year-end. This compares with
favorable development of $65 million in 1997 and $43 million in 1996. Such
redundancies were reflected in operating results in these respective

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years. Each of the past three years benefited from favorable claim severity
trends for certain liability classes; this was offset each year in varying
degrees by losses incurred relating to asbestos and toxic waste claims. The
higher favorable development in 1998 compared with the prior years was due to
substantially lower incurred losses related to asbestos and toxic waste claims,
the continued favorable loss experience for executive protection coverages and
favorable development on certain excess liability case reserves set up several
years ago.

The process of establishing loss reserves is a complex and imprecise
science that reflects significant judgmental factors. This is true because claim
settlements to be made in the future will be impacted by changing rates of
inflation and other economic conditions, changing legislative, judicial and
social environments and changes in our claim handling procedures. In many
liability cases, significant periods of time, ranging up to several years or
more, may elapse between the occurrence of an insured loss, the reporting of the
loss and the settlement of the loss. In fact, approximately 60% of our net loss
reserves at December 31, 1998 were for IBNR -- claims that had not yet been
reported to us, some of which were not yet known to the insured, and for future
development on reported claims.

Judicial decisions and legislative actions continue to broaden liability
and policy definitions and to increase the severity of claim payments. As a
result of this and other societal and economic developments, the uncertainties
inherent in estimating ultimate claim costs on the basis of past experience
continue to further complicate the already complex loss reserving process.

The uncertainties relating to asbestos and toxic waste claims on insurance
policies written many years ago are exacerbated by inconsistent court decisions
and judicial and legislative interpretations of coverage that in some cases have
tended to erode the clear and express intent of such policies and in others have
expanded theories of liability. The industry is engaged in extensive litigation
over these coverage and liability issues and is thus confronted with a
continuing uncertainty in its efforts to quantify these exposures.

Our most costly asbestos exposure relates to an insurance policy issued to
Fibreboard Corporation by Pacific Indemnity Company in 1956. In 1993, Pacific
Indemnity Company, a subsidiary of the Corporation, entered into a global
settlement agreement with Continental Casualty Company (a subsidiary of CNA
Financial Corporation), Fibreboard Corporation, and attorneys representing
claimants against Fibreboard for all future asbestos-related bodily injury
claims against Fibreboard. This agreement is subject to final appellate court
approval. Pursuant to the global settlement agreement, a $1.525 billion trust
fund will be established to pay future claims, which are claims that were not
filed in court before August 27, 1993. Pacific Indemnity will contribute
approximately $538 million to the trust fund and Continental Casualty will
contribute the remaining amount. In December 1993, upon execution of the global
settlement agreement, Pacific Indemnity and Continental Casualty paid their
respective shares into an escrow account. Upon final court approval of the
settlement, the amount in the escrow account, including interest earned thereon,
will be transferred to the trust fund. All of the parties have agreed to use
their best efforts to seek final court approval of the global settlement
agreement.

Pacific Indemnity and Continental Casualty reached a separate agreement in
1993 for the handling of all asbestos-related bodily injury claims pending on
August 26, 1993 against Fibreboard. Pacific Indemnity's obligation under this
agreement with respect to such pending claims is approximately $635 million, all
of which has been paid. The agreement further provides that the total
responsibility of both insurers with respect to pending and future
asbestos-related bodily injury claims against Fibreboard will be shared between
Pacific Indemnity and Continental Casualty on an approximate 35% and 65% basis,
respectively.

At the same time, Pacific Indemnity, Continental Casualty and Fibreboard
entered into a trilateral agreement to settle all present and future
asbestos-related bodily injury claims resulting from insurance policies that
were, or may have been, issued to Fibreboard by the two insurers. The trilateral
agreement will be triggered if the global settlement agreement is ultimately
disapproved. Pacific

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Indemnity's obligation under the trilateral agreement is therefore similar to,
and not duplicative of, that under those agreements described above.

The trilateral agreement reaffirms portions of an agreement reached in
March 1992 between Pacific Indemnity and Fibreboard. Among other matters, that
1992 agreement eliminates any Pacific Indemnity liability to Fibreboard for
asbestos-related property damage claims.

In July 1995, the United States District Court of the Eastern District of
Texas approved the global settlement agreement and the trilateral agreement. The
judgments approving these agreements were appealed to the United States Court of
Appeals for the Fifth Circuit. In July 1996, the Fifth Circuit Court affirmed
the 1995 judgments of the District Court. The objectors to the global settlement
agreement appealed to the United States Supreme Court. In June 1997, the Supreme
Court set aside the ruling by the Fifth Circuit Court that had approved the
global settlement agreement and ordered the Fifth Circuit Court to reconsider
its approval. In January 1998, the Fifth Circuit Court again affirmed the global
settlement agreement. In April 1998, the objectors to the settlement petitioned
the Supreme Court to review the decision. In December 1998, argument was held
before the Supreme Court on the objectors' challenge. A decision is expected
during 1999.

The trilateral agreement was never appealed to the United States Supreme
Court and is final. As a result, management continues to believe that the
uncertainty of Pacific Indemnity's exposure with respect to asbestos-related
bodily injury claims against Fibreboard has been eliminated.

Since 1993, a California Court of Appeal has agreed, in response to a
request by Pacific Indemnity, Continental Casualty and Fibreboard, to delay its
decisions regarding asbestos-related insurance coverage issues that are
currently before it and involve the three parties exclusively, while the
approval of the global settlement is pending in court. Continental Casualty and
Pacific Indemnity have dismissed disputes against each other which involved
Fibreboard and were in litigation.

We have additional potential asbestos exposure, primarily on insureds for
which we wrote excess liability coverages. Such exposure has increased due to
the erosion of much of the underlying limits. The number of claims against such
insureds and the value of such claims have increased in recent years due in part
to the non-viability of other defendants.

Our remaining asbestos exposures are mostly peripheral defendants,
including a mix of manufacturers and distributors of certain products that
contain asbestos as well as premises owners. Generally, these insureds are named
defendants on a regional rather than a nationwide basis. We continue to receive
notices of new asbestos claims and new exposures on existing claims as more
peripheral parties are drawn into litigation to replace the now defunct mines
and bankrupt manufacturers.

Hazardous waste sites are another significant potential exposure. Under the
federal "Superfund" law and similar state statutes, when potentially responsible
parties (PRPs) fail to handle the clean-up, regulators have the work done and
then attempt to establish legal liability against the PRPs. The PRPs, with
proper government authorization in many instances, disposed of toxic materials
at a waste dump site or transported the materials to the site. Most sites have
multiple PRPs. Insurance policies issued to PRPs were not intended to cover the
clean-up costs of pollution and, in many cases, did not intend to cover the
pollution itself. Pollution was not a recognized hazard at the time many of
these policies were written. In more recent years, however, policies
specifically exclude such exposures.

As the costs of environmental clean-up have become substantial, PRPs and
others have increasingly filed claims with their insurance carriers. Litigation
against insurers extends to issues of liability, coverage and other policy
provisions.

There is great uncertainty involved in estimating our liabilities related
to these claims. First, the liabilities of the claimants are extremely difficult
to estimate. At any given site, the allocation of remediation costs among
governmental authorities and the PRPs varies greatly. Second, different courts
have addressed liability and coverage issues regarding pollution claims and have
reached

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inconsistent conclusions in their interpretation of several issues. These
significant uncertainties are not likely to be resolved definitively in the near
future.

Uncertainties also remain as to the Superfund law itself. Superfund's
taxing authority expired on December 31, 1995. Notwithstanding continued
pressure by the insurance industry and other interested parties to achieve a
legislative solution which would reform the liability provisions of the law,
Congress has not yet addressed the issue. It is currently not possible to
predict the direction that any reforms may take, when they may occur or the
effect that any changes may have on the insurance industry.

The Superfund law does not address non-Superfund sites. For that reason, it
does not cover all existing hazardous waste exposures, such as those involving
sites that are subject to state law only. There remains significant uncertainty
as to the cost of remediating the state sites. Because of the large number of
state sites, such sites could prove even more costly in the aggregate than
Superfund sites.

Litigation costs remain substantial, particularly for hazardous waste
claims. A substantial portion of the funds we have expended to date has been for
legal fees incurred in the prolonged litigation of coverage issues. Primary
policies provide a limit on indemnity payments but many do not limit defense
costs. This unlimited defense provided in the policy sometimes leads to the
payment of defense costs in multiples of the indemnity exposure.

Reserves for asbestos and toxic waste claims cannot be estimated with
traditional loss reserving techniques that rely on historical accident year loss
development factors. We have established case reserves and expense reserves for
costs of related litigation where sufficient information has been developed to
indicate the involvement of a specific insurance policy. In addition, IBNR
reserves have been established to cover additional exposures on both known and
unasserted claims. These reserves are continually reviewed and updated. We have
evaluated ultimate incurred losses using newly emerging techniques for
estimating environmental liabilities and have expanded our claim data base. As a
result, we are more confident about the range of likely ultimate incurred losses
relating to asbestos and toxic waste claims. Therefore, the incurred losses
relating to asbestos and toxic waste claims were only $68 million in 1998,
substantially less than the $125 million in 1997 and the $151 million in 1996.
Further increases in such loss reserves in 1999 and future years are possible as
legal and factual issues concerning these claims continue to be clarified. The
amount cannot be reasonably estimated.

Management believes that the aggregate loss reserves of the property and
casualty subsidiaries at December 31, 1998 were adequate to cover claims for
losses which had occurred, including both those known to us and those yet to be
reported. In establishing such reserves, management considers facts currently
known and the present state of the law and coverage litigation. However, given
the expansion of coverage and liability by the courts and the legislatures in
the past and the possibilities of similar interpretations in the future,
particularly as they relate to asbestos and toxic waste claims, as well as the
uncertainty in determining what scientific standards will be deemed acceptable
for measuring hazardous waste site clean-up, additional increases in loss
reserves may emerge which would adversely affect results in future periods. The
amount cannot reasonably be estimated at the present time.

CATASTROPHE EXPOSURE

The Corporation's property and casualty subsidiaries have an exposure to
insured losses caused by hurricanes, earthquakes, winter storms, windstorms and
other catastrophic events. The frequency and severity of catastrophes are
unpredictable. The extent of losses from a catastrophe is a function of both the
total amount of insured exposure in an area affected by the event and the
severity of the event. We continually assess our concentration of underwriting
exposures in catastrophe prone areas and develop strategies to manage this
exposure through individual risk selection, subject to regulatory constraints,
and through the purchase of catastrophe reinsurance. In recent years, we have
invested in modeling technologies that allow us to better monitor catastrophe
exposures. We also continue to explore and

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analyze credible scientific evidence, including the impact of global climate
change, that may affect our potential exposure under insurance policies.

INVESTMENTS AND LIQUIDITY

Investment income after taxes increased 7% in 1998 compared with 9% in
1997. Growth was primarily due to increases in invested assets, which reflected
strong cash flow from operations over the period, partially offset by lower
average yields on new investments.

The effective tax rate on our investment income was 15.3% in 1998 compared
with 16.7% in 1997 and 15.8% in 1996. The effective tax rate increased in 1997
and then decreased in 1998 due to changes in the percentage of our investment
income subject to tax.

Generally, premiums are received by our property and casualty subsidiaries
months or even years before losses are paid under the policies purchased by such
premiums. These funds are used first to make current claim and expense payments.
The balance is invested to augment the investment income generated by the
existing portfolio. Historically, cash receipts from operations, consisting of
insurance premiums and investment income, have provided more than sufficient
funds to pay losses, operating expenses and dividends to the Corporation.

New cash available for investment by the property and casualty subsidiaries
was approximately $860 million in 1998 compared with $1,260 million in 1997 and
$1,150 million in 1996. New cash in 1997 and 1996 included approximately $330
million and $40 million, respectively, received as the net result of the
portfolio transfers of unearned premiums and loss reserves as of January 1 of
each year related to the changes to the reinsurance agreements with Sun
Alliance. New cash in 1996 also included $191 million received in January as a
result of the commutation of a stop loss reinsurance agreement related to
medical malpractice unpaid claims arising from business written prior to 1985.

In 1998, new cash was invested primarily in tax-exempt bonds and, to a
lesser extent, equity securities. In 1997, new cash was invested in tax-exempt
bonds and, to a lesser extent, corporate bonds and mortgage-backed securities.
In addition, in the first quarter of 1997, $250 million of foreign denominated
bonds were sold due to the reduction in foreign liabilities resulting from the
termination of the reinsurance agreements with Sun Alliance, with the proceeds
invested in U.S. dollar denominated securities. In 1996, we invested new cash
primarily in mortgage-backed securities and tax-exempt bonds. In each year, we
tried to achieve the appropriate mix in our portfolio to balance both investment
and tax strategies.

The property and casualty subsidiaries maintain sufficient investments in
highly liquid, short-term securities at all times to provide for immediate cash
needs and the Corporation maintains bank credit facilities that are available to
respond to unexpected cash demands.

CORPORATE

Investment income earned on corporate invested assets and interest and
other expenses not allocable to the operating subsidiaries are reflected in the
corporate segment. Corporate income after taxes was $23 million in 1998 compared
with $36 million in 1997 and $20 million in 1996. The increase in corporate
income in 1997 was due primarily to a reduction in interest expense. The lower
corporate income in 1998 was due primarily to an increase in interest expense.

REAL ESTATE

In October 1996, we announced that we were exploring the possible sale of
all or a significant portion of our real estate assets. In March 1997, our real
estate subsidiary entered into an agreement with a prospective purchaser to
perform due diligence in anticipation of executing a contract for the sale of
substantially all of its commercial properties. Because the plan to pursue the
sale of these assets in the near term represented a significant change in
circumstances relating to the manner in which these assets would be used, we
reassessed the recoverability of their carrying value as of December 31,

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1996. As a result, we recorded an impairment loss of $255 million, or $160
million after taxes, in the fourth quarter of 1996 to reduce the carrying value
of these assets to their estimated fair value.

In June 1997, a definitive agreement was reached with the purchaser. In
November 1997, the sale of almost all of the properties covered by the agreement
reached in June was closed for $737 million, which included $628 million in cash
and the assumption of $109 million in debt. The buyer is a joint venture formed
by Paine Webber Real Estate Securities Inc., Morgan Stanley Real Estate Fund II,
L.P. and Gale & Wentworth, L.L.C. Closing on the one remaining property under
the agreement is expected to occur in 1999.

In addition to the sale to the joint venture in November 1997, we sold
several other commercial properties as well as residential properties in 1997
and 1998. We are continuing to explore the sale of certain of our remaining
properties.

We have retained approximately $365 million of land which we expect will be
developed in the future. In addition, we have retained approximately $165
million of commercial properties and land parcels under lease.

Real estate operations resulted in a loss after taxes of $2 million in 1998
compared with losses of $5 million in 1997 and $147 million in 1996. The loss in
1996 reflects the $160 million after tax impairment charge. Excluding the impact
of the impairment charge, results in 1996 benefited from the sale of several
rental properties.

Revenues were $82 million in 1998, $616 million in 1997 and $320 million in
1996. Revenues in 1998 reflect the reduced operating activity as a result of the
sale of a substantial portion of our real estate assets in 1997. Revenues in
1997 included $380 million from the November sale of real estate properties.
Proceeds received from that sale that related to mortgages receivable are not
classified as revenues. Revenues in 1996 included higher levels of revenues from
residential development and the sale of rental properties.

Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
requires that we analyze our individual buildings, leased land and development
sites on a continuing basis to determine if an impairment loss has occurred.
Estimates are made of the revenues and operating costs, plus any additional
costs to be incurred to complete development, of the property in the future
through an assumed holding period based on our intended use of the property. The
time value of money is not considered in assessing whether an impairment has
occurred. If it is determined that impairment has occurred, measurement of such
impairment is based on the fair value of the assets. The $255 million writedown
of real estate assets in 1996 was made in accordance with the provisions of SFAS
No. 121.

Loans receivable, which were issued in connection with our joint venture
activities and other property sales, are primarily purchase money mortgages.
Such loans, which amounted to $105 million at December 31, 1998, are generally
collateralized by buildings and, in some cases, land. We continually evaluate
the ultimate collectibility of such loans and establish appropriate reserves.

The carrying value of the real estate assets we plan to dispose of in the
near term is based on the estimated fair value of these assets. The
recoverability of the carrying value of the remaining real estate assets is
assessed based on our ability to fully recover costs through a future revenue
stream. The process by which SFAS No. 121 is applied and necessary write-downs
are calculated assumes these properties will be developed and disposed of over a
period of time. The assumptions reflect a continued improvement in demand for
office space, an increase in rental rates and the ability and intent to obtain
financing in order to hold and develop such remaining properties and protect our
interests over the long term. Management believes that it has made adequate
provisions for impairment of real estate assets. However, if the assets are not
sold or developed as presently contemplated, it is possible that additional
impairment losses may be recognized.

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Real estate activities were funded in the past with short-term credit
instruments, primarily commercial paper, and debt issued by Chubb Capital
Corporation as well as with term loans and mortgages. Proceeds from the November
1997 sale were used to repay the outstanding short-term debt and certain term
loans and mortgages as well as to reduce intercompany borrowings from Chubb
Capital. In February 1998, the remaining $300 million of intercompany borrowings
from Chubb Capital was converted into preferred stock of the real estate
subsidiary. In 1998, the interest rate on the remaining term loan approximated
7 1/2% and for mortgages the range of interest rates was 6% to 12%.

INVESTMENT GAINS AND LOSSES

Net investment gains realized by the Corporation and its property and
casualty subsidiaries were as follows:

1998 1997 1996
---- ---- ----
(IN MILLIONS)

Equity securities........................................... $100 $ 75 $69
Fixed maturities............................................ 42 30 11
---- ---- ---
Realized investment gains before tax........................ $142 $105 $80
==== ==== ===
Realized investment gains after tax......................... $ 92 $ 68 $52
==== ==== ===

Decisions to sell securities are governed principally by considerations of
investment opportunities and tax consequences. Thus, realized investment gains
and losses may vary significantly from year to year.

Sales of equity securities in each of the last three years resulted in net
realized investment gains due primarily to the significant appreciation in the
United States equity markets. A primary reason for the sale of fixed maturities
in each of the last three years has been to improve our after-tax portfolio
return without sacrificing quality where market opportunities have existed to do
so.

Fixed maturities which the Corporation and its insurance subsidiaries have
the ability and intent to hold to maturity are classified as held-to-maturity.
The remaining fixed maturities, which may be sold prior to maturity to support
our investment strategies, such as in response to changes in interest rates and
the yield curve or to maximize after-tax returns, are classified as
available-for-sale. Fixed maturities classified as held-to-maturity are carried
at amortized cost while fixed maturities classified as available-for-sale are
carried at market value. At December 31, 1998, 15% of the fixed maturity
portfolio was classified as held-to-maturity compared with 18% at December 31,
1997 and 22% at December 31, 1996.

The unrealized appreciation or depreciation of investments carried at
market value, which includes equity securities and fixed maturities classified
as available-for-sale, is reflected in a separate component of other
comprehensive income, net of applicable deferred income tax.

The unrealized market appreciation before tax of those fixed maturities
carried at amortized cost was $138 million, $147 million and $130 million at
December 31, 1998, 1997 and 1996, respectively. Such unrealized appreciation was
not reflected in the consolidated financial statements.

Changes in unrealized market appreciation of fixed maturities were due to
fluctuations in interest rates.

DISCONTINUED OPERATIONS -- LIFE AND HEALTH INSURANCE

In May 1997, the Corporation completed the sale of Chubb Life Insurance
Company of America to Jefferson-Pilot Corporation for $875 million in cash,
subject to various closing adjustments, none of which were material.

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In 1996, the Corporation recognized a loss of $22 million relating to the
sale of the life and health insurance operations. The purchase price was not
adjusted to reflect results of operations subsequent to December 31, 1996. The
discontinued life and health insurance operations did not affect the
Corporation's net income in 1997 and 1998 and will not affect net income in
future periods. Earnings in 1996 from the discontinued life and health insurance
operations were $49 million, including realized investment gains of $8 million.

MARKET RISK

The main objectives in managing the investment portfolios of the
Corporation and its property and casualty subsidiaries are to maximize after-tax
investment income and total investment returns while minimizing credit risks in
order to provide maximum support to the insurance underwriting operations.
Investment strategies are developed based on many factors including underwriting
results and our resulting tax position, regulatory requirements, fluctuations in
interest rates and consideration of other market risks. Investment decisions are
centrally managed by investment professionals based on guidelines established by
management and approved by the boards of directors.

Market risk represents the potential for loss due to adverse changes in the
fair value of financial instruments. The market risks related to financial
instruments of the Corporation and its property and casualty subsidiaries
primarily relate to the investment portfolio, which exposes the Corporation to
risks related to interest rates and, to a lesser extent, credit quality,
prepayment, foreign currency exchange rates and equity prices. Analytical tools
and monitoring systems are in place to assess each of these elements of market
risk.

Interest rate risk is the price sensitivity of a fixed income security to
changes in interest rates. We view these potential changes in price within the
overall context of asset and liability management. Our actuaries estimate the
payout pattern of our liabilities, primarily our property and casualty loss
reserves, to determine their duration, which is the present value of the
weighted average payments expressed in years. We set duration targets for our
fixed income investment portfolios after consideration of the duration of these
liabilities and other factors, which we believe mitigates the overall effect of
interest rate risk for the Corporation and its property and casualty
subsidiaries.

The table on the following page provides information about all our fixed
maturity investments, which are sensitive to changes in interest rates. The
table presents cash flows of principal amounts and related weighted average
interest rates by expected maturity dates at December 31, 1998 and 1997. The
cash flows are based on the earlier of the call date or the maturity date or,
for mortgage-backed securities, expected payment patterns. Actual cash flows
could differ from the expected amounts.

27
28

FIXED MATURITIES
EXPECTED CASH FLOWS OF PRINCIPAL AMOUNTS

AT DECEMBER 31, 1998
----------------------------------------------------------------------------
TOTAL
----------------------
ESTIMATED
THERE- AMORTIZED MARKET
1999 2000 2001 2002 2003 AFTER COST VALUE
---- ---- ---- ---- ---- ------ --------- ---------
(IN MILLIONS)

Tax-exempt........................... $462 $391 $578 $ 637 $ 575 $5,869 $ 8,512 $ 9,075
Average interest rate.............. 6.8% 6.7% 6.7% 6.1% 5.7% 5.5% -- --
Taxable-- other than mortgage-backed
securities......................... 201 139 175 209 389 1,451 2,564 2,704
Average interest rate.............. 6.5% 6.3% 6.9% 6.6% 6.6% 6.6% -- --
Mortgage-backed securities........... 196 189 208 163 117 822 1,695 1,678
Average interest rate.............. 7.1% 7.1% 7.1% 7.0% 7.0% 7.3% -- --
---- ---- ---- ------ ------ ------- ------- -------
Total................................ $859 $719 $961 $1,009 $1,081 $8,142 $12,771 $13,457
==== ==== ==== ====== ====== ====== ======= =======
AT DECEMBER 31, 1997
----------------------------------------------------------------------------
TOTAL
----------------------
ESTIMATED
THERE- AMORTIZED MARKET
1998 1999 2000 2001 2002 AFTER COST VALUE
---- ---- ---- ------ ------ ------ --------- ---------
(IN MILLIONS)
Tax-exempt........................... $387 $423 $384 $ 520 $ 563 $5,332 $ 7,609 $ 8,114
Average interest rate.............. 6.7% 6.9% 6.7% 6.7% 6.0% 5.7% -- --
Taxable-- other than mortgage-backed
securities......................... 158 308 146 258 140 1,578 2,588 2,675
Average interest rate.............. 7.7% 6.3% 6.7% 6.8% 7.3% 7.0% -- --
Mortgage-backed securities........... 231 162 167 180 177 861 1,778 1,811
Average interest rate.............. 7.1% 7.3% 7.4% 7.3% 7.4% 7.4% -- --
---- ---- ---- ------ ------ ------ ------- -------
Total................................ $776 $893 $697 $ 958 $ 880 $7,771 $11,975 $12,600
==== ==== ==== ====== ====== ====== ======= =======

The Corporation and its property and casualty subsidiaries have
consistently invested in high quality marketable securities. As a result, we
believe that we have minimal credit quality risk. Taxable bonds in our domestic
portfolio comprise U.S. Treasury, government agency, mortgage-backed and
corporate securities. During 1998, to increase our investment returns, we
shifted a portion of the taxable portfolio from government agency
mortgage-backed securities and lower yielding U.S. Treasury securities to
commercial mortgage-backed securities and corporate bonds. Approximately 60% of
taxable bonds are issued by the U.S. Treasury or U.S. government agencies or
rated AA or better by Moody's or Standard and Poor's. Of the tax-exempt bonds,
approximately 90% are rated AA or better with more than half rated AAA. Only 1%
of our bond portfolio is below investment grade. Taxable bonds have an average
maturity of 7 years while tax-exempt bonds mature on average in 9 years.

Prepayment risk refers to the changes in prepayment patterns related to
decreases and increases in interest rates that can either shorten or lengthen
the expected timing of the principal repayments and thus the average life and
the effective yield of a security. Such risk exists primarily within our
portfolio of mortgage-backed securities. We monitor such risk regularly and
invest primarily in those classes of mortgage-backed securities that are less
subject to prepayment risk.

Mortgage-backed securities comprised 40% of our taxable bond portfolio at
both year-end 1998 and 1997. About 40% of our mortgage-backed securities
holdings at December 31, 1998 related to residential mortgages consisting of
government agency pass-through securities, government agency collateralized
mortgage obligations (CMOs) and AAA rated non-agency CMOs backed by government
agency collateral or single family home mortgages. The majority of the CMOs are
actively traded in

28
29

liquid markets and market value information is readily available from
broker/dealers. An additional 40% of our mortgage-backed securities were call
protected AAA rated commercial securities. The remaining mortgage-backed
holdings were all investment grade commercial mortgage-backed securities.

Foreign currency risk is the sensitivity to foreign exchange rate
fluctuations of the market value and investment income related to foreign
currency denominated financial instruments. The functional currency of our
foreign operations is generally the currency of the local operating environment
since their business is primarily transacted in such local currency. We reduce
the risks relating to currency fluctuations by maintaining investments in those
foreign currencies in which we have unpaid claims and other liabilities. Such
investments have characteristics similar to our liabilities in those currencies.
At December 31, 1998, the property and casualty subsidiaries held foreign
investments of $1.2 billion supporting their international operations. Such
foreign investments have quality and maturity characteristics similar to our
domestic portfolio. The principal currencies creating foreign exchange rate risk
for the property and casualty subsidiaries are the Canadian dollar and the
British pound sterling. The table below provides information about those fixed
maturity investments included in the table on page 28 that are denominated in
these two currencies. The table presents cash flows of principal amounts in U.S.
dollar equivalents by expected maturity dates at December 31, 1998 and 1997.
Actual cash flows could differ from the expected amounts.

FOREIGN CURRENCY DENOMINATED FIXED MATURITIES
EXPECTED CASH FLOWS OF PRINCIPAL AMOUNTS

AT DECEMBER 31, 1998
-----------------------------------------------------------------
TOTAL
---------------------
ESTIMATED
THERE- AMORTIZED MARKET
1999 2000 2001 2002 2003 AFTER COST VALUE
---- ---- ---- ---- ---- ------ --------- ---------
(IN MILLIONS)

Canadian dollar........................ $5 $31 $39 $40 $46 $151 $312 $343
British pound sterling................. -- 24 21 39 32 140 256 284

AT DECEMBER 31, 1997
-----------------------------------------------------------------
TOTAL
---------------------
ESTIMATED
THERE- AMORTIZED MARKET
1998 1999 2000 2001 2002 AFTER COST VALUE
---- ---- ---- ---- ---- ------ --------- ---------
(IN MILLIONS)

Canadian dollar........................ $-- $ 6 $16 $47 $43 $195 $307 $337
British pound sterling................. -- -- 19 23 5 175 222 229

Equity price risk is the potential loss arising from changes in the value
of equity securities. In general, equities have more year-to-year price
variability than intermediate term high grade bonds. However, returns over
longer time frames have been consistently higher. Our equity securities are high
quality and readily marketable.

All of the above risks are monitored on an ongoing basis. A combination of
in-house systems and proprietary models and externally licensed software are
used to analyze individual securities as well as each portfolio. These tools
provide the portfolio managers with information to assist them in the evaluation
of the market risks of the portfolio.

YEAR 2000 READINESS DISCLOSURE

The Year 2000 issue relates to the inability of certain information
technology (IT) systems and applications as well as non-IT systems, such as
equipment with imbedded chips and microprocessors, to properly process data
containing dates beginning with the year 2000. The issue exists because many

29
30

systems used two digits rather than four to define the applicable year. Such
systems may recognize the date "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing disruptions of
normal business activities or other unforeseen problems.

In 1995, we initiated a project to ensure Year 2000 readiness of the
Corporation's systems and applications. We put in place a team responsible for
bringing our systems and equipment into Year 2000 compliance.

The team performed an inventory and assessment of our mainframe systems to
determine which must be retired, renovated or rewritten as a result of Year 2000
issues. As of December 31, 1998, we completed remediation and testing procedures
on 95% of our mainframe IT systems, including all mission critical systems
except one. We expect to complete the remediation and testing of all remaining
systems by June 1999.

We have also completed an inventory and assessment of all our personal
computers, servers and other non-mainframe computers. We expect that all such
computers and related software will be Year 2000 ready by the third quarter of
1999. We have also assessed our non-IT systems and believe that the failure of
any of these systems would have minimal impact on our operations.

The Corporation and its subsidiaries have interaction with many third
parties, including producers, reinsurers, financial institutions, vendors,
suppliers and others. We have initiated contact with these parties regarding
their plans for Year 2000 readiness. We are in the process of evaluating the
responses and following up with those parties from whom we have received no
response. The information obtained will be used to develop business contingency
plans to address any mission critical operations that may be adversely impacted
by the noncompliance of a third party with whom we interact. We have electronic
data interchanges with some third parties. We are physically testing such
interchanges for Year 2000 compliance. We expect that such testing will be
completed by June 1999.

We have identified those third parties that are critical to our operations
and are assessing risks with respect to the potential failure of such parties to
be Year 2000 ready. However, we do not have control over these third parties and
are unable to determine whether all such third parties will address the Year
2000 issue successfully, including third parties located outside the United
States where it is believed that Year 2000 remediation efforts in general may be
less advanced. Management cannot determine the effect on the Corporation's
future operating results of the failure of third parties to be Year 2000 ready.

Our Year 2000 plans have been developed with the intention of minimizing
the need for actual implementation of contingency activities. We anticipate that
a substantial portion of 1999 will be used to monitor systems already remediated
for Year 2000 for any unidentified problems and to perform additional
remediation and testing as necessary. Nonetheless, in order to address any
unexpected difficulties that may arise, we will keep our core Year 2000
readiness team intact until June 2000. Additionally, we are studying the
development of contingency plans to continue business in the unlikely event that
one or more of our critical systems fail.

We believe that we are taking the necessary measures to address Year 2000
issues that may arise and that our internal systems will be compliant.
Notwithstanding such efforts, significant Year 2000 problems could arise. In
particular, the prolonged failure of power and telecommunications systems could
have a material adverse effect on our operations. Similarly, Year 2000 related
difficulties experienced by our producers or financial institutions have the
potential to materially disrupt our business. Given the uncertain nature of Year
2000 problems that may arise, management cannot determine at this time whether
the consequences of Year 2000 related problems will have a material impact on
the Corporation's financial position or results of operations.

The Year 2000 team has included employees of the Corporation and software
consultants. A portion of the remediation effort has been accomplished by
redirecting existing systems resources to the Year 2000 effort. However, we do
not believe that this has had a significant adverse effect on other systems
initiatives.
30
31

We expect that the cost to address the Year 2000 IT systems issue,
including compensation of employees and the cost of consultants, will
approximate $36 million. Approximately $30 million was incurred as of December
31, 1998, of which $14 million was incurred in 1998. These amounts do not
include the cost of computer equipment purchased to replace equipment that would
have been upgraded in the normal course of business, but not necessarily prior
to January 2000.

An additional concern to the Corporation is the potential future impact of
the Year 2000 issue on insurance coverages written by our property and casualty
subsidiaries. The Year 2000 issue is a risk for some of our insureds and needs
to be considered during the underwriting process similar to any other risk to
which our customers may be exposed. It is possible that Year 2000 related losses
may emerge that would adversely affect operating results in future periods. At
this time, in the absence of any significant claims experience, management
cannot determine the nature and extent of any losses, the availability of
coverage for such losses or the likelihood of significant claims.

THE EURO

On January 1, 1999, eleven of the fifteen member countries of the European
Economic and Monetary Union adopted the euro as their common currency, at which
time the rates of conversion between the euro and the participating national
currencies were fixed. The euro will be introduced gradually over a period of
three years. During this transition period, business in the participating
countries will be conducted in the euro or the national currency. Once the
national currencies are phased out, the euro will be the sole legal currency in
these countries.

We have identified the systems and operational issues related to the impact
of the adoption of the euro on our European property and casualty operations. We
were prepared to transact euro denominated business as of January 1, 1999. We
will address additional systems issues over the three year transition period.
The adoption of the euro is not expected to have a material effect on the
Corporation's financial position or results of operations.

CAPITAL RESOURCES

In February 1994, the Board of Directors authorized the repurchase of up to
10,000,000 shares of common stock. Through March 1997, the Corporation had
repurchased 6,851,600 shares under the 1994 share repurchase authorization. In
March 1997, the Board of Directors replaced the 1994 authorization with a new
authorization to repurchase up to 17,500,000 shares of common stock. On July 24,
1998, the Board of Directors authorized the repurchase of up to an additional
12,500,000 shares. Through December 31, 1998, the Corporation had repurchased
17,994,900 shares under the 1997 and 1998 authorizations. As of December 31,
1998, 12,005,100 shares remained under the current share repurchase
authorizations. In the aggregate, the Corporation repurchased 8,203,000 shares
in open-market transactions in 1998 at a cost of $609 million, 12,940,500 shares
in 1997 at a cost of $828 million and 1,700,000 shares in 1996 at a cost of $83
million.

The Corporation filed a shelf registration statement which the Securities
and Exchange Commission declared effective in September 1998, under which up to
$600 million of various types of securities may be issued by the Corporation or
Chubb Capital. No securities have been issued under this registration statement.

In August 1998, the Corporation sold $300 million of unsecured 6.15% notes
due in 2005 and $100 million of unsecured 6.60% debentures due in 2018 under a
previously filed shelf registration. The proceeds were used for general
corporate purposes, which included the repurchase of shares of our common stock.

The Corporation also has outstanding $30 million of unsecured 8 3/4% notes
due in 1999. Chubb Capital has outstanding $100 million of 6 7/8% notes due in
2003. The Chubb Capital notes are unsecured and are guaranteed by the
Corporation.

31
32

In July 1997, the Corporation entered into two credit agreements with a
group of banks that provide for unsecured borrowings of up to $500 million in
the aggregate. The $200 million short term revolving credit facility, which
terminated on July 10, 1998, was extended to July 7, 1999, and may be renewed or
replaced. The $300 million medium term revolving credit facility terminates on
July 11, 2002. On the respective termination dates, any loans then outstanding
become payable. There have been no borrowings under these agreements. These
facilities are available for general corporate purposes and to support Chubb
Capital's commercial paper borrowing arrangement.

PENDING TRANSACTIONS

On February 8, 1999, the Corporation announced that it entered into a
definitive merger agreement under which it would acquire Executive Risk Inc.
Executive Risk is a specialty insurance company offering directors and officers,
errors and omissions and professional liability coverages. Executive Risk's
gross and net written premiums for 1998 were approximately $500 million and $280
million, respectively.

The acquisition will be accounted for using the purchase method of
accounting. The agreement provides that Executive Risk shareholders will receive
1.235 shares of the Corporation's common stock for each outstanding common share
of Executive Risk. The agreement contemplates that approximately 13,730,000
shares of common stock of the Corporation will be issued to Executive Risk
shareholders and approximately 2,300,000 shares of common stock of the
Corporation will be reserved for issuance upon exercise of Executive Risk stock
options. The total value of the transaction is expected to be approximately $850
million. Completion of the acquisition is subject to approval by Executive Risk
shareholders and various regulatory authorities. Closing is expected in the
second quarter of 1999.

The Corporation has agreed to purchase a 27% interest in Hiscox plc, a
leading U.K. personal and commercial specialty insurer, for approximately $140
million. Closing of this transaction is subject to regulatory approvals which
are pending.

CHANGES IN ACCOUNTING PRINCIPLES

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This SOP requires that certain
costs incurred to develop or obtain computer software for internal use should be
capitalized and amortized over the software's expected useful life. Currently,
we expense all development costs of internal use computer software. SOP 98-1 is
effective for the Corporation on January 1, 1999 and is to be applied
prospectively. The adoption of SOP 98-1 will increase the Corporation's net
income in 1999 by an amount that has not yet been quantified. The effect on net
income will decrease in future years as the new method of accounting is phased
in.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about market risk are included in
Item 7, pages 27 through 29 of this report.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated financial statements of the Corporation at December 31, 1998
and 1997 and for each of the three years in the period ended December 31, 1998
and the Report of Independent Auditors thereon and the Corporation's unaudited
quarterly financial data for the two-year period ended December 31, 1998 are
incorporated by reference from the Corporation's 1998 Annual Report to
Shareholders, pages 40 through 64.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

32
33

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the Corporation's Directors is incorporated by
reference from the Corporation's definitive Proxy Statement for the Annual
Meeting of Shareholders on April 27, 1999, pages 2 through 4. Information
regarding the executive officers is included in Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference from the Corporation's definitive Proxy Statement
for the Annual Meeting of Shareholders on April 27, 1999, pages 8 through 19
other than the Performance Graphs and the Organization and Compensation
Committee Report appearing on pages 13 through 17.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference from the Corporation's definitive Proxy Statement
for the Annual Meeting of Shareholders on April 27, 1999, pages 5 through 6.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from the Corporation's definitive Proxy Statement
for the Annual Meeting of Shareholders on April 27, 1999, page 20.

33
34

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. FINANCIAL STATEMENTS AND 2. SCHEDULES

The financial statements and schedules listed in the accompanying
index to financial statements and financial statement schedules are filed
as part of this report.

3. EXHIBITS

The exhibits listed in the accompanying index to exhibits are filed as
part of this report.

(b) REPORTS ON FORM 8-K

The Registrant filed a current report on Form 8-K dated October 29,
1998 with respect to the announcement on October 29, 1998 of its financial
results for the third quarter and first nine months of 1998.

The Registrant filed a current report on Form 8-K dated December 17,
1998 with respect to the fact that on December 11, 1998 the Board of
Directors of the Registrant adopted amendments and additions to the by-laws
of the Registrant.

The Registrant filed a current report on Form 8-K dated January 19,
1999 with respect to the announcement on January 18, 1999 of its
preliminary financial results for the quarter and year ended December 31,
1998.

The Registrant filed a current report on Form 8-K dated February 6,
1999 with respect to the announcement on February 8, 1999 that the
Registrant entered into a definitive merger agreement under which the
Registrant will acquire Executive Risk Inc.

The Registrant filed a current report on Form 8-K dated March 12, 1999
with respect to the announcement on March 12, 1999 that the Registrant had
adopted a new shareholder rights plan, replacing the Registrant's existing
plan, which was due to expire on June 12, 1999.

For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
Nos. 33-29185 (filed June 7, 1989), 33-30020 (filed July 18, 1989), 33-49230
(filed July 2, 1992), 33-49232 (filed July 2, 1992), 333-09273 (filed July 31,
1996), 333-09275 (filed July 31, 1996), 333-58157 (filed June 30, 1998) and
333-67347 (filed November 16, 1998):

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.

34
35

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

THE CHUBB CORPORATION
(REGISTRANT)
March 12, 1999

By /s/ DEAN R. O'HARE

----------------------------------
(DEAN R. O'HARE, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER)

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:

SIGNATURE TITLE DATE

/s/ DEAN R. O'HARE Chairman, Chief March 12, 1999
- --------------------------------------------------- Executive Officer and
(DEAN R. O'HARE) Director

/s/ ZOE E. BAIRD Director March 12, 1999
- ---------------------------------------------------
(ZOE E. BAIRD)

/s/ JOHN C. BECK Director March 12, 1999
- ---------------------------------------------------
(JOHN C. BECK)

/s/ SHEILA P. BURKE Director March 12, 1999
- ---------------------------------------------------
(SHEILA P. BURKE)

Director March 12, 1999
- ---------------------------------------------------
(JAMES I. CASH, JR.)

/s/ PERCY CHUBB, III Director March 12, 1999
- ---------------------------------------------------
(PERCY CHUBB, III)

/s/ JOEL J. COHEN Director March 12, 1999
- ---------------------------------------------------
(JOEL J. COHEN)

/s/ JAMES M. CORNELIUS Director March 12, 1999
- ---------------------------------------------------
(JAMES M. CORNELIUS)

/s/ DAVID H. HOAG Director March 12, 1999
- ---------------------------------------------------
(DAVID H. HOAG)

35
36

SIGNATURE TITLE DATE

Director March 12, 1999
- ---------------------------------------------------
(THOMAS C. MACAVOY)

/s/ WARREN B. RUDMAN Director March 12, 1999
- ---------------------------------------------------
(WARREN B. RUDMAN)

/s/ DAVID G. SCHOLEY Director March 12, 1999
- ---------------------------------------------------
(DAVID G. SCHOLEY)

Director March 12, 1999
- ---------------------------------------------------
(RAYMOND G.H. SEITZ)

/s/ LAWRENCE M. SMALL Director March 12, 1999
- ---------------------------------------------------
(LAWRENCE M. SMALL)

/s/ JAMES M. ZIMMERMAN Director March 12, 1999
- ---------------------------------------------------
(JAMES M. ZIMMERMAN)

/s/ DAVID B. KELSO Executive Vice President and March 12, 1999
- --------------------------------------------------- Chief Financial Officer
(DAVID B. KELSO)

/s/ HENRY B. SCHRAM Senior Vice President and March 12, 1999
- --------------------------------------------------- Chief Accounting Officer
(HENRY B. SCHRAM)

36
37

THE CHUBB CORPORATION

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF INDEPENDENT AUDITORS

(ITEM 14(A))

ANNUAL REPORT TO
SHAREHOLDERS FORM 10-K
PAGE PAGE
---------------- ---------

Report of Independent Auditors 63 --
Consolidated Balance Sheets at December 31, 1998 and 1997 41 --
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996 40 --
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996 42 --
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 43 --
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1998, 1997, and 1996 43 --
Notes to Consolidated Financial Statements 44 --
Supplementary Information (unaudited)
Quarterly Financial Data 64 --
Schedules:
I -- Consolidated Summary of Investments -- Other
than Investments in Related Parties at
December 31, 1998 -- 39
II -- Condensed Financial Information of Registrant at
December 31, 1998 and 1997 and for the Years
Ended December 31, 1998, 1997 and 1996 -- 40
III -- Consolidated Supplementary Insurance Information
at and for the Years Ended December 31, 1998,
1997 and 1996 -- 43
IV -- Consolidated Reinsurance for the Years Ended
December 31, 1998, 1997 and 1996 -- 44
VI -- Consolidated Supplementary Property and Casualty
Insurance Information for the Years Ended
December 31, 1998, 1997 and 1996 -- 44

All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.

The consolidated financial statements and supplementary information listed
in the above index, which are included in the Annual Report to Shareholders of
The Chubb Corporation for the year ended December 31, 1998, are hereby
incorporated by reference.

37
38

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report (Form
10-K) of The Chubb Corporation of our report dated February 24, 1999, except for
Note 20(c), as to which the date is March 12, 1999, included in the 1998 Annual
Report to Shareholders of The Chubb Corporation.

Our audits also included the financial statement schedules of The Chubb
Corporation listed in Item 14(a). These schedules are the responsibility of the
Corporation's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

We also consent to the incorporation by reference in the Registration
Statements (Form S-3: No. 333-63175, No. 333-67445 and Form S-8: No. 33-29185,
No. 33-30020, No. 33-49230, No. 33-49232, No. 333-09273, No. 333-09275, No.
333-58157 and No. 333-67347) of our report dated February 24, 1999, except for
Note 20(c), as to which the date is March 12, 1999, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedules included in this Annual Report (Form 10-K) of The Chubb
Corporation.

/s/ ERNST & YOUNG LLP
New York, New York

March 26, 1999

38
39

THE CHUBB CORPORATION

SCHEDULE I

CONSOLIDATED SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES

(IN MILLIONS)

DECEMBER 31, 1998

AMOUNT
AT WHICH
COST OR SHOWN IN
AMORTIZED MARKET THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET

Short term investments................................ $ 344.2 $ 344.2 $ 344.2
--------- --------- ---------
Fixed maturities
Bonds
United States Government and government agencies
and authorities................................ 944.3 960.2 958.1
States, municipalities and political
subdivisions................................... 8,466.5 9,028.2 8,892.3
Foreign.......................................... 1,118.3 1,202.1 1,202.1
Public utilities................................. 340.9 357.7 357.7
All other corporate bonds........................ 1,830.2 1,835.5 1,835.5
--------- --------- ---------
Total bonds............................ 12,700.2 13,383.7 13,245.7
Redeemable preferred stocks......................... 70.3 73.2 73.2
--------- --------- ---------
Total fixed maturities................. 12,770.5 13,456.9 13,318.9
--------- --------- ---------
Equity securities
Common stocks
Public utilities................................. 18.5 24.3 24.3
Banks, trusts and insurance companies............ 68.6 82.1 82.1
Industrial, miscellaneous and other.............. 831.7 911.6 911.6
--------- --------- ---------
Total common stocks.................... 918.8 1,018.0 1,018.0
Non-redeemable preferred stocks..................... 83.8 74.2 74.2
--------- --------- ---------
Total equity securities................ 1,002.6 1,092.2 1,092.2
--------- --------- ---------
Total invested assets.................. $14,117.3 $14,893.3 $14,755.3
========= ========= =========

39
40

THE CHUBB CORPORATION

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEETS -- PARENT COMPANY ONLY

(IN MILLIONS)

DECEMBER 31

1998 1997
---- ----

Assets
Invested Assets
Short Term Investments................................. $ 98.2 $ 420.8
Taxable Fixed Maturities -- Available-for-Sale (cost
$377.3 and $330.8).................................... 357.9 334.9
Equity Securities (cost $114.2 and $66.4).............. 129.5 83.6
-------- --------
TOTAL INVESTED ASSETS............................. 585.6 839.3
Cash...................................................... -- .6
Investment in Consolidated Subsidiaries................... 5,191.9 4,779.6
Receivable from Consolidated Subsidiary................... 208.1 76.9
Other Assets.............................................. 189.3 154.5
-------- --------
TOTAL ASSETS...................................... $6,174.9 $5,850.9
======== ========
Liabilities
Long Term Debt............................................ $ 430.0 $ 60.0
Dividend Payable to Shareholders.......................... 50.3 49.0
Deferred Income Tax....................................... 6.6 39.5
Accrued Expenses and Other Liabilities.................... 43.9 45.3
-------- --------
TOTAL LIABILITIES................................. 530.8 193.8
-------- --------
Shareholders' Equity
Preferred Stock -- Authorized 4,000,000 Shares;
$1 Par Value; Issued -- None........................... -- --
Common Stock -- Authorized 600,000,000 Shares;
$1 Par Value; Issued 175,989,202 and 176,037,850
Shares................................................. 176.0 176.0
Paid-In Surplus........................................... 546.7 593.0
Retained Earnings......................................... 5,604.0 5,101.7
Unrealized Appreciation of Investments, Net of Tax........ 414.7 400.1
Foreign Currency Translation Losses, Net of Tax........... (36.0) (25.7)
Receivable from Employee Stock Ownership Plan............. (86.3) (96.7)
Treasury Stock, at Cost -- 13,722,376 and 7,320,410
Shares................................................. (975.0) (491.3)
-------- --------
TOTAL SHAREHOLDERS' EQUITY........................ 5,644.1 5,657.1
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $6,174.9 $5,850.9
======== ========

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Corporation's 1998
Annual Report to Shareholders.

40
41

THE CHUBB CORPORATION

SCHEDULE II

(CONTINUED)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF INCOME -- PARENT COMPANY ONLY

(IN MILLIONS)

YEARS ENDED DECEMBER 31

1998 1997 1996
---- ---- ----

Investment Income........................................... $ 46.2 $ 71.8 $ 41.5

Realized Investment Gains................................... 23.0 13.2 12.8

Investment Expenses......................................... (2.1) (1.8) (2.0)

Corporate Expenses.......................................... (27.7) (34.9) (33.4)
------ ------ ------
39.4 48.3 18.9

Federal and Foreign Income Tax.............................. 3.9 44.0 .1
------ ------ ------
35.5 4.3 18.8

Equity in Income from Continuing Operations of Consolidated
Subsidiaries.............................................. 671.5 765.2 467.4
------ ------ ------
INCOME FROM CONTINUING OPERATIONS...................... 707.0 769.5 486.2

Equity in Income from Discontinued Operations............... -- -- 26.5
------ ------ ------
NET INCOME............................................. $707.0 $769.5 $512.7
====== ====== ======

The Corporation and its domestic subsidiaries file a consolidated federal
income tax return. The Corporation's federal income tax represents its
allocation of federal income tax under the Corporation's tax allocation
agreements with its subsidiaries.

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Corporation's 1998
Annual Report to Shareholders.

41
42

THE CHUBB CORPORATION

SCHEDULE II

(CONTINUED)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS -- PARENT COMPANY ONLY

(IN MILLIONS)

YEARS ENDED DECEMBER 31

1998 1997 1996
---- ---- ----

Cash Flows from Operating Activities
Net Income................................................ $ 707.0 $ 769.5 $ 512.7
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Equity in Income of Continuing Operations of
Consolidated Subsidiaries............................ (671.5) (765.2) (467.4)
Equity in Income from Discontinued Operations.......... -- -- (26.5)
Realized Investment Gains.............................. (23.0) (13.2) (12.8)
Other, Net............................................. (31.6) 16.9 (12.7)
------- ------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES.............................. (19.1) 8.0 (6.7)
------- ------- -------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities................... 70.6 600.1 237.7
Proceeds from Maturities of Fixed Maturities.............. 94.5 49.1 104.9
Proceeds from Sales of Equity Securities.................. 97.9 89.7 17.3
Proceeds from Sale of Discontinued Operations, Net........ -- 861.2 --
Purchases of Fixed Maturities............................. (213.5) (606.3) (398.0)
Purchases of Equity Securities............................ (122.7) (84.0) (16.1)
Decrease (Increase) in Short Term Investments, Net........ 322.6 (411.1) 53.0
Dividends Received from Consolidated Subsidiaries......... 280.0 280.0 275.2
Other, Net................................................ (25.1) 19.6 (23.4)
------- ------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES............ 504.3 798.3 250.6
------- ------- -------
Cash Flows from Financing Activities
Proceeds from Exercise of Stock Option by Subsidiary...... -- 249.3(a) --
Proceeds from Issuance of Long Term Debt.................. 400.0 -- --
Repayment of Long Term Debt............................... (30.0) (30.0) (30.0)
Dividends Paid to Shareholders............................ (203.4) (196.5) (184.2)
Repurchase of Shares...................................... (608.5) (827.9) (82.5)
Increase in Receivable from Consolidated Subsidiary....... (131.2) (61.0) (1.8)
Other, Net................................................ 87.3 60.4 54.5
------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES................ (485.8) (805.7) (244.0)
------- ------- -------
Net Increase (Decrease) in Cash............................. (.6) .6 (.1)
Cash at Beginning of Year................................... .6 -- .1
------- ------- -------
CASH AT END OF YEAR.................................. $ -- $ .6 $ --
======= ======= =======

- ---------------
(a) In 1997 and 1996, Chubb Capital Corporation, a subsidiary of the
Corporation, exercised its option to obtain 5,316,565 shares and 480,464
shares, respectively, of the Corporation's common stock. Chubb Capital
exchanged such shares for $228.6 million and $20.7 million, respectively, of
its 6% exchangeable subordinated notes. In 1997, Chubb Capital paid the
Corporation for the cost of those shares.

In 1997, a $264.4 million investment in a real estate development
subsidiary was received as a dividend from a subsidiary of the Corporation. In
addition, $410.7 million of fixed maturity securities were contributed to an
investment company subsidiary of the Corporation. In 1996, $520.3 million of
fixed maturity securities were received as a dividend from the investment
company subsidiary. These noncash transactions have been excluded from the
statements of cash flows.

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Corporation's 1998
Annual Report to Shareholders.

42
43

THE CHUBB CORPORATION

SCHEDULE III

CONSOLIDATED SUPPLEMENTARY INSURANCE INFORMATION

(IN MILLIONS)

DECEMBER 31 YEAR ENDED DECEMBER 31
---------------------------------- ---------------------------------

DEFERRED
POLICY NET
ACQUISITION UNPAID UNEARNED PREMIUMS INVESTMENT INSURANCE
SEGMENT COSTS CLAIMS PREMIUMS EARNED INCOME CLAIMS
------- ----------- --------- -------- -------- ---------- ---------

1998
Property and Casualty Insurance
Personal........................................... $186.1 $ 688.9 $ 704.4 $1,304.3 $ 681.8
Standard Commercial................................ 258.5 5,686.4 1,011.6 1,980.6 1,631.7
Specialty Commercial............................... 284.1 3,981.2 1,199.7 2,018.9 1,180.2
Investments........................................ $748.9*
------ --------- -------- -------- ------ --------
$728.7 $10,356.5 $2,915.7 $5,303.8 $748.9 $3,493.7
====== ========= ======== ======== ====== ========
1997
Property and Casualty Insurance
Personal........................................... $174.5 $ 675.5 $ 644.7 $1,188.1 $ 595.5
Standard Commercial................................ 249.2 5,328.1 984.6 1,906.1 1,534.8
Specialty Commercial............................... 253.2 3,768.9 1,067.3 1,968.3 1,111.3
Reinsurance Assumed................................ 94.9 65.4
Investments........................................ $711.2*
------ --------- -------- -------- ------ --------
$676.9 $ 9,772.5 $2,696.6 $5,157.4 $711.2 $3,307.0
====== ========= ======== ======== ====== ========
1996
Property and Casualty Insurance
Personal........................................... $146.1 $ 688.5 $ 591.9 $ 969.7 $ 570.5
Standard Commercial................................ 209.5 4,950.7 933.7 1,642.5 1,329.7
Specialty Commercial............................... 215.7 3,702.1 993.1 1,673.1 922.9
Reinsurance Assumed................................ 29.9 182.4 98.8 284.0 187.7
Investments........................................ $646.1*
------ --------- -------- -------- ------ --------
$601.2 $ 9,523.7 $2,617.5 $4,569.3 $646.1 $3,010.8
====== ========= ======== ======== ====== ========

YEAR ENDED DECEMBER 31
-----------------------------------
AMORTIZATION OTHER
OF DEFERRED INSURANCE
POLICY OPERATING
ACQUISITION COSTS AND PREMIUMS
SEGMENT COSTS EXPENSES WRITTEN
------- ------------ --------- --------

1998
Property and Casualty Insurance
Personal........................................... $ 370.1 $ 77.0 $1,364.7
Standard Commercial................................ 554.0 151.9 2,005.8
Specialty Commercial............................... 540.2 140.9 2,133.0
Investments........................................
--------- ------ --------
$ 1,464.3 $369.8 $5,503.5
========= ====== ========
1997
Property and Casualty Insurance
Personal........................................... $ 340.3 $ 68.2 $1,306.4
Standard Commercial................................ 515.6 137.2 2,026.1
Specialty Commercial............................... 505.5 125.4 2,119.3
Reinsurance Assumed................................ 41.2 (3.8)
Investments........................................
--------- ------ --------
$ 1,402.6 $330.8 $5,448.0
========= ====== ========
1996
Property and Casualty Insurance
Personal........................................... $ 273.5 $ 58.5 $1,039.2
Standard Commercial................................ 412.5 130.9 1,732.7
Specialty Commercial............................... 437.0 100.8 1,799.4
Reinsurance Assumed................................ 115.0 202.5
Investments........................................
--------- ------ --------
$ 1,238.0 $290.2 $4,773.8
========= ====== ========

- ---------------

* Property and casualty assets are available for payment of claims and expenses
for all classes of business; therefore, such assets and the related
investment income have not been allocated to the underwriting segments.

43
44

THE CHUBB CORPORATION

SCHEDULE IV

CONSOLIDATED REINSURANCE

(IN MILLIONS)

YEARS ENDED DECEMBER 31

PROPERTY AND CASUALTY INSURANCE PREMIUMS EARNED
----------------------------------------------- PERCENTAGE OF
CEDED ASSUMED AMOUNT
DIRECT TO OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------ --------- ---------- ------ -------------

1998......................................... $5,624.7 $ 461.5 $140.6 $5,303.8 2.7
======== ======== ====== ========
1997......................................... $5,315.8 $ 450.8 $292.4 $5,157.4 5.7
======== ======== ====== ========
1996......................................... $5,023.5 $ 987.2 $533.0 $4,569.3 11.7
======== ======== ====== ========

THE CHUBB CORPORATION

SCHEDULE VI

CONSOLIDATED SUPPLEMENTARY PROPERTY AND CASUALTY INSURANCE INFORMATION

(IN MILLIONS)

YEARS ENDED DECEMBER 31

CLAIMS AND CLAIM
ADJUSTMENT
EXPENSES INCURRED
RELATED TO
---------------------- PAID CLAIMS AND
CURRENT PRIOR CLAIM ADJUSTMENT
YEAR YEARS EXPENSES
-------- -------- ----------------

1998................................................. $3,712.1 $(218.4) $3,008.4
======== ======= ========
1997................................................. $3,372.3 $ (65.3) $2,498.3
======== ======= ========
1996................................................. $3,053.6 $ (42.8) $2,869.4
======== ======= ========

44
45

THE CHUBB CORPORATION

EXHIBITS

(ITEM 14(A))

DESCRIPTION

(2) -- Plan of acquisition, reorganization, arrangement,
liquidation or succession
Stock Purchase Agreement dated as of February 23, 1997
between Jefferson-Pilot Corporation and the registrant
incorporated by reference to Exhibit 2.1 of the
registrant's Report to the Securities and Exchange
Commission on Form 10-Q for the three months ended March
31, 1997. (Confidential treatment granted with respect to
certain portions thereof.)
Agreement and Plan of Merger dated as of February 6, 1999
among Executive Risk Inc., the registrant and Excalibur
Acquisition, Inc. incorporated by reference to Exhibit
(99.2) of the registrant's Report to the Securities and
Exchange Commission on Form 8-K dated February 6, 1999.
(3) -- Articles of Incorporation and By-Laws
Restated Certificate of Incorporation. Incorporated by
reference to Exhibit (3) of the registrant's Report to the
Securities and Exchange Commission on Form 10-Q for the
six months ended June 30, 1996.
Certificate of Amendment to the Restated Certificate of
Incorporation filed herewith.
Certificate of Correction of Certificate of Amendment to the
Restated Certificate of Incorporation filed herewith.
Restated By-Laws. Incorporated by reference to Exhibit (1)
of the registrant's Report to the Securities and Exchange
Commission on Form 8-K dated December 17, 1998.
(4) -- The registrant is not filing any instruments evidencing any
indebtedness since the total amount of securities
authorized under any single instrument does not exceed 10%
of the total assets of the registrant and its subsidiaries
on a consolidated basis. Copies of such instruments will
be furnished to the Securities and Exchange Commission
upon request.
(10) -- Material contracts
Global Settlement Agreement among Fibreboard Corporation,
Continental Casualty Company, CNA Casualty Company of
California, Columbia Casualty Company, Pacific Indemnity
Company, and the Settlement Class and together with
Exhibits A through D incorporated by reference to Exhibit
(10) of the registrant's Report to the Securities and
Exchange Commission on Form 10-K for the year ended
December 31, 1993.
Settlement Agreement with Fibreboard Corporation,
Continental Casualty Company, CNA Casualty Company of
California and Columbia Casualty Company incorporated by
reference to Exhibit (10) of the registrant's Report to
the Securities and Exchange Commission on Form 10-Q for
the nine months ended September 30, 1993.
Continental-Pacific Agreement with Continental Casualty
Company incorporated by reference to Exhibit (10) of the
registrant's Report to the Securities and Exchange
Commission on Form 10-Q for the nine months ended
September 30, 1993.
Amendment to the Continental-Pacific Agreement with
Continental Casualty Company incorporated by reference to
Exhibit (10) of the registrant's Report to the Securities
and Exchange Commission on Form 10-K for the year ended
December 31, 1994.

45
46

DESCRIPTION

The Chubb Corporation Producer Stock Incentive Program
incorporated by reference to Exhibit (4.3) of the
registrant's Report to the Securities and Exchange
Commission on Amendment No. 2 to Form S-3 No. 333-67445
dated January 25, 1999.
Executive Compensation Plans and Arrangements.
The Chubb Corporation Annual Incentive Compensation Plan
(1996) incorporated by reference to Exhibit A of the
registrant's definitive proxy statement for the Annual
Meeting of Shareholders held on April 23, 1996.
The Chubb Corporation Long-Term Stock Incentive Plan
(1996), as amended, filed herewith.
The Chubb Corporation Stock Option Plan for Non-Employee
Directors (1996), as amended, filed herewith.
The Chubb Corporation Long-Term Stock Incentive Plan
(1992), as amended, filed herewith.
The Chubb Corporation Stock Option Plan for Non-Employee
Directors (1992), as amended, filed herewith.
The Chubb Corporation Deferred Compensation Plan for
Directors, as amended, filed herewith.
The Chubb Corporation Executive Deferred Compensation Plan
filed herewith.
Executive Severance Agreements and their amendments
incorporated by reference to Exhibit (10) of the
registrant's Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31,
1994.
Executive Severance Agreement incorporated by reference to
Exhibit (10) of the registrant's Report to the
Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1995.
Executive Severance Agreements incorporated by reference
to Exhibit (10) of the registrant's Report to the
Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1997.
Executive Severance Agreement filed herewith.
Contract for consulting and advisory services with Percy
Chubb III, a director of the registrant, incorporated
by reference to Exhibit (10) of the registrant's Report
to the Securities and Exchange Commission on Form 10-K
for the year ended December 31, 1996.
(11) -- Computation of earnings per share incorporated by reference
from Note (17) of the notes to consolidated financial
statements of the 1998 Annual Report to Shareholders.
(13) -- Pages 15, 16, and 38 through 65 of the 1998 Annual Report to
Shareholders.
(21) -- Subsidiaries of the registrant filed herewith.
(23) -- Consent of Independent Auditors (see page 38 of this
report).
(27) -- Financial Data Schedule filed herewith.

46