John Finnegan - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Chairman of Finance Committee Richard Spiro - Chief Financial Officer and Executive Vice President John Degnan - Chief Operating Officer

Jay Gelb - Barclays Capital J. Paul Newsome - Sandler O'Neill Keith Walsh - Citigroup Inc Gregory Locraft - Morgan Stanley Jay Cohen - BofA Merrill Lynch Robert Glasspiegel - Langen McAlenney Ian Gutterman - Adage Capital Cliff Gallant - Keefe, Bruyette, & Woods, Inc. Matthew Heimermann - JP Morgan Chase & Co Joshua Shanker - Deutsche Bank AG

Good day, everyone, and welcome to The Chubb Corporation's Third Quarter 2010 Earnings Conference Call. [Operator Instructions]. Before we begin, Chubb has asked me to make the following statements. In order to help you understand Chubb, its industry and its results, members of the Chubb's management team will include in today's presentation forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. It is possible that actual results might differ from estimates and forecasts that Chubb's management team might make today. Additional information regarding factors that could cause such differences appears in Chubb's filings with the Securities and Exchange Commission. In the prepared remarks and responses to questions during today's presentation of Chubb's third quarter 2010 financial results, Chubb's management may refer to financial measures that are not derived from the Generally Accepted Accounting Principles or GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP and related information is provided in the press release and the financial supplement for the third quarter 2010, which are available on the Investors section of Chubb's website at www.chubb.com. Please also note that no portion of this conference call may be reproduced or rebroadcast in any form without the prior written consent of Chubb. Replays of this webcast will be available through November 19, 2010. Those listening after October 21, 2010, should please note that the information and forecast provided in this recording will not necessarily be updated, and it is possible that the information will no longer be current. Now, I will turn the call over to Mr. Finnegan.

Thank you. Chubb had an excellent third quarter across the board. Our combined ratio was outstanding. We continued to produce significant growth in book value and a strong return on equity. In addition, aided largely by historically high retention rates, we had a modest increase in premiums in a very competitive market. And we continue to return capital to our shareholders through dividends and an active share repurchase program. Operating income per share for the third quarter was up 8% to $1.69. Annualized operating ROE for the quarter was 15%. The combined ratio was an excellent 86.2%. And the combined ratio, excluding caps, improved to 84.1% from 84.6%. For the first nine months, operating income per share was $4.22. x cats [catastrophes], our nine-month combined ratio was 83%, an improvement of 2.4 points over the same period last year. We produced an attractive annualized operating ROE in the first nine months of 12.7% even with a relatively high 7.1 points of cats. In addition, our investment portfolio continued to perform extremely well. Property and Casualty investment income after taxes for the third quarter of 2010 was $317 million, which was flat compared to last year in a lower yield environment. We also had net realized investment gains of $54 million before tax. At September 30, our net unrealized appreciation before tax stood at $2.6 billion, an increase of $700 million over June 30. These operating and investment results produced a GAAP book value per share of $52.41 at September 30. That's a 6% increase since June 30 and 11% increase since year end 2009 and a 15% increase compared to a year ago. Our capital position is excellent and Ricky will talk about the progress we have made in our share buyback program. As you recall in July, we affirmed 2010 operating income per share guidance in the range of $5.15 to $5.55 per share. Based on third quarter results and a positive outlook for the fourth quarter, we are increasing guidance for 2010 to a range of $5.75 to $5.85 per share. I will elaborate on the revised guidance in my closing remarks. We continue to underwrite in a balanced fashion, seeking growth where we can get it but insisting on pricing terms and conditions that are designed to achieve an acceptable level of underwriting profitability. We continue to invest conservatively and we continue to actively manage our capital as evidenced by our share buybacks and dividends. This combination of underwriting discipline, conservative investing and active capital management is the formula that continues to define Chubb and produces superior results for shareholders. This afternoon, we also announced some important management changes at Chubb. As previously indicated, John Degnan will be retiring on December 31 after a distinguished 20-year career at Chubb, most recently as Vice Chairman and Chief Operating Officer. This is John's last conference call and he leaves big shoes to fill. We have a great team in place, but I know we will all miss John's insightful observations on the market place, claims and public affairs. The good news is that our quarterly conference calls will now be much shorter. Fortunately, John has agreed to continue at Chubb as a senior adviser to me on a part-time basis. Although all of the details have not been finalized, I expect that John will be involved in areas such as special situation claims in government affairs in which he has amassed much expertise. As we announced this afternoon, upon John's retirement at the end of the year, Paul Krump will become President of Commercial and Specialty Lines reporting to me. In addition, the Accident business will report directly to Paul. Dino Robusto will become President of Personal Lines and Claims and will continue to oversee IT, Communications, Corporate Development and Innovation. He will also report to me. Harold Morrison will continue as Chief Global Field Officer and additionally will become Chief Administrative Officer, overseeing human resources and administrative services. Howard will report to Paul and Dino. The executive committee will include Paul, Dino, Harold, Ricky Spiro and myself. Paul, Dino and Harold are all seasoned executives, having been with Chubb for more than 20 years each. They all earned their way up through the ranks and they've had a major role in Chubb's operational success over the past several years. While John will be tough to replace, I'm very confident that we have a terrific team in place that is well qualified to step in and lead Chubb to even greater success in the years ahead. And now, John Degnan will discuss our operating performance in more detail.

Thanks, John. Since this is my last earnings call, I'm especially pleased that we had such a good quarter. Let me give you some of the key details about that. Chubb Personal Insurance net written premiums increased 4%, with about a 1% positive impact of currency fluctuation. CPI produced a combined ratio of 85.4% compared to 81.6% last year. But cats were 3.7 points in 2010 whereas the impact of catastrophes actually improved the combined ratio by about a point in the third quarter of 2009. So excluding cats, CPI's third quarter combined ratio was 81.7% this year, almost a point better than last year's 82.6%. Homeowners premiums were up 2% and the combined ratio was an 81%. Personal auto premiums increased 7%, driven by growth outside the U.S. and the combined ratio was 91.7%. In Other Personal lines, which include our Accident business, premiums were up 7% and the combined ratio was 94.2%. At Chubb Commercial Insurance, premiums were flat or down about 1% x currency. The combined ratio was an 89.1% compared to last year's 90.5%. CCI's third quarter included cat losses of two points compared with 2.6 points in 2009. So excluding cats, CCI's third quarter combined ratio was 87.1% in 2010 and 87.9% in 2009. In the U.S., CCI renewal rates were down 1% compared to flat in the second quarter. We have one of the highest quarterly U.S. retention rates we've had in many years, 87%, contributing to a new to lost business ratio of 1.2:1. At Chubb Specialty Insurance, net written premiums were also flat and the combined ratio was 83.3% compared to 83.6% in the third quarter of 2009. Premiums for Professional Liability were down 1% and the combined ratio was 89.3% compared to the 90% in last year's third quarter. Average U.S. renewal rates for Professional Liability were down 2% compared to down 3% in the second quarter. Renewal retention in the U.S. was 88% and the ratio of new to lost business was 1.1:1. For surety, net written premiums were up 7%, driven largely by growth outside the U.S. and the combined ratio was 40%. Overall, market conditions in the third quarter were largely unchanged from the first half. We continue to see competitive pressure on rates. But on the other hand, the repercussions of poor economic conditions continue to abate slightly, and we had some improvement in exposures and endorsement activity. Overall, the market environment continues to be very challenging. Just one final word for me on credit crisis claims. Credit crisis losses continue to develop consistently with our prior observations about them. The number of new claims in this category continues to dwindle, and managing these losses now is a question of dealing with a known quantity of claims rather than speculating about the number we will actually receive. Nothing has changed our conviction that we are appropriately reserved for the accident years in which the claims have been made. In closing, I'll miss these earnings calls. Not so much the internal prep sessions. It's been a privilege to work for over 20 years for a company in whose values I believe and in whose successes, particularly over the last eight years, I have been able to participate. And finally, thanks to all of you for consistently keeping us on our toes over the years during these calls. With that, I'll turn it over to Ricky Spiro.

Thanks, John. As you can probably tell by now, we are very happy with our financial performance in the third quarter. Looking first at our operating results, underwriting income was strong, amounting to $399 million in the quarter. Property and Casualty investment income after tax of $317 million in the quarter was flat compared to last year's third quarter in a challenging investment environment. Net income was higher than operating income in the quarter due to net realized investment gains before tax of $54 million or $0.11 per share after tax. Our net realized investment gains before tax included $18 million of gains on our alternative investments portfolio and $36 million of realized gains from the sale of securities. Unrealized appreciation before tax at September 30, 2010, was $2.6 billion, an increase of $700 million from the end of the second quarter. This substantial increase was due to the overall improvement in the global capital markets during the quarter, which led to strong performance across all of our asset classes. Turning to our investment portfolio, the carrying value of our consolidated investment portfolio was $43 billion as of September 30. The composition of our portfolio remains largely unchanged from the prior quarter. The average duration of our fixed maturity portfolio is 3.9 years and the average credit rating is Aa2. We also continued to have excellent liquidity at the holding company. At September 30, our holding company portfolio included $2.3 billion of investments, including $900 million of short-term investments. Book value per share under GAAP at September 30, 2010, was $52.41 compared to $47.09 at year end 2009 and $45.43 a year ago. Adjusted book value per share, which we calculate with available-for-sale fixed maturities at amortized cost, was $47.25 compared to $44.37 at 2009 year end and $42.31 a year ago. As for reserves, we estimate that we had favorable development in the third quarter of 2010 on prior year reserves by SBU as follows: In CPI, we had about $40 million, CCI had about $90 million, CSI had about $65 million and Reinsurance Assumed had about $5 million, bringing the total favorable development to about $200 million for the quarter. This represents a favorable impact on the third quarter combined ratio of about seven points overall. For comparison, in the third quarter of 2009, we had about $205 million of favorable development for the company overall, including about $65 million in CPI, $30 million in CCI, $100 million in CSI and $10 million in Reinsurance Assumed. The favorable impact on the combined ratio in the third quarter of 2009 was about seven points, the same as in this year's third quarter. During the third quarter, our loss reserves increased by $7 million. Reserves in our Reinsurance Assumed business, which is now in runoff, declined by $35 million. Reserves in the Insurance business increased by $42 million during the quarter. The impact of currency fluctuation on loss reserves during the quarter resulted in an increase in reserves of about $65 million. The impact of catastrophes reduced reserves by $120 million, reflecting payments on prior events and lower levels of catastrophes in the third quarter. Finally, I want to give you an update on capital management. During the third quarter, we repurchased 10.2 million shares. The aggregate cost of our repurchases was $555 million or an average of $54.63 per share. For the first nine months, our average repurchased cost per share was $51.94. As of September 30, 2010, there were 6.6 million shares remaining under our current repurchase authorization. And as we said during our last earnings call, our intention is to complete the repurchase of all of these remaining shares by the end of the year. We will review our 2011 capital management plans with our Board of Directors in December. And now, I'll turn it back to John Finnegan.

Chubb performed extremely well in both the third quarter and the first nine months of 2010. Here are the highlights: For the third quarter, we had operating income per share of $1.69 and an annualized operating ROE of 15%. For the first nine months, we had operating income per share of $4.22 and an annual operating ROE of 12.7%, even with seven points of cats. Our x cat combined ratio for the first nine months is an impressive 83%, which was 2.4 points better than the same period last year. Book value per share increased 6% in the three months ended September 30 and was up 11% since year end 2009 and 15% since September 30, 2009. We're maintaining a strong capital position and are well on track to completing our current share repurchase program by year end. With the board's initial buyback authorization in December 2005, Chubb has repurchased shares representing 37% of its market capitalization at that time. Let me conclude with a few comments on the revised guidance we announced in today's press release. Based on our excellent third quarter results and our outlook for a strong fourth quarter, we are updating our 2010 calendar year operating income per share guidance to a new range of $5.75 to $5.85 from the previous guidance range of $5.15 to $5.55. This revised guidance is based on operating income per share of $4.22 in the first nine months and our forecast of a range of $1.53 to $1.63 for the fourth quarter. This revised guidance is also based on an assumption of 322 million average diluted shares outstanding for the full year. Finally, our revised guidance assumes two percentage points of cats for the fourth quarter, which would result in 5.8 points of cats for the calendar year. This compares to the full year cat assumption of seven points included in our previous guidance, the reduction being due to lower than expected cats in the third quarter. The impact on operating income per share of each point of cats in the fourth quarter is about $0.05. That concludes our prepared remarks. I realize that they were shorter than the past, but that's a reflection of a quarter with excellent results and the fact that market conditions haven't changed much from three months ago. With that, we'll open it up to your questions. Operator?

[Operator Instructions] And we'll take our first question from Keith Walsh with Citi. Keith Walsh - Citigroup Inc: This is for John Finnegan. I guess we've seen several hundred community banks failing since 2008. There's been a lot of news flow recently around the FDIC pursuing insurance claims against the banks and their employees. In fact, you guys were named in the Colonial Bank story recently. If you can help me frame this issue, as the FDIC plays catch up on the financial crisis, and what other coverage lines can be brought into play besides D&O?

Let me take a stab, this is John Degnan. I know your question was directed to John Finnegan. But I'm going to take a stab at it, then John will add anything he wants to talk about it. Let me talk a little bit first about our community bank book, Keith. We consider a community bank to be one that's no larger than $1 billion in total assets. We have D&O policies for about 10% of them. 94% of our book is private or closely held and only 6% are listed on the stock exchange. The average limits are $3.2 million for the private book and $5.9 million for the public book. Given the size of those banks, we're not particularly concerned whether they're private or public because we underwrite their financial condition in light of the fact that a failure of one of these institutions could trigger a regulatory claim against the directors and officers. We have not yet seen significant claims activity in the community bank arena to date. And we're not overly concerned about the developments that have been taking place over the last couple of weeks in so far as they pertain to community banks, although the lender liability portion of the coverage for community banks does in fact include errors and omissions, which could be implicated in a claim against the community bank for mishandling of foreclosure documentation like robo-signing. But our exposure in that connection to the community banks is not thought at the moment by us to be significant. On the other hand, our exposure to the 10 largest mortgage services that might be implicated in claims like that is also, from an E&O perspective, thanks to the underlying strategies we've had for the last couple of years, is minimal with the exception of one account, which has one $15 million exposure. And to date, we haven't seen a claim from that account. And then finally, it's a complicated set of issues here, and it is early to be projecting what the outcome is, but with respect to -- not to the foreclosure documentation problems but to the implication of the securitized loans, you should realize that purchasers have been putting back or attempting to put back defective mortgages for several years now and they're contractually able to do that if they can prove that there were defects. That by itself though does not cause a loss to either the purchaser or the originator depending on the quality of the underlying asset. And as far as we know, and certainly our experience has been that there has not been significant insurance related claims activity to that point. And then finally, while the securitization agreements can, as people have pointed out, contain recourse against the originator and others for fraud, there are a number of other intermediaries that would be potentially implicated, including investment banks and lawyers and accountants. And as such, this would be largely an E&O matter where we have little to no exposure to those entities due to the underwriting actions we've taken. And I know that was a long answer, but you invited me to give you a... Keith Walsh - Citigroup Inc: Just a follow up on what you said about the underwriting strategies that you've done, that you've implemented to protect yourself, can you give us a little color around that? What do you mean by that, exactly?

Sure. On the errors and omissions aspect of our coverages, for years, we've been getting off investment banks, large commercial center banks, even large regional banks. It was a lesson we learned in the 2002 corporate abuses and it's an underwriting strategy that's been in place and implemented incrementally over a number of years. It's certainly paid us dividends in the credit crisis loss experience that we've incurred to date, and here's another instance where I think the underwriters did just a great job of minimizing our exposure to an emerging risk.

And next, we'll hear from Jay Gelb with Barclays Capital. Jay Gelb - Barclays Capital: John, congratulations on your next role in semi-retirement at least at this point. Can we talk a little bit about succession, John? With the announcement today, it looks like it was driven by John's plans to retire, but it also sets up a potential succession right here. So can you talk about that please?

Well, what we will have is certainly a number of strong internal candidates for my job eventually. However, our mandatory retirement doesn't kick in to be applicable to me until 2014. So we have a ways to go and a good amount of time to assess all the people in their new roles. Jay Gelb - Barclays Capital: And then more broadly, can you talk about the underlying assumption you have embedded for loss cost inflation? Clearly, we've been in a somewhat deflationary environment with very favorable frequency trends and the concern is once that reverses, what could that mean for reserve adequacy?

Well, as you know, Jay, we watch very closely for signs of predictive inflation in loss costs. We're not yet seeing any alarming trends. But typically, we'd expect loss cost particularly in casualty classes to increase in the mid-single digits annually, driven principally by medical and judicial factors. At least for now, those strengths are stable and they're offset to some degree in our experience by lower frequency, at least in some cases like auto. But other than the potential impact of healthcare reform, which is at best uncertain, we don't see current indications of the increased claim inflation in the future. And one thing to bear in mind with respect to Chubb is that some of the tort cost pressure, or the inflationary pressure on loss costs, principally relate to the potential for medical inflation. And because we're not big in lines of business that are affected by that, like comp or auto personal liability, they tend to have a more modest impact on us. But we watch them closely.

And next, we'll hear from Bob Glasspiegel with Langen McAlenney. Robert Glasspiegel - Langen McAlenney: In your last call, John, you talked a little bit about what you thought was a little bit crazy market activity in Professional Liability, where some of your competitors weren't assessing the risk properly. There was no comment about the marketplace specifically in that line today. Have things stabilized or do you let your comments from last quarter stand?

I think unfortunately, things are at least as, and perhaps even a little more, competitive than Professional Liability in the third quarter. For most of the Professional Liability product lines, pricing's held up generally to the levels we expected, but there are really two exceptions. One is financial institutions D&O, which is falling off quicker than we anticipated, and there's also non-financial public D&O, which has taken a rather significant turn downwards. Now we have a strategy in place to deal with that. We, in May, introduced a new endorsement to our public D&O product, which has been extremely well received in the marketplace and has helped us, without an appreciable or significant increase in our risk or exposure, to either reduce prices less on renewal or on occasion to eke out a little bit of price for the increased exposure we're given. But it's extremely competitive. Robert Glasspiegel - Langen McAlenney: I mean, overall specialty rates that you gave weren't that disheartening. So is it being made up elsewhere or it's just not working its way through your book?

Again, I gave you overall rates. I was just pointing out the two particular lines which are problematic and the rates in public D&O are not to our level of satisfaction. Robert Glasspiegel - Langen McAlenney: So it's not impacting your total book as far as the overall rates that you're achieving in that?

No, and we've got very healthy retention at the same time. I think that goes to Chubb's value proposition in this line of business. I mean, if there is a place where you can continue to sell value added, it still exists to a better degree in these lines of business than it does in the more traditional, commoditized property and casualty lines.

And next, we'll hear from Paul Newsome with Sandler O'Neill. J. Paul Newsome - Sandler O'Neill: I was hoping you could touch upon the competitive environment in the high net worth Personalized business. And maybe just sort of confirm or deny things that I've heard -- there's obviously some new entrances like an ace, I've been told some of the regionals like Financial One want to get into it. And I've also heard that USAA is trying to get out. But I really can't see from all these moving pieces including maybe AIG's problems whether or not it's getting better or worse in that niche of the market?

Yes, the competition is fairly healthy there. There's room for some of it. Virtually all of us, and certainly, we are cat constrained in some parts of the country and can't provide a total insurance solution for the demand there. Southeast Florida is the best example of that, but there are others as well. So there's room for competition in this market. There generally, in the past have been, last few years, three principal players Fireman's Fund, Chubb and AIG. Ace has come into the market more recently with high expectations and investing some money, and there are other carriers that are moving into the high net worth's Personal Lines area. We watch that closely,, but frankly, it's taken us a long time to build up the brand and franchise that we enjoy in this area and we think it's pretty unique in the business. Even Barron's pointed out not too long ago that Chubb is the leading choice of affluent Americans to protect their homes. We didn't do that overnight. We did it with inspecting 700,000 high net worth properties and we settled over a million claims or high net worth customers with unbelievably high satisfaction ratings. Our claims responses to catastrophes is always rated the best in the industry. And we have the best network of producers in the world selling high net worth Personal Lines. They understand the product. They understand the appetite of the underwriters. They understand the importance of bonding a relationship with the customer by producing a company that's going to be around to pay the claims and not just pay them but pay them empathetically and timely. So as I said in the last call, we're not -- we're fierce competitors. We'll do what we have to do to preserve our position in the marketplace and to grow it, but we're not afraid of new entrants.

And next we'll hear from Matthew Heimermann with JPMorgan. Matthew Heimermann - JP Morgan Chase & Co: First, could you touch a little bit on, maybe John, on exposures? To the extent we see the economy keep moving forward, albeit slowly, what lines of business should we expect to benefit from exposure improvement the most? I guess, if you could just prioritize. And then I guess the other question, maybe for Ricky, on the expense ratio, which has been ticking up. Could you give us some color into what's happening with the acquisition expense ratio, specifically? And how that maybe is changing over the last year and what the outlook might be for that just in terms of acquisition costs generally?

Are you talking about total commissions? Matthew Heimermann - JP Morgan Chase & Co: Yes.

This is John Degnan. Let me start with your exposure question. In the third quarter, we did see continued reasons for optimism in our renewal exposure figures. Optimism is modest but it's -- we had only a slight exposure decline in the third quarter this year and CCI lines have been there, so it's minus one. But if you look at the second quarter this year, it was minus 1.5. The first quarter was minus 2.3. And so we're on the right trend line here. As we said last quarter, we think the overall economy is sort of bouncing along the bottom. So we're going to see modest increases in exposure opportunities in CCI lines of business. Typically, we look for them in payrolls or workers comp, sales levels for general liability contracts, the level of shipments for marine policies and the retention amounts of the limits for Professional Liability contracts. We've also seen a flattening out in Personal Lines of the decrease we had seen in exposure over the last several quarters. There is a little less need on the part of our insureds to reduce their premiums. So fewer increases in deductibles and a bit more jewelry being bought and added on. And also builder's risk is, I should point out, is probably going to be the last line of business in which we would expect to see a significant exposure change, given what's going on in the economy. Matthew Heimermann - JP Morgan Chase & Co: I mean, the work comp to me would seem to have the greatest potential, but given that most people are calling for a very sluggish recovery in absolute employment, would that potentially maybe make the GL sensitivity or the Marine sensitivity greater than you might normally expect on a whole basis?

Remember in comp, given the decline in employment, principally last year there were significant decreases in exposure, which resulted in either audit premiums or return premiums on our part. Simply staying at the same level year-over-year or increasing modestly increases exposure in workers comp. So it may not be dramatic, but it does have an exposure growth impact. We perform pretty well in workers comp compared to the industry. AM Best pointed out recently that the industry combined ratio for comp had deteriorated from 104.6% in 2008 to 116% in 2010. Chubb's comparable numbers were 82.1% in 2008 and 92.1% in 2010. We generally performed 20 points better than the rest of the industry. So if exposure improves here, I hope we're going to be disproportionately advantaged. Matthew Heimermann - JP Morgan Chase & Co: And on the commissions?

Let me talk about expenses. Quarterly expenses aren't linear. They tend to move around a little bit. For example, if you go back to the third quarter of last year, we expect about a point jump from the second quarter and then the fourth quarter went down a point. So in the third quarter this year, we're at 31.7%, 7.5 points from the third quarter of 2009. Obviously, to some extent, it reflects the impact of flat growth on our expenses, but also the effect of geographic and product mix on commissions. Our commissions are up some this quarter. We have more overseas growth than U.S. growth and our activities overseas have higher commissions. The product growth in businesses such as A&H, marine, valuable articles grew faster than the company averaged. Some of these lines have higher commissions than places like workers compensation, for example, which is a low commission base and which we didn't grow. So it's largely a mix issue both geographic and product mix. Matthew Heimermann - JP Morgan Chase & Co: But has less to do with maybe base commissions going up or changes in supplemental?

Yes, that's de minimus.

And next, we'll hear from Josh Shanker with Deutsche Bank. Joshua Shanker - Deutsche Bank AG: I think this question is probably for both Johns and Ricky to come together. I'm wondering what a Chubb investment portfolio looks like in a rising interest rate environment. And maybe, do you think about like go back to history books a little bit and think about the late 70s as a roadmap. I don't know. You can answer any way you want. But I'm trying to figure that out myself.

We were sitting around worrying about the declining interest rate environment, Josh. Joshua Shanker - Deutsche Bank AG: So far, it's been working out just fine.

Josh, it's Ricky. I think I'll take a shot at it and John can comment. We've been in this business for a long time and we have seen all kinds of different interest rate cycles, high interest rates, low interest rates. And if you round all those cycles, our investment portfolio has performed extraordinarily well. In a rising interest rate environment, I would not expect us to dramatically change our investment strategy. We tend to be intermediate maturity investors in both the taxable and tax-exempt marketplace. The way we've structured our portfolio is it has laddered maturities so we have cash flows and maturities that we can reinvest. So as rates go up, well, obviously, our portfolio and everyone else's in the industry would be impacted by that from a valuation perspective of the portfolio. We'd be reinvesting at higher interest rates. So the short answer is, we like our strategy. It has served us well for a really long time and I would not expect us to make any dramatic changes should interest rates start to rise. Joshua Shanker - Deutsche Bank AG: Would something need to happen to make equities more attractive investment? And does the NAIC have any thoughts on that matter?

Well, we have a certain amount of our portfolio already invested in equities. We have about a little bit more than $1 billion in public equities. We've got about $2 billion in alternative investments. The way we do that is there's a certain amount of our portfolio that we are comfortable investing in risk assets. Will you see that number go up periodically? Maybe. But you're not going to see it go up dramatically. I don't think we're ever going to go hog wild into equities.

You should remember, too, that unlike a pension fund, on equities, if you're an insurance company, you incur a significantly higher capital charge than fixed income. So you not only have to learn more, you have to earn significantly more.

Moving on, we'll hear from Cliff Gallant with KBW. Cliff Gallant - Keefe, Bruyette, & Woods, Inc.: I want to follow up on workers comp, in terms of the claims side. Are you seeing any change in behavior in new claimants, particularly just with the ongoing economic weakness? But I also was curious about the 20 point difference you cited between yourself and the industry, and I was wondering if you could talk a little bit more about why you think that difference is so great?

I think it basically has to do with our different and distinct underwriting appetite in comp. We have always tended to be very selective in discipline. We were a very small player for a while and still not a huge player in the workers comp line overall, and a much smaller portion of our premium base comes from workers comp than is true in many of our competitors. We tend to shy away from the large manufacturing risks with high frequency and often high severity claims and tend to write in conjunction with our niche approach to GL and property, Specialty Lines of coverage and lawyers, and things of that nature where you just don't see the same frequency and severity. So for that reason, we haven't seen all that much change in the behavior of our claimants. We also, a couple of years initiated a very sophisticated predictive model for assessing our claims activities. It used to take us six months to identify a claim, which had the potential for soft fraud, at which point we put our best adjustor on it. It now takes us 17 days and it's coming down to lower than 17 days as the predictive model proves more successful. So we're managing our loss costs much more effectively, particularly in lost time, but also in medical, than we have in the past. The 20 point difference has been a historical one between us and the industry since we began to grow the line. But principally, it has to do with a different underwriting appetite.

You should put in perspective if you compared us to the industry and overall combined ratio, you'd see a 10 to 15 point differential. So I mean, we do have a significant positive variance versus the industry. Overall, workers comp is a little higher.

And just to give you a couple of statistics, we think we have less than a 2% market share in comp. And for accident year 2009, we saw 5% decrease in frequency. We project for that year an 8% increase in severity.

Next, we'll hear from Greg Locraft with Morgan Stanley. Gregory Locraft - Morgan Stanley: Wanted to follow up on the capital management side. You guys, I guess, returned it seems $670 million in the quarter through buybacks and dividends. The net income was about $570 million or so, so there's $100 million difference and yet the holding company liquidity, I think Ricky said, was flat at $2.3 billion versus the second quarter. Wondering where the extra $100 million came from and if it did come up from the subs, then how much more is left to extract and what's the plan to do so over the next quarters and years?

I'm not sure I can book keep you to the numbers that you're citing. I mean, we do pull-up dividends from the operating company based on the statutory requirements. And there are other things that do flow through that holding company liquidity and cash flow lines like taxes and some other things. So it's kind of hard to book keep completely. What I could tell you, and I'm not going to project out what we're expecting to pull out from the operating companies as dividends, we continue to believe that we have significant excess capital at our operating companies, based on both our internal assessment and rating agency models. And while I'm not going to give any estimates on how big that is, because I think there are some differences between agencies and everyone has a different way of looking at it, we will continuously manage our capital that we think -- in a way we think is most efficient and that means if we don't have better opportunities on our operating businesses, that we'll continue to buy back stock, pay dividends and manage our capital as efficiently as we can. Gregory Locraft - Morgan Stanley: I guess to follow up on that, I'm still operating under the assumption that $1 billion is your target level at the holding company and again, you're at $2.3 billion, so there's another, call it $1.3 billion at the holding company that is in excess of what your target would be at. Is that correct?

Yes. I mean, we've talked about it previously. We try to maintain at least $1 billion at the holding company. This is a level that we think is appropriate. I think the rating agencies would consider that appropriate as well. And at the moment, yes. We have some excess at the holding company. Gregory Locraft - Morgan Stanley: Last one is on dividends, is that on the table at the December board meeting as well? And how do you think about that?

Well, shareholder dividends are always a key component of our capital management strategy. As you probably know, we've increased our dividend in each of the past 27 years. That will be something that we will definitely be talking to the board about. We look at a variety of factors when we try to determine our strategy and what's the best way to distribute our excess capital. Things we think about are our capital position and earnings, prevailing insurance market environment, other portfolio investment opportunity cost, the tax environment among others, and all I can tell you is we are committed to returning excess capital to our shareholders and dividends are a very important part of that strategy.

We obviously take dividend actions at quarterly meetings, but in recent years, dividend increases have been acted upon at the February meeting of the year. So just put that in some historical context.

And moving on, we'll hear from Jay Cohen with Bank of America Merrill Lynch. Jay Cohen - BofA Merrill Lynch: John, you mentioned an endorsement that you put in place. I think it was in May, in the Professional Liability or D&O business. Can you tell us what that endorsement was?

Yes. I can. It's pretty technical, and I don't think you want as much detail as I could give you, but we were detecting an increasing concern from our client base of directors and officers that related to regulatory investigations and to adversarial positions taken by the Corporation against its own directors and officers. So we set out to upgrade the product to respond to those emerging concerns and launched some new policy language. The features are new, Jay, but they don't in our estimation significantly increase our risk or exposure to loss. They do provide responses to current day issues that are affecting our insured persons and they've been a very effective instrument in the marketplace. Some examples, the pollution exclusion, it used to exist in the D&O policy, is deleted and the insured versus insurer exclusion, which basically said we wouldn't cover a claim that was brought by one insured against another insured, well, frankly, the court cases were coming down against us. We were beginning to lose out to the competition by insisting on an exclusion that we knew the courts wouldn't enforce and that's not a position Chubb ever wants to be in with its insured. So we gave that up. And I guess, it's looked at by the market favorably, but by us, in assessing our loss exposure, really there's not much impact because we weren't getting the benefit of the exclusion in the first place. I'd give you more examples, if you're interested, but... Jay Cohen - BofA Merrill Lynch: Second question is on the investment income, which seems to be defying gravity. We obviously, we know what's happening with interest rates yet your investment income has been remarkably stable. Your yields look remarkably stable. I'm wondering, it doesn't appear you're making big changes there, at least from an asset allocation standpoint, but how are you able to achieve that? And I guess related to that, if rates stay where they are, what kind of impact should we expect to see in 2011?

Let me try to answer those two questions. In terms of our investment income looking relatively stable, nothing magical there. It's a combination of the portfolio's getting a little bit bigger. We're not doing anything different so there are a few things that flow through the line items. So there's nothing I can point out that would suggest anything out of the ordinary. As we go forward and if interest rates continue to remain low, obviously, we'll have some issues on the reinvestment side. If you go to our 10-K, we have the maturity schedule for our investment portfolio. And what you'll see, if you look at that, is we've got about $13 billion of investments in our fixed maturity portfolio that mature over the next call it three years. About $3 billion of that comes in in 2011, about a little north of $4 billion in 2012 and 5 or plus billion in 2013. If you'll think about it, if rates stayed exactly where they are today and nothing else were to happened, the new money reinvestment rates compared to the maturing book yields, we're probably somewhere in the range of 125 to 150 basis points less. So you can do the math on what would happen to investment income over the next few years.

[Operator Instructions] And next, we'll hear from Ian Gutterman with Adage Capital. Ian Gutterman - Adage Capital: First for Mr. Degnan, I think you're overdue for retirement if you've gone to the point where you enjoy doing these conference calls with us. I can't remember how big your EPL book is, but there's been a number of stories out there about EPL pressure picking up just from a sort of lagging in layoffs and I think there's also been some, I can't remember if there was court cases or a government decision at the EEOC, but is that a concern at all?

We are seeing some increased frequency in the EPL line. It's driven essentially by economic conditions. The longer the economy stays bad and the unemployment rates stays in the neighborhood of 10%, the longer it takes somebody who has been terminated to find another job and then mitigate the damages. So we also have seen some tendency to increase the severity there. That said though, what we call the first notices losses are actually flat in 2010, which we see as an encouraging leading indicator for future new arise count trends. The EEOC, to your point, I think has gotten more liberal in signing off on authorizations to sue. So we're seeing -- I think that's also driving some of the increased activity. There is a sort of public policy bent in this administration, which is not favorable for this line of business, but so far the Supreme Court is maintaining stability on the decision. So it's a source of, it causes us to watch it closely, but right now we're not overly concerned about it. Ian Gutterman - Adage Capital: And then Ricky, I just wanted to follow up on the capital stuff in a different way, I guess. Without trying to get too specific and trying to back in the numbers on you, but how should we think about the traditional ratios that we use that admittedly aren't perfect, like premium to surplus, reserve to surplus have come down a lot over the last five years. Is there a natural change in the book that I'm missing that is driving part of that? Or is there no reason that you can't get back up to closer to the levels of an '06 or '07 over time if you wanted to?

What were the levels in '06 and '07? I forgot. Ian Gutterman - Adage Capital: Premium at surplus you're over 1x, on staff surplus you're over 1x in '06, you're at 90% in '07, last year you're at 75-ish. It looks like it will be about the same, mid-to-high 70s this year. And the reserves to surplus is a similar trend in the other way.

We certainly can't get back to levels we were from before that, but I don't sense there's any reason why our premiums to surplus can't rise and won't rise with our share buyback program over the next few years. Now, one of the things is our premium yield. It's been a slow growth industry. So premiums haven't been quite as high as what one might expect. But no, I mean, this isn't the target rate for us at 0.75%. That's why we have a big buyback program underway. Ian Gutterman - Adage Capital: I'm was trying to make sure I'm wasn't something underneath the covers there. And I guess related to that, as the leverage has come down, when I look at your ROE on an accident year basis, it looks like you're going to be right around 10%, let's say, if I normalize the cats, and that's with portfolio yield. If I put on new money, it's probably less, it's probably into the high single digits. And again, it seems like part of that is the leverage coming down and part of that is NAI pressure and maybe more pressure going forward. How do you think about what the target ROE is going forward, especially given where interest rates are?

Sure, and obviously we know there's been a lot of discussion on this topic recently. As we've stated in the past, our goal is to achieve a return on equity of inflation, plus 10% over the life of the cycle. That's going to imply that we would expect to outperform that target in hard markets, possibly underperform it a little bit in soft markets, but our historical results have tracked very well with this objective throughout past cycles. And at this time, we do not see a need to change our target. When you look at our accident year returns, and you quoted certain numbers, I think our view is it's probably a little bit higher than the number you suggested. But we still think we're making attractive returns and with our x cat accident year combined ratio through nine months of 90.1% for the first nine months, which we think is going to be among the best of any of the other insurers, we like where we're sitting at the moment. Ian Gutterman - Adage Capital: And is there any ability to -- I can't remember, I don't have the schedule in front of me, do you have any debt maturities coming up in the next two or three years that you can sort of prefund to take advantage of the lower rates? I mean, to be honest, some of your peers have made the argument that there's a low-cost to capital today and, therefore, that these lower returns are maybe more acceptable. And I guess I struggle with that answer because if you're all locked into your higher cost of debt because you can't refinance, and it's kind of a mythical thing, right? So do you have the ability to take advantage of these lower rates and either take up the debt to cap or prefund some of your coming maturities?

A lot of questions in there, so I'll try to touch on all of them. We do have one debt maturity in November of 2011, which I think is about $400 million. And then I think the following year, we've got another $225 million. Obviously, as we look at where interest rates are today, refinancing and putting on lower coupon debt makes a lot of sense. The problem is, when you have higher coupon debt sitting on your balance sheet, trying to get it off your balance sheet is not inexpensive. And to have two pieces of debt and carrying double costs may not necessarily make sense either. So while we'd love to take advantage of the low interest rate environment that we see today, it's not that simple. We're comfortable with where our leverage is where we sit today. Could we probably add a little bit more? Maybe. But we think we're fine where we are. And so we would love to be able to issue at these rates, but we don't really have a use of the proceeds. In terms of the cost of capital, that's an interesting question. Clearly, the cost of debt is lower today given where interest rates are, and that accounts for less than 20% of our capital structure. I guess, I'm not yet convinced that the cost of equity though is meaningfully lower when we think about our overall cost of capital. There's continued uncertainty in the capital markets. There's concerns over the economy. There's unprecedented government stimulus, all of which have made what is a very difficult task in terms of calculating the cost of capital even more difficult. And while treasury rates are at historic low levels, betas are higher due to increased volatility, and one could then argue that risk averse investors now require a higher market risk premium. So in the end, I'm not sure that the cost of equity capital for the industry is that much lower today than in the past. But we will see how markets progress. Ian Gutterman - Adage Capital: It sort of presents a bit of a conundrum, right, where if your ROE goal is inflation plus 10, and we're in a close to zero inflation environment, but your cost of equity capital is high, 10 or 11 ROE might meet your target, but be unattractive to equity holders.

Fair enough. But also bear in mind, when you're looking surely at an accident year ROE kind of number, variable development and that sort of thing, which doesn't play into that calculation, if you look at our results over the last five, six years, we've obviously been pretty good. And so when I think when you're thinking about us and comparing companies within the industry, you've got to think about those initial accident year picks and reserves and we think we've stacked up pretty well. Just one thing. I said $225 million for the maturity in 2013. It's actually $275 million.

[Operator Instructions] And that is all the questions we have at this time. Sir, I'd like to turn the conference back over to you for any additional or closing remarks.

Thank you very much for joining us tonight. Have a good evening.

And that concludes today's conference. We thank you for your participation. You may now disconnect.