Dino Robusto - Executive Vice President and President of Personal Lines & Claims Richard Spiro - Chief Financial Officer and Executive Vice President Paul Krump - Executive Vice President and President of Commercial and Specialty Lines John Finnegan - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Chairman of Finance Committee

Mark Dwelle - RBC Capital Markets, LLC Jay Gelb - Barclays Capital Gregory Locraft - Morgan Stanley Jay Cohen - BofA Merrill Lynch Ian Gutterman - Adage Capital Michael Nannizzi - Goldman Sachs Group Inc. Matthew Heimermann - JP Morgan Chase & Co Unknown Analyst - Joshua Shanker - Deutsche Bank AG

Good day, everyone and welcome to the Chubb Corporation Second Quarter 2011 Earnings Conference Call. Today's call is being recorded. Before we begin, Chubb has asked me to make the following statements. In order to help you understand Chubb, its industries and its results, members of Chubb's management team will include in today's presentation forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. It is possible that actual results might differ from estimates and forecasts that Chubb's management team might make today. Additional information regarding factors that could cause such differences appears in Chubb's filings with the Securities and Exchange Commission. In the prepared remarks and responses to questions during today's presentation of Chubb's second quarter 2011 financial results, Chubb's management may refer to financial measures that are not derived from 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 second quarter 2011, 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. Replay of this webcast will be available through August 19, 2011. Those listening after July 21, 2011 should please note that the information in forecast provided in this recording will not necessarily be updated and it is possible that information will no longer be current. Now I will turn the conference over to Mr. Finnegan.

Thanks for joining us. We are pleased to report extra results for the second quarter and the first half of the year. Both of which were periods of record catastrophe losses for the property and casualty industry. Operating income per share for the second quarter was $1.27, reflecting a $0.72 impact of catastrophes. That compares to $1.41 in last year's second quarter when the impact of cats was $0.38. The x cat combined ratio for the second quarter of 2011 was 83.6%, which is in line with the 83.5% x cat combined ratio in last year's second quarter. For the first 6 months, operating income per share was $2.62 and the combined ratio was 94.3% including a 10.4 point impact of cats. The x cat combined ratio 83.9% for the first 6 months compares with 82.4% in the first half of last year. During the second quarter, our investment portfolio produced a net realized gain before tax of $69 million or $0.15 per share after-tax, bringing our net income to $419 million or $1.42 per share. At June 30, our net unrealized appreciation before tax stood at $2.1 billion, which is an increase of $445 million as of March 31. Reported book value per share at June 30, 2011 was $55.23, 12% higher than a year ago. Despite the significant catastrophe losses that we incurred in the second quarter, our sustained profitability and strong capital position enabled us to continue repurchasing our shares at a pace similar to that of the first quarter. As we have said before, we expect to complete our current share repurchase program by the end of January 2012. In January this year we provided 2011 operating income guidance of $5.35 to $5.75 per share base in part on the assumption of 3.5 points of cats for the year. Substantially higher than expected cats in the first half had led us to change that assumption to 7.5 points of cats for the full year. Nevertheless, based on our excellent overall results year-to-date and our outlook for the second half of the year, we are increasing our earnings guidance to a range of $5.55 to $5.85 per share. Ricky will discuss the progress we made on our share repurchase program and will also elaborate on our updated guidance in his remarks. Let me now turn it over to Paul who will talk about our commercial and specialty insurance results.

Thanks, John. At Chubb Commercial Insurance, net written premiums for the second quarter were up 8% to $1.3 billion. The combined ratio was 102.5% versus 92.9% in the second quarter of 2010. Excluding the 15.2 point impact of catastrophes, CCI's second quarter combined ratio was 87.3%, the same as in the second quarter of last year. In the United States, while the standard commercial market remain competitive, we are encouraged that CCI's average renewal rates were up 2%, the first increase in 5 quarters. Retention for the second quarter was a strong 87%, the same as in the first quarter. Our new-to-lost business ratio was 1.3:1, which was also the same as in the first quarter. Within the overall 2% renewal rate increase, our property and marine renewal rates were up the most, led by increases in the geographic regions which are most catastrophe-prone. Our average general liability renewal rates were also up as we push aggressively for rate increases and select customer segments that are having adverse loss experience. Average renewal rates for workers compensation were also positive led by California. Umbrella excess renewal rates were up slightly, while package and commercial automobile rates were flat. Given all the unusually severe weather in the first 6 months of the year, insurance buyers were reminded almost daily that no region of the country is safe from catastrophes. Against this backdrop, our U.S. agents and brokers who handle standard commercial lines are generally having an easier time articulating the need for higher rates. Approximately 70% of the CCI business we renewed in the United States in the second quarter had flat or positive rate increases. That compares to about 60% in the first quarter of this year and 50% in the fourth quarter of 2010. In CCI markets outside of the United States, the geographic areas that have experienced recent catastrophes namely Chile, Australia, New Zealand and Japan are experiencing substantial property rate increases. There were several factors, in addition to higher renewal rates, that contributed to CCI's 8% premium growth in the second quarter. We received additional premiums from mid-term endorsement activity and from premium audits. These are both encouraging signs since endorsement activity often relates to things like new equipment purchases by our insurers and more audit premium means that the actual payrolls and sales of our customers were slightly higher than they originally expected. CCI's premium growth also reflected a positive effect from currency movements, continued strong renewal retention and a slightly better flow of new business activity compared to last year. Turning now to Chubb's Specialty Insurance, net written premiums for the second quarter were up 2% to $680 million. CSI's combined ratio was 80% versus 82.5% in the second quarter of 2010. Net written premiums for professional liability were up 2% to $595 million and the combined ratio was 84.6% compared to 87.2% in the second quarter of 2010. Renewal rates for professional liability in the United States in the second quarter of 2011 were down 2%, an improvement over the first quarter when they were down 3%. Renewal retention was 89% in the second quarter, 2 points better than the first quarter's 87%. The new-to-lost business ratio was 1.3:1 in the second quarter, an improvement over 1.1:1 in the first quarter. Within the overall renewal rate decrease of 2% in professional liability in the United States in the second quarter, public D&O rates were down the most, even though they improved slightly from the first quarter. At the same time, the renewal rate change for the other professional liability segments were within a tight range from slightly negative to slightly positive. The rate environment outside of the United States for professional liability was unchanged in the second quarter from the first quarter, with rates down in the low single digits. For our Surety business, net written premiums in the second quarter were up 2% and the combined ratio was 44.5%. And with that, I'll turn it over to Dino, who will review Personal lines and Claims.

Thanks, Paul. Chubb Personal Insurance net written premiums increased 5% in the second quarter to $1.1 billion. This represents our sixth consecutive quarter of growth with particularly strong premium increases outside the United States. CPI produced a combined ratio of 96.9% compared to 92.9% in the corresponding quarter last year. The impact of catastrophes for the second quarter of 2011 was 14.5 points compared to 13.8 points in the second quarter of 2010. On an x cat basis, CPI's combined ratio was 82.4% in the second quarter of this year, compared to 79.1% in the second quarter of 2010, and 86% in the first quarter of 2011. Homeowners premiums were up 5% for the quarter and the combined ratio was 97.7%. Excluding 22.5 points of catastrophes, the Homeowners combined ratio was an excellent 75.2%. Personal auto premiums increased 8%, driven by strong growth outside the United States and the combined ratio was 92%. In other personal, which includes our accident, yacht and personal excess liability lines, premiums were up 4% and the combined ratio was 98.6%. Now let me say a word or 2 about the personal lines market in the U.S. What we continue to see is general rate taking in the industry for both auto and homeowners. We have observed across the broader insurance market rate increases for auto in the low-single digits and more aggressive increases for homeowners in the mid-single digits, which is understandable given the industry's poor results over last several years. Among the companies that are taking rate are those that competes directly with Chubb in the high net worth space. We think that recent industry catastrophe experience in the U.S. has instilled the greater sense of urgency in the market for taking even larger rate increases going forward. At Chubb, we are reviewing rates on a state-by-state basis as we normally do and we are filing rate increases where warranted. However, since we are starting from a far superior position in terms of profitability, you will not see our rate taking matching the industry's. This in turn, will further improve our competitive position. We are pleased with the momentum of homeowners and personal auto in the U.S. as both premiums and policy count grew this quarter from higher levels of new business and by ongoing improvement in our policy retention, which in the second quarter was 91% for homeowners and 88% for auto. We are also encouraged by improvement in our endorsement activity, which has been positive for the fifth consecutive quarter. We believe that the increased price sensitivity on the part of customers that we experienced during the height of the recession has abated and that customers are increasingly more willing to stay for Chubb's unique value proposition. Turning to claims for the company overall, the big story for the quarter is catastrophes, just as it was in the first quarter. For Chubb, the largest second quarter events were the tornadoes and other storms in Alabama, Missouri and North Carolina. You will recall that on June 20, we announced estimated cat losses of between $250 million and $310 million before tax for the months of April and May. Our current estimates for April and May events is close to the midpoint of that range. The total for the entire second quarter including June, was $329 million or 11.3 points of the combined ratio. It was the highest second quarter cat impact in the history of Chubb by a wide margin. For comparison, the impact of cats amounted to $193 million or 6.9 points of the combined ratio in the second quarter of last year. Until this year, that was the highest second quarter cat impact in Chubb's history. If there is a silver lining to these extreme cat events, it is that they allow us to show our customers, as well as our agents and brokers how seriously we take our promise to be there at the time of a claim. When a cat occurs, thousands of customers can be affected but every customer cares, first and foremost, about their own claim and rightfully so. The idea is to let them know that we share their sense of urgency. For example, from the beginning of this year through mid-June, 95% of CPI's U.S. customers were contacted within 6 hours of their first claim report. Not 6 days, 6 hours. Little wonder that in the first half of this year, 97% of CPI customers who had a claim said they were highly satisfied with our claim service. We never wish a loss on anyone, but the best word of mouth advertising we have comes from customers who have experienced our claim service. And now I'll turn it over to Ricky.

Thanks, Dino. I will review our financial results for the quarter and discuss our updated guidance. As you've already heard, we are very pleased with our performance in the second quarter, particularly in light of the unusually high level of catastrophes. Looking at our second quarter operating results, we had underwriting income of $135 million, property and casualty investment income after tax was up 2% to $318 million, about half of the increase was due to the impact of currency. Net income was higher than operating income in the quarter due to net realized investment gains before tax of $69 million or $0.15 per share after tax, largely driven by gains from our alternative investments portfolio. For comparison, in the second quarter of 2010, we had net realized investment gains before tax of $90 million or $0.18 per share after tax. Unrealized appreciation before tax at June 30, 2011, increased to $2.1 billion from $1.6 billion at the end of the first quarter. The total carrying value of our consolidated investment portfolio was $43.1 billion as of June 30, 2011, compared to $42.5 billion at the end of the first quarter. The composition of our portfolio remains largely unchanged from the prior quarter, the average duration of our fixed maturity portfolio is 3.8 years and the average credit-rating is Aa2. We also continue to have excellent liquidity at the holding company. At June 30, our holding company portfolio at $1.9 billion of investments including about $600 million of short-term investments. Book value per share under GAAP at June 30, 2011, was $55.23 compared to $52.24 at year-end 2010 and $49.39 a year ago. Adjusted book value per share, which we calculate with available for sale, fixed maturities at amortized cost was $51.34 compared to $49.05 at 2010 year-end and $45.61 a year ago. As for reserves, we estimate that we have favorable development in the second quarter of 2011 on prior-year reserves by SBU as follows: In CPI, we had approximately $35 million, CCI had $80 million, CSI also had $80 million and reinsurance assumed has $10 million. That brings our total favorable development to approximately $205 million for the quarter. This represents a favorable impact on the second quarter combined ratio of about 7 points overall. For comparison, in the second quarter of 2010, we had about $180 million of favorable development for the company overall, including about $55 million in CPI, $55 million in CCI, $70 million in CSI and none in reinsurance assumed. The favorable impact on the combined ratio in the second quarter of 2010 was about 6.5 points. During the second quarter of 2011, our loss reserves increased by $157 million including the increase of $189 million for the insurance business and a decrease of $32 million for the reinsurance assumed business, which is in runoff. The impact of cats increased reserves by about $195 million and the impact of currency fluctuation on loss reserves during the quarter resulted in an increase in reserves of $55 million. Turning now to capital management. During the second quarter, we repurchased 7 million shares at an aggregate cost of $455 million, the average cost of our repurchases in the second quarter was $64.86 per share. For the first 6 months, our repurchases totaled about $842 million with an average cost of $61.99 per share. At the end of the second quarter, we had $14.9 million shares remaining under our current share repurchase program, and as John mentioned, we are on pace to complete this program by the end of January 2012. Before turning it back to John, let me provide you with some details on our revised guidance. As John indicated, we have increased our guidance for operating income per share for the full year to a range of $5.55 to $5.85, from the range of $5.35 to $5.75 that we had provided in January. Our revised guidance is based on the following underlying assumptions: We expect net written premiums for the full year to increase 4% to 6% including a benefit from foreign currency translation of about 1 point based on exchange rate as of June 30, 2011. The January 2011 guidance had assumed that net written premiums would be flat to up 2% with no impact from currency. Based on our actual catastrophe losses of 10.4 points in the first half, we have revised our cat assumption for the full year to 7.5 points, which implies about 4.5 points of cat losses in the second half. For those who would like to make a higher or lower cat assumptions, the impact of each percentage points of catastrophe losses for the full year on operating income per share is approximately $0.26. For our 2011 combined ratio, we expect the range of 92% to 94% compared to the January guidance assumption of 91% to 93%. The increase in our catastrophe assumption is largely offset by an expected improvement in our x cat combined ratio reflecting our strong underlying performance, year-to-date. We expect property and casualty investment income after tax to be about flat, including the benefit from foreign currency translation of about 1 point. Our January guidance assumed a decline of 2% to 4% in P&C investment income after tax with no impact from currency. Finally, we assume $291 million average diluted shares are outstanding for the full year, which is unchanged from our earlier guidance. And now, I'll turn it back to John.

Thanks, Ricky. As you heard, Chubb has performed extremely well in the second quarter in the first 6 months of the year. Some of the highlights were second quarter operating income per share of $1.27 and annualized operating ROE of 10.3%, by an 11.3 points of catastrophe losses in what was the worst second quarter for cats in the history of the industry. Six month operating income per share of $2.62 and an annualized operating ROE of 10.8%, excellent performance in the phase of 10.4 points catastrophe losses in the first half. Terrific x cat combined ratios of 83.6% for the second quarter and 83.9% for the first half. Net written premium growth of 6% in the second quarter and 5% for the first 6 months. And an increase in book value per share at $55.23, which is 12% higher than a year ago. In summary, despite unprecedented level of catastrophe losses in the first half of the year, we were still sufficiently profitable to increase our full-year earnings guidance and reaffirm our intention to complete our authorized stock buyback program by the end of January 2012. I think this speaks volumes to the strength of our underlying performance. And with that, we'll open it to your questions.

[Operator Instructions] We'll take the first question from Jay Gelb, Barclays Capital. Jay Gelb - Barclays Capital: Two questions for you. First on the level of rate improvement in commercial insurance. It seems like you're a bit more constructive on the outlook than perhaps a couple of months ago, and I just wanted to delve into that a bit in terms of do you believe that trend you saw in second quarter is sustainable? And related to that, do you feel there's enough excess capital that's been removed from the industry to keep that in place? And then the second issue is on investment income. It came in a little strong, about $10 million stronger than we were expecting after tax for the quarter and I just want to get a sense whether there any one-time issues in there we should be aware of?

Let's go to the second one first, I'll ask Ricky to address that.

Sure, Jay, on the investment income, half of the increase was related to currency so there really weren't any other particular one-time item that I would call out. Jay Gelb - Barclays Capital: You're talking about the $7 million year-over-year increase?

Yes.

And Paul, why don't you talk about the commercial.

Okay, Jay. Yes, I think the feeling here is that the market certainly improved a bit here in the last 3 months. I touched on the fact that property was up especially in the cat-prone areas. Our feeling is that we're out there pushing rate across the board, and we're seeing the resistance levels a little bit easier than they were. And we're hopeful that, that will continue. Jay Gelb - Barclays Capital: And to sort of tie on to that, do you feel enough excess capital has come out of the industry to support that? Or is this essentially a reaction with the rates following the big losses we've seen both in the U.S. and internationally?

I think the numbers would show, Jay, there's still plenty of excess capital in the industry. So I'd say that the second is more likely. That there's a need to make -- in addition to excess capital, I mean, I don't think we should think a carriers just simply burn down losses to their -- end of their excess capital. Now history has proven I maybe wrong in that area, but I think that what we've seen is that with the recent cats and the new cat models that there's a significant need for pricing in the industry, price improvements. And we started on that road. Is it sustainable? I don't know, I mean it's probably sustainable at the levels we've gotten so far. Is it going to get significantly higher? I guess that's still to be proven.

Up next, we'll hear from Matthew Heimermann, JPMorgan. Matthew Heimermann - JP Morgan Chase & Co: I guess, first question for Ricky, maybe. The last quarter, we asked you about amounts you needed some time to digest it so just be curious now that you have some time to look at it, how that's changed, your P&Ls or just how you thought about exposure and be curious if you could kind of contrast that with the comment with respect to homeowners that you probably won't be pushing as hard as some of your peers. Just was wondering is that also related to kind of the work you've done on the modeling side?

I'll attempt to answer the question on where we stand on the new model and maybe Dino will touch a little bit more on the Homeowners side. We've done a lot of work to better understand the model itself and validate its impact on our book of business and as you likely know, RMS has already come out with a couple of corrections to risk in '11, so we're updating a check on our data with these new patches. All of this is going to continue to take time before we can reach any real definitive conclusions. But let me share just a few thoughts with you. As we've said before, the new version of the model is generating higher risk estimates for exposure of hurricanes in the United States. But the impact of the new model in our book of business varies greatly among the regions that we model for hurricanes. Going forward, we're going to continue to monitor and analyze the new model as we incorporate it with the other cat models that we use. And we intend to take underwriting actions and/or purchase additional reinsurance in order to reduce or mitigate our exposure in regions or states where we believe warranted. Although our analysis of the impact in the model is still a work-in-progress, we have enough information, I think at this point, on the directional impact to begin taking certain actions and we've already done so. For example, we purchased some additional catastrophe reinsurance during the quarter in order to more efficiently manage our risks. In particular, in June, we purchased $200 million of additional limit for the Northeast U.S., which is our peak zone. And this was in addition to about $100 million increase to our North American cat reinsurance program that we outlined in our April earnings call and in our most recent 10-Q. And although not related to the new model, during the second quarter, we also purchased $100 million of additional limit to cover certain non-US catastrophes. At this point, that's about as far as I can go in terms of where we stand and now I'll turn it over to Dino to comment on the homeowners side.

Yes. I think the way to look at it, as I indicated earlier, it's where we start from on a profitability basis. We had an x cat combined ratio on the homeowners as I indicated at 75.2%, which is an excellent number. So we're not in a position with homeowners where rate is needed to fix the profitability issue. Nonetheless, we will take rate where it's warranted, which is reflected in fact that in the second quarter, about 1/2 of a point of our homeowners net written premium in the U.S. was attributable to rate. And I would say this impact should increase as we move forward based on our regular state by state reviews. Now of course, any plans we have are subject to regulatory approval. So not really in a position to give you an exact number, but I can say that homeowners rate movement should be increasingly positive through 2011. Something else to keep in mind is that in the premiums that we charge on homeowners, it also includes an inflation card protection or replacement cost increases. Over the last 3 quarters, we've experienced the homeowners premiums changed associated with this exposure protection of about 2.5 points. Incidentally, some of the other carriers include this factor in their renewal change that they quote. And the homeowners outside the U.S., really varies by geography, Canada and the U.K. were trending similar to U.S. In Australia, we're increasing our homeowner rates much more aggressively in a response to the elevated catastrophe activity. Matthew Heimermann - JP Morgan Chase & Co: Is it fair then to kind of, based on what both you and Ricky have said, then to kind of think about the rate you're -- what rate you're taking is more in response to what you need relative to perceived exposure or changes in the cat models and -- but there's not kind of, I guess your comment's kind of saying you're not gratuitously just going to follow the market up even if you could maybe get a little bit more, you're just going to get what you need?

I think, Jay, I think that the issue is that we are pretty profitable now in x cat basis, as Dino cited. But however, cats count and we've had 10 and 11 points accounts the cats in the last 2 quarters and we have a new cat models system that will end up requiring additional capital, that we'll either have to accept or reinsure it of course. So we absolutely have to take some rate, especially in cat-prone areas.

Michael Nannizzi of Goldman Sachs is up next. Michael Nannizzi - Goldman Sachs Group Inc.: Just a couple here. So is pricing outpacing loss trend? I mean, within commercial lines and especially lines, in particular, are you seeing that on a dollars written basis?

This is John. No. I mean, first of all, the most recent pricing was 2 points in the quarter, so I don't think you could say that that's outstripping loss trend. But this year, we're still -- our earned premium book is still more like flat. So it's certainly not outstripping loss trend. Now, that's expected loss trend. The truth has been of course, that loss trends haven't come in line with expectations, they've been more benign in that over the last few years. But if you look back at standard commercial though, we've probably had about a 2-point margin compression over a 2-year period, which is pretty good considering rates were flat too to negative. And specialty, you're talking about we've had negative rates for a while. But the actual results in any one quarter and specialty professional liabilities, specifically, is really driven much more by the existence or absence of the systematic events, systemic events rather than the long-term trend line. So you really get the margin compression thing there, it isn't as relevant but we're not getting rates that's going to cover long term trend line costs for sure. Michael Nannizzi - Goldman Sachs Group Inc.: Just one question I had, maybe for Dino. You'd mentioned on personal lines, kind of surprising that folks are taking rate higher -- you're maybe being more selective and not having to compensate for issues in other parts of your book. But it seems like there are a lot of people moving into that space and so I was a little just curious, are you not seeing more competition? Or is it just that the competition is more reacting to issues they're having elsewhere?

Clearly, there's more competition in this business and how they're pricing, I guess, is a function of what their underlying profitability is. And again, I can comment on it in terms of what our profitability has been, and we do our regular rate reviews and we're comfortable with as we're seeing it. As John indicated clearly, this is going to continue to be positive going forward for the rest of 2011 and into 2012. Michael Nannizzi - Goldman Sachs Group Inc.: So you're not seeing people specifically come in and undercut more of the activity is to raise pricing?

We see people that come into our space and obviously offer -- the only way they can get the business is offer much lower rates, of course, or offer cat exposure that we wouldn't take. That's a fact, but as I've said before couple of the competitors, major competitors of us in the years gone aren't as strong. So it always seems very competitive in every industry whether it's more or less, it's hard to say. Some -- we've got some new ones in, we've got some old ones gone. It's a mix and match.

Next up is Greg Locraft, Morgan Stanley. Gregory Locraft - Morgan Stanley: Wanted to follow-up on the pricing commentary and how it goes into the margin line. What is the lag if you're able to actually continue to do what it seems you guys are doing? Should we begin to expect your x cat margins to be increasing at this point next year? Or could it be even sooner?

At 2% on commercial only, let's say personals probably flat. Specialty certainly isn't positive and again, it's dependent more on what's occurring out there. 2% on commercial only in rate is certainly not going to drive an improvement in margins. Hopefully, when we talk next time, it will be a little bit more than 2%. 2% to 4% would probably get even with loss costs when you consider that the 2% to 4% of rates on the whole premium where the loss cost number is on like 60% of that. So no, I would think that it depends where loss cost trends -- whether they develop as they projected. Again they haven't, they've been more benign in recent years. But certainly at 2%, you're not going to increase margins. Gregory Locraft - Morgan Stanley: Just to be clear, you're pushing, you're going to be pushing more than that too. And therefore, if you do that and loss trends don't change, we'll see some margin into next year. That's the way it should come through the income statement from an earned perspective or...

Let's say we've got that 3% or 4% in the fourth quarter. I mean, you can only see that over a period of time, of course. I mean you're going to see next year the stuff we've written already and the stuff we write next year. So it will be a lag basis. I mean for example, we're 2% in this quarter on a written basis, but we're probably flat on an earned premium basis. So there's a lag there. Gregory Locraft - Morgan Stanley: Okay. Good. And then again, Ricky, coming back to the net investment income line. You guys have actually done a nice job in an incredibly low interest rate world. In fact, you're taking guidance up versus 6 months ago. I don't think the interest rate environment has gotten better. So I'm just curious, what are you guys buying that's allowing you to kind of hang in there better than perhaps we might think, given the duration of your book?

You know what's in our portfolio. You can see it in all of our financial statements and our portfolio really hasn't changed. We are getting a bit of a benefit, as I said, from currency. Some of the cash flows you get from some of our investments, whether they be limited partnerships or others in terms of dividend income, kind of hard sometimes to predict that. But we're really not doing anything different than what we've been doing over the last number of years. Gregory Locraft - Morgan Stanley: Okay. Good. Then last on cats is just on, is this sort of a new normal in terms of -- you've got 7.5 points coming through this year, 3.5 was the guidance at the beginning of the year, which I assume that looks more in line with the historical averages. Should we be thinking in though '12 that the averages are going up given what we've seen in the last, not just this year, but last year and even the last 3, 4, 5 years? It just seems like the average cats as a percentage of premium is migrating higher, any thoughts there?

I'm sure hoping it's not the new normal. If it is, I'm retiring early, I'll tell you. The statistics are pretty interesting on it. Paul, why don't you talk a little bit about cat experience?

Sure, John. Just backing up here a little bit. The background, our average cat impact per annum since 1983 is about 3%, and the average since 1986 was about 3.5%. Obviously, there's a huge variations by quarter, a little less variation by year. But as underwriters, we tend to think about cat loads over a longer period of time. For example, I can recall a number of years where we experienced very benign cats and nobody ever around here suggest that we lower our loads because of that. That said, we believe that the recent high level of catastrophe activity and the changing catastrophe risk models will place pressure on property underwriters throughout the industry to integrate these into their capital costs and hopefully adjust their rates accordingly because we certainly will be taking a hard look at that.

Let me give you example on volatility. Katrina obviously, was a big year. Then in 2006, we only have 1.4 points of cat losses. 2007, another 3, 2008 was a bad year at 5.2, we came back in 2009 with less than 1 point. It's all over the place. Obviously the last 18 months have not been good. But interestingly enough, in the last 18 months we haven't any -- or at least since Katrina we haven't really bad hurricane experiences, a little bit one year, but hurricanes have been relatively benign. Gregory Locraft - Morgan Stanley: I've largely gone with 3.5% in the forward model for '12 et cetera, and I'm just wondering if it begins to bump higher from a guidance perspective until '12 and beyond. It sounds like you guys are -- it's not different based on what you're saying, it's just a period of bad luck and we'll see what the future brings.

Quick follow-up on the investment income question. I just want to make something clear. To the first half of the year, our net income was up 1%, it's actually flat when you take into account currency. So if you look at what we're actually projecting out for the second half of the year with a 1 point of currency, we're actually projecting a decline in investment income over to the second half for the year to get us to flat. So just want to be clear on that.

Next up, we'll hear from Jay Cohen, Bank of America-Merrill Lynch. Jay Cohen - BofA Merrill Lynch: Just one question, when you were talking about the CCI segment, your referred to some lines of business where you've had adverse loss experience and you were looking for higher prices there. Can you talk about what those lines were? And I guess as a follow on, maybe it is 2 questions, if you could talk in general on the commercial side, latest information on claims trends?

Sure Jay. This is Paul. I'll take the first piece and then pass over to Dino to talk a little bit about claims. Just to be clear in my prepared remarks, I was talking about general liability and certain segments of our general liability that are having some adverse loss trends and we're pushing rate very aggressively there. What we're talking about here is really thinking -- I encourage you to think about say, 4-digit SIC codes in a state and we're saying, boy we think that the rates there are down too much and our experience has been adverse and we're pushing it. So this is really a lasered approach that I was talking about. I'm not talking about a overall product line, I'm talking about segments of a specific product line, that is general liability. Jay Cohen - BofA Merrill Lynch: And then in general, what are you seeing from a claims standpoint? In comp, if you could zero on that one too?

So let's start with frequency. As far as the frequency is concerned, our claim counts, obviously the statistics vary by line of business. Overall, U.S., new arise counts including catastrophes decreased about 17% against the prior-year quarter, and they're down 10% in the first half over the prior-year first half. New arise clients Excluding catastrophes, we're up 7% against the prior-year quarter and they're up 6% for the first half of 2011 versus the first half of 2010. The most significant factor driving this count increase was the effect of the non-cat winter storms in the mid-Atlantic and the Northeast. Excluding catastrophes and these storms, property new arise counts were actually down 2%, and overall our counts were up 3% for the first half of 2011. On severity, the trends obviously, again vary significantly by line of business due to the very different cost drivers whether it's the building material costs or the labor rates or property, medical inflation. But overall, we aren't seeing any evidence of any quickening pace of claims inflation. We're seeing claims cost severity increases that are generally consistent with our trend assumptions. Focusing, you asked, I believe, on work comp. Our period-to-period claim statistics are not as stable as the industry stats just because we have less than 2% of the market share. This quarter work comp, new arise claim counts were actually up 2%, which is partly due to the increased volume of business we're writing. This was driven though by an increase in medical-only claims, which are significantly less expensive than claims where the employee misses time from work. These lost time claims actually saw a slight decrease this quarter, 1%. Overall, we're seeing claim cost severity increases that are generally consistent, as I said, what our trend assumptions. Some are up and some are down in certain areas. One place where we are seeing somewhat higher pace of cost dislocation emerges in California for work comp. The benefit reforms in California clearly reduced cost significantly. But there are some signs that some cost are creeping back into the system and causing the rate of increase there to steepen again. Just one point of clarification that you had to go back on. I had indicated that the increase was driven by the medical-only claims, which is the case. The lost time claims just saw a slight increase of 1%, I may have said that one -- a decrease, I meant a 1% increase. Jay Cohen - BofA Merrill Lynch: Just to clarify something, the initial statement was frequency for new arising claims or number of new arising claims in the U.S. was down 17%. That was, I'm sorry, with catastrophes?

Yes, that was including catastrophes decrease 17%. Excluding catastrophes, it was up 7% against the prior-year quarter and up 6% for the first half and as indicated, the most significant factor that was driving that was the effect of the non-cat, winter storms in the mid-Atlantic and the Northeast that we saw particularly in the first quarter. And if you exclude even that, the property new arise counts were down 2%.

Our next question today will come from Mark Dwelle, RBC Capital Markets. Mark Dwelle - RBC Capital Markets, LLC: Couple of questions. It seems like for several quarters now, you've been talking about the -- in CPI the non-U.S. has been growing faster than the U.S. What proportion of that overall book -- of overall CPI premium is now non-U.S. premium?

About 30% or so. Probably about 26%, 27%. Mark Dwelle - RBC Capital Markets, LLC: And by way of reference, how would that compare to, say, 3 years ago? I mean, just in general terms obviously.

Probably up 3, 4, 5 points. But again, a lot depends on the currency at any point in time too. So if we move around, you really -- to do a thorough analysis, you'd have to look at it x currency too and then adjust and see how much you want it to weigh in currency. It's up, it's significantly up for the company in total. Mark Dwelle - RBC Capital Markets, LLC: Is the business mix within the non-U.S. comparable to the overall book, which is to say sort of 60% homeowners, 20% each of the other 2 lines?

So in personal lines, the mix is essentially the same in Canada, the U.K., in Australia. The mix is a little bit different in Latin America, in particular in Brazil, where there we lead with our auto, it's just less demand for homeowners. But the auto business that we have in Brazil is also related to high net worth clientele. So the mix, in general, is the same essentially everywhere with the exception of Brazil where we have a much higher proportion of automobile. Mark Dwelle - RBC Capital Markets, LLC: And then one other question. We've heard a lot of the brokers talk about the differences, different level of kind of late stickiness between kind of large and middle market and small. And I was wondering if you could comment on that with respect to what you're seeing in your book?

Yes. Mark, I don't know if I have a whole lot more to add to that conversation. I mean, I think the general consensus in the industry is that the larger the account, the more competitive it is right now. We are not a real big player when it comes to what was termed risk management business out there. If we write any of it, it's very selectively done in niches that we really understand. So but that said, we do see a premium attract a little bit more competition. We're also not a bop [ph] writer, so I can't comment too much about the small, small stuff. But what we see in the middle market is the higher up you go in premium, the more it attracts people to try to compete on it.

Our next question comes from Josh Shanker, Deutsche Bank. Joshua Shanker - Deutsche Bank AG: I was wondering if you could elaborate on the inflation guard protection you were speaking about in terms of, I guess, that is part of the masterpiece policy? And how, as a component, you're getting rates through on that? I just want to understand how that plays in.

So as part of our replacement cost provision on our policy... Joshua Shanker - Deutsche Bank AG: This is the masterpiece policy, we're talking about, yes?

Correct. Our homeowners, we put through an inflation guard. That number has changed over time. It used to be higher, obviously, and then last few years it's come down. And we -- and now it's roughly at about 2%, 2.5% as I indicated. And that's just the factor of we look at what material costs are, what labor costs are and based on that, we put an automatic increase on to the homeowners policy. Joshua Shanker - Deutsche Bank AG: And so if I'm a policy holder and I've been with you for a long time, that guarantees that the replacement costs will have at minimum -- I mean I'm just trying to -- what does that say in the policy, how that play comes in?

So we have a provision on our policy that we provide replacement cost based on reconstructing the home and what we do is we insure the value, we inspect the home, we ensure the value and then every year we add on an inflation guard based on, as I say, material cost, labor cost, so that if the limits on the homeowners policy continue to move up in line with inflation based on, as I said, our first insurance, the value inspection that we do when we first insure the home. Joshua Shanker - Deutsche Bank AG: And the premium impact of that?

And the premium impact, it's roughly about 2 points, actually in the second quarter, a little bit less impact. So a little bit under 2 points, the effect on premium.

Next we'll hear from [indiscernible] Evercore Partners. Unknown Analyst -: Two questions, the first is on pricing. Just wanted to know, it seems it's a tale of 2 cities out there, where the cat expose property lines getting rate increases, spread is more casualty focus and the professional liability lines, softer. Can you tell us what the environment out there is, how clients are reacting to rate increases despite not seeing loss costs trend on some of the casualty lines?

Obviously, as I mentioned in my prepared remarks, the property is an easier sale right now on our book of business. But we are taking rate in general liability and as expressed earlier on the call, certainly we're getting more sizable rate increases in those segments that have had adverse experience. So we're out there pushing it and articulating it, and our underwriters are explaining, loss cost trend and the soft market in all of our value proposition. When you come back to workers compensation, there we are getting couple of points of rate, we're getting payroll increases. So we're getting true exposure growth there of a couple of points. And on the premium audit side, we're getting a couple of points as well. So we're taking that and moving on. Unknown Analyst -: So do you think that rates are low enough right now that carries will have to take pricing up just a tad just in order to meet loss cost inflation? Was it the part where they are more willing to let pricing slide a little bit more?

I guess when you think about casualty lines, we at least around here, we recognize very much that loss cost trends are always out there. We just don't believe that they're negative, so they're certainly above 0. I think John tried to give you a sense of that on our overall book of commercial business, we're running at 2, loss cost trend overall might be around the 3 to 4 range, it depends on the mix. But clearly, we're out there pushing and we want to ultimately see margin expansion, not margin compression. Unknown Analyst -: The second question is on growth outside the U.S. I believe it was in personal auto, could you add some color to that as in which countries are you going in, how you're getting the business?

Yes, the personal auto, it's a combination in Brazil and also Canada and some in the U.K., but keep in mind that the base is a lot smaller also. So the percentage increase is much higher than in the U.S. As indicated, we only have about 25% of our Personal Lines business is outside the U.S.

Ian Gutterman of Adage Capital has the next question. Ian Gutterman - Adage Capital: I have 2 hopefully quick ones. First, I was just looking, the expense ratio was about half a point for the quarter and for the first half and your premium is [indiscernible] again, so I'm wondering why there's pressure on the expense ratio?

Well, yes, you're right. We're up about 4/10 of a point from the second quarter of 2010, and that reflects the impact of some higher commission rates and changes in our product mix, particularly outside United States. The 31.3% expense ratio in the second quarter and 31.5% for the first 6 months of 2011 are up only slightly over the 31.2% expense ratio. When you look at -- so when you look at it, our commissions are up some, but commissions go to mix. Personal lines have higher commissions than commercial lines, and personal lines was negative for a while and growth now positive. Overseas, you generally attract higher commission than the U.S. and our overseas business has been growing. And in some of our businesses such as we're growing accident and health is a line where commission rates are significantly higher than it might be in traditional property and casualty. So I don't really see it. It's such a very slight movement, mostly related to commissions which are related to product mix and geographic mix. But say overall, our control -- what we call controllable expenses and noncommissioned stuff it's flat and probably down on a percentage basis being that written premium is up. Ian Gutterman - Adage Capital: That's what I was most concerned about. And then my other one is a smaller type numbers question. If I look at the casualty segment within CCI, again for the quarter and for half, it's sub 84 combined which, as best as I can tell, is a record and by a good margin a record. And I'm kind of wondering why that's happening at this point of the cycle. Is the development much more favorable there this year than last? Or is there a mix going on? Or are you really picking the ax and you're a lot lower than in the past?

This is Paul. The casualty line benefited from significant favorable development again in the second quarter. The majority of that came from the excess proportion of the book, which had continued to see lower loss activity than we expected and broadly speaking that was across almost all the accident years.

Development being really the answer, not the accident year. Ian Gutterman - Adage Capital: Is the accident year up, year-over-year, flat, improving? I'm just trying to get directionally a sense of what the accident looks on that line.

It's about flat.

Next up we'll take a question from Jeffrey Cho, MFS [ph]. Unknown Analyst -: Can you give me an update on your priorities for excess capital? Have you considered any M&A? If you have, can you comment on any types of businesses that you're interested in? Would you ever get back into reinsurance or any other type of insurance?

Well reinsurance, we made a strategic decision to get out of it. Not because whether or not it was a good or bad business, but basically that after Katrina, you had -- it was the property market that was attractive reinsurance market not the casualty market and we just couldn't take the aggregate exposure we'd have piling on reinsurance exposure on top of our primary insurance exposure. Secondly, we're not an active player or an active looker in the M&A area. So I think you can feel comfortable that we'll be more focused on returning excess capital to the shareholders than use it in M&A transactions.

Next we have a follow-up from Michael Nannizzi, Goldman Sachs. Michael Nannizzi - Goldman Sachs Group Inc.: Just a quick one here. On following up on RMS in your capital position. Is anything you're doing maybe, are you thinking about holding on to more capital with changes in models? Or is reinsurance kind of your the solution you're mostly looking at?

I think we're looking at a number of solutions, reinsurance being one. Underwriting actions, which I mentioned in my earlier comment as well. And just be clear, I mean we use more than one cat model, so this isn't all solely driven by the RMS model. Do we need to hold more capital because of the RMS model? We are in a, what we believe to be a significant excess capital position based on our own internal model, as well as the external rating agency model. So we're fine with our capital position, it's the question of how much exposure and risk we're willing to take, given what the models are telling us? So we're being prudent and we're approaching it from that perspective. We've already taking, as I mentioned, some action, we're probably going to be taking some more on the underwriting side as we learn more and get our arms around all this. But from a capital perspective, we feel very -- we feel good about where we are from a capital perspective. We certainly don't think this is, if this is where you're heading, we certainly don't think this impacts our share buyback plans for this year. Michael Nannizzi - Goldman Sachs Group Inc.: And just -- I'm just trying to understand if like, if the 0.8 is kind of a new normal for you and if you feel like RMS kind of makes or any models and/or any risk perception change makes that the case.

You say 0.8, are talking about a premium on the surplus ratio? Michael Nannizzi - Goldman Sachs Group Inc.: Yes, 0.8 insured. Yes.

No, I don't think that I would attribute our -- the impact of our method to a change in that view of where we think the appropriate level is.

We'll take a question from Jay Cohen, Bank of America-Merrill Lynch. Jay Cohen - BofA Merrill Lynch: I was looking at the accident year loss ratio in the Specialty business. It's really, I guess, it's probably the best I've seen in years. And I understand that several years ago, of course, you had the credit crisis claims and those probably were overstated. But even versus just the last 5 quarters, it looks like it's at least a point better than we're seeing despite price decreases and I'm wondering, I know surety plays a role in that too, but I'm wondering what else is going on in there?

You're right, surety does play somewhat of a role in there. I think this quarter on the loss ratio basis was about the same as last quarter in the accident, year, but we have some seasonality to expenses to expect a little bit higher in the first quarter. To some degree, Jay, you kind of suggested that the lack of the credit crisis was sort -- I mean almost implied that it was a minor factor. I mean credit crisis, hell, it was a lot of money for credit crisis in the accident years in 2008 and 2009. So not having that kind of event, that systematic event in our accident year picks, or a much lower provision for systematic events, has a significant impact. And plus all of the years as we've gone on, remember each accident year we re-up the assessment, but we re-up the assessment based upon what's happened in past accident years as we roll forward trends. And all of the past accident years have continued to improve so we're coming off a lower base. So overall, I think the second quarter is in line with the first quarter and the good news is that the systematic events don't seem so prevalent in the system.

Actually, gentlemen, at this time, there are no further questions. I'll turn the call back to you for any additional or closing remarks.

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

Once again, ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation. Have a great day.