<PAGE>

Property and Casualty Reserves for Unpaid Claims and Claim Expenses

The Company's insurance/reinsurance subsidiaries maintain reserves to cover
their estimated ultimate liability for unpaid claims and claim expenses with
respect to reported and unreported claims incurred as of the end of each
accounting period (net of estimated related salvage and subrogation claims).
These reserves are estimates that involve actuarial and statistical projections
of the expected cost of the ultimate settlement and administration of unpaid
claims based on facts and circumstances then known, estimates of future trends
in claims severity and other variable factors such as inflation, new concepts of
liability and changes in claim settlement procedures. The inherent uncertainties
of estimating claim reserves are exacerbated for reinsurers by the significant
periods of time that often elapse between the occurrence of an insured claim,
the reporting of the claim to the primary insurer and, ultimately, to the
reinsurer, and the primary insurer's payment of that claim and subsequent
indemnification by the reinsurer. As a consequence, actual claims and claim
expenses paid may deviate, perhaps substantially, from estimates reflected in
the insurance companies' reserves in their financial statements. Adjustments to
previously reported reserves for net claims and claim expenses are considered
changes in estimates for accounting purposes and are reflected in the financial
statements in the period in which the adjustment occurs.

                                        5

<PAGE>
When a claim is reported to a ceding company, the ceding company's claims
personnel establish a "case reserve" for the estimated amount of the ultimate
payment. The estimate reflects the informed judgment of such personnel based on
general insurance reserving practices and on the experience and knowledge of
such personnel regarding the nature and value of the specific type of claim. The
Company, in turn, typically establishes a case reserve when it receives notice
of a claim from the ceding company. Such reserves are based on an independent
evaluation by the Company's claims departments, taking into consideration
coverage, liability, severity of injury or damage, jurisdiction, an assessment
of the ceding company's ability to evaluate and handle the claim and the amount
of reserves recommended by the ceding company. Case reserves are adjusted
periodically by the claims departments based on subsequent developments and
audits of ceding companies. The Company has reorganized its claim teams into
integrated groups to align with the Company's business structure. In the course
of this reorganization, the team recognized that best practices existed in many
of the original claims teams. In order to leverage these best practices across
the new claims organization, the Global Claims Team launched the Claims Six
Sigma initiative. Claims Six Sigma has focused on establishing common processes
in areas such as claims adjudication, subrogation, auditing, alternative dispute
resolution and use of structured settlements.

In accordance with GAAP, the Company also maintains reserves for claims incurred
but not reported ("IBNR"). Such reserves are established to provide for future
case reserves and loss payments on incurred claims that have not yet been
reported to an insurer or reinsurer. In calculating IBNR reserves, the Company
uses generally accepted actuarial reserving techniques that take into account
quantitative loss experience data, together with, where appropriate, qualitative
factors. IBNR reserves are based on claim experience and are grouped both by
class of business and by accident year. IBNR reserves are also adjusted to take
into account certain additional factors, such as changes in the volume of
business written, reinsurance contract terms and conditions, the mix of
business, claims processing and inflation, that can be expected to affect the
Company's liability for claims over time.

The potential for adverse development of the Company's reserves for its
international business, as compared to that of its domestic business, is reduced
because the international operations have a relatively low proportion of longer
tail exposures.

Reserve Development. The development of the Company's net balance sheet property
and casualty liabilities for unpaid claims and claim expenses for accident years
1991 through 2001 is summarized in the following table.

Net Liability. The first row of data shows the estimated net liability for
unpaid claims and claim expenses at December 31 for each year from 1991 to 2001.
The liability includes both case and IBNR reserves as of each year-end date, net
of anticipated recoveries from other reinsurers. The rows immediately following
the first row of data show cumulative paid data at December 31, as of one year,
two years, . . ., 10 years of subsequent payments.

Net Liability Re-estimated. The middle rows of data show the re-estimated amount
for previously reported net liability based on experience as of the end of each
subsequent calendar year's results. This estimate is changed as more information
becomes known about the underlying claims for individual years. The cumulative
redundancy (deficiency) shown in the table is the aggregate net change in
estimates over the period of years subsequent to the calendar year reflected at
the top of the respective columns. The amount in the line titled "Redundancy
(Deficiency) at December 31, 2001," represents for each calendar year (the "Base
Year") the aggregate change in (i) the Company's original estimate of net
liability for unpaid claims and claim expenses for all years prior to and
including the Base Year compared to (ii) the Company's re-estimate as of
December 31, 2001, of net liability for unpaid claims and claim expenses for all
years prior to and including the Base Year. A redundancy means that the original
estimate was greater than the re-estimate and a deficiency means that the
original estimate was less than the re-estimate.

                                        6

<PAGE>
<TABLE>
<CAPTION>

                                              Changes in Historical Reserves for Unpaid Claims and Claim Expenses
                                                  For the Last Ten Years - GAAP Basis as of December 31, 2001

                                                                   Year ended December 31,
                           ---------------------------------------------------------------------------------------------------------
(In millions)                1991      1992      1993      1994      1995      1996      1997      1998      1999     2000     2001
                           ---------------------------------------------------------------------------------------------------------

<S>                         <C>       <C>       <C>       <C>       <C>       <C>       <C>      <C>       <C>      <C>      <C>
Net liability for unpaid
   claims and claim
   expenses                 $3,596    $3,991    $4,525    $5,071    $9,351    $9,458    $9,114   $12,495   $13,210  $12,202  $12,303
Cumulative paid as of:
One year later.......          665       802       949     1,115     1,964     1,949     2,176     2,867     4,811    4,758      ---
Two years later......        1,103     1,274     1,602     1,804     3,130     3,189     3,241     5,803     7,782      ---      ---
Three years later....        1,499     1,739     2,054     2,341     3,933     3,881     4,863     7,263       ---      ---      ---
Four years later.....        1,784     2,036     2,424     2,708     4,464     5,294     5,648       ---       ---      ---      ---
Five years later.....        2,008     2,293     2,690     2,988     5,686     5,919       ---       ---       ---      ---      ---
Six years later......        2,208     2,485     2,952     3,318     6,151       ---       ---       ---       ---      ---      ---
Seven years later....        2,362     2,688     3,181     3,540       ---       ---       ---       ---       ---      ---      ---
Eight years later....        2,531     2,841     3,353       ---       ---       ---       ---       ---       ---      ---      ---
Nine years later.....        2,653     2,985       ---       ---       ---       ---       ---       ---       ---      ---      ---
Ten years later......        2,772       ---       ---       ---       ---       ---       ---       ---       ---      ---      ---

Net liability
   re-estimated
   as of:
One year later.......       $3,625    $3,919    $4,612    $5,173    $9,192    $9,229    $9,179   $12,410   $13,749  $13,314      ---
Two years later......        3,587     4,066     4,656     5,313     8,959     9,127     8,655    12,115    14,504      ---      ---
Three years later....        3,701     4,095     4,793     5,256     8,907     8,549     8,453    11,987       ---      ---      ---
Four years later.....        3,687     4,238     4,747     5,155     8,392     8,252     8,601       ---       ---      ---      ---
Five years later.....        3,818     4,154     4,668     4,902     8,029     8,389       ---       ---       ---      ---      ---
Six years later......        3,771     4,075     4,487     4,804     8,180       ---       ---       ---       ---      ---      ---
Seven years later....        3,711     3,942     4,402     4,854       ---       ---       ---       ---       ---      ---      ---
Eight years later....        3,592     3,906     4,461       ---       ---       ---       ---       ---       ---      ---      ---
Nine years later.....        3,591     3,946       ---       ---       ---       ---       ---       ---       ---      ---      ---
Ten years later......        3,643       ---       ---       ---       ---       ---       ---       ---       ---      ---      ---
Redundancy (Deficiency)
   at December 31, 2001        (47)       45        64       217     1,171     1,069       513       508    (1,294)  (1,112)     ---
Effect of foreign
   exchange (1)                (41)      (21)        2       (25)     (708)     (672)     (344)     (729)     (589)     216      ---
                            ------    ------     ------   ------    ------    ------    ------    ------    ------   ------   ------
Redundancy (Deficiency)
   at December 31, 2001,
   excluding foreign
   exchange                 $  (88)   $   24     $   66   $  192    $  463    $  397    $  169    $ (221)  $(1,883)  $ (896)  $  ---
                            ======    ======     ======   ======    ======    ======    ======    ======   =======   ======   ======
</TABLE>

<TABLE>
<CAPTION>

(In millions)                         1992     1993     1994      1995      1996      1997      1998      1999     2000      2001
                                     ----------------------------------------------------------------------------------------------

<S>                                   <C>      <C>      <C>      <C>       <C>       <C>       <C>       <C>       <C>       <C>
Balance at December 31 - gross.....  $4,815   $5,312   $6,020   $11,145   $10,869   $10,936   $15,342   $17,435   $16,932   $20,882
Less reinsurance recoverables......    (824)    (787)    (949)   (1,794)   (1,411)   (1,822)   (2,847)   (4,225)   (4,730)   (8,579)
                                     ------   ------   ------   -------   -------   -------   -------   -------   -------   -------
Balance at December 31 - net.......   3,991    4,525    5,071     9,351     9,458     9,114    12,495    13,210    12,202    12,303
                                     ------   ------   ------   -------   -------   -------   -------   -------   -------   -------
Latest re-estimated liability -
   gross...........................   5,079    5,546    5,958     9,724     9,888    10,336    15,520    20,340    19,364       ---
Less re-estimated reinsurance
   recoverables....................  (1,133)  (1,085)  (1,104)   (1,544)   (1,499)   (1,735)   (3,533)   (5,836)   (6,050)      ---
                                     ------   ------   ------   -------   -------   -------   -------   -------   -------   -------
Latest re-estimated liability -
    net............................   3,946    4,461    4,854      8,180     8,389     8,601    11,987    14,504    13,314       ---
                                     ------   ------   ------    ------    ------    ------   -------   -------   -------   -------
Gross redundancy (deficiency)......    (264)    (234)      62      1,421       981       600      (178)   (2,905)   (2,432)      ---
Effect of foreign exchange (1).....     (30)      (3)     (35)      (859)     (816)     (402)   (1,091)     (934)      382       ---
                                     -------   ------   ------     ------   -------   -------   -------   -------   -------   ------
Gross redundancy (deficiency),
   excluding foreign exchange......  $ (294)  $ (237)  $   27     $  562   $   165   $   198   $(1,269)  $(3,839)  $(2,050)  $   ---
                                     ======   ======   ======     ======   =======   =======   =======   =======   =======   =======
</TABLE>
(1)  The results of the Company's international operations translated from
     functional currencies into U.S. dollars are included with the Company's
     U.S. underwriting operations in this table. The foreign currency
     translation impact on the cumulative redundancy (deficiency) arises from
     the difference between reserve developments translated at the exchange
     rates at the end of the year in which the liabilities were originally
     estimated and the exchange rates at the end of the year in which the
     liabilities were re-estimated.

Note:  For a description of the purpose of the above table and the various table
sections,  please refer to the immediately  preceding  section entitled "Reserve
Development."
                                        7
<PAGE>
A number of major trends that occurred within the insurance industry, the
economy in general and several Company-specific factors have had a significant
effect on the Company's liabilities for unpaid claims and claim expenses during
the period covered by the preceding table.

Claims and claim expense reserve development in the mid 1980's reflected the
inadequate premium rates which resulted from intense competition in the market
during that period. In the late 1980's, the reinsurance market generally reacted
to the rate deficiencies and the resulting claims and claim expense reserve
development by increasing rates and strengthening claims and claim expense
reserves. This is reflected, with respect to the Company, in the significant
improvements in the overall reserve adequacy in the early 1990's. The increase
in reserve redundancies indicated for 1995 through 1997 is attributable to the
favorable claim environment that existed during that period.

The indicated deficiency in the 1998 reserve position is attributable to higher
than normal claim and claim expense development across a number of lines of
business, including property coverages (which was most highly impacted by much
higher than expected industry-wide losses with respect to Hurricane Georges),
long-term disability and communications/media liability.

The significant indicated deficiency that has developed with respect to the 1999
recorded reserves is primarily attributable to the combination of the effects of
continued insufficient pricing within the overall property and casualty
insurance/reinsurance industry and the insurance industry's undervaluing the
initial loss estimates for certain European windstorms occurring late in
December 1999. Based on the continued escalation in reported losses relative to
associated premiums, it became more apparent during 2000 that the level of
general price erosion that occurred in the primary property and casualty
insurance industry in recent years was significantly greater than had been
previously contemplated. In response to this new information, it became
necessary for the Company to increase claim reserves to reflect the higher
ultimate loss projections resulting from this increasing trend of claim
development on these more recent underwriting years.

Unfortunately, the escalation in reported losses relative to associated premiums
that emerged in 2000 continued in 2001, and at a pace greater than had been
anticipated in the actuarial reserve studies completed in late 2000. As a
result, in 2001, it again became necessary for the Company to increase claim
reserves to reflect the higher ultimate loss projections for prior year loss
events. The majority of the adverse development in 2001, and to a lesser extent
in 2000, related to higher projected losses on liability coverages, especially
in the hospital liability, nonstandard automobile (automobile insurance extended
to higher-risk drivers) and commercial general liability lines of business. The
total adverse development on prior year loss events recognized in 2001
aggregated approximately $800 million.

To a lesser degree, development of asbestos and environmental claims has
affected the Company's results. Higher than anticipated levels of inflation in
certain lines of reinsurance businesses has also had an adverse effect on
liabilities for claims and claim expenses, particularly in excess of loss
reinsurance.





                                        8


<PAGE>
The Company's reconciliation of its beginning and ending property and casualty
reserves for unpaid claims and claim expenses on a GAAP basis is summarized as
follows:
<TABLE>
<CAPTION>


                                                                 Year ended December 31,
                                                          -----------------------------------
(In millions)                                              2001           2000         1999
                                                          -----------------------------------

<S>                <C>                                    <C>           <C>           <C>
Balance at January 1 - gross............................. $16,932       $17,435       $15,342
Less reinsurance recoverables............................  (4,730)       (4,225)       (2,847)
                                                          -------       -------       -------
Balance at January 1 - net...............................  12,202        13,210        12,495
                                                          -------       -------       -------

Claims and expenses incurred:
   Current year..........................................   4,579         4,401         4,162
   Prior years...........................................     811           934           233
                                                          -------       -------       -------
                                                            5,390         5,335         4,395
                                                          -------       -------       -------

Claims and expenses paid:
   Current year..........................................    (761)       (1,290)       (1,228)
   Prior years...........................................  (4,758)       (4,811)       (2,867)
                                                          -------       -------       -------
                                                           (5,519)       (6,101)       (4,095)
                                                          -------       -------       -------

Claim reserves related to acquired companies.............       -           279           793

Claim reserves related to disposed companies.............       -             -          (202)

Foreign exchange and other...............................     230          (521)         (176)
                                                          -------       -------       -------
Balance at December 31 - net.............................  12,303        12,202        13,210
Add reinsurance recoverables.............................   8,579         4,730         4,225
                                                          -------       -------       -------
Balance at December 31 - gross........................... $20,882       $16,932       $17,435
                                                          =======       =======       =======
</TABLE>


The liabilities for claims and claim expenses in the preceding table include
long-term disability claims that are discounted at a 6% rate for all years
presented. As a result of discounting the Company's long-term disability claims,
total liabilities for claims and claim expenses have been reduced by an
estimated 1% at December 31, 2001 and 2000. The accretion of discount is
included in current operating results as part of the development of prior year
liabilities. Discounts amortized as a percentage of claims, claim expenses and
policy benefits were less than 1% for each of the years ended December 31, 2001,
2000 and 1999.

The Company's reconciliation of its property and casualty reserves for unpaid
claims and claim expenses between statutory basis and GAAP basis is summarized
as follows:
<TABLE>
<CAPTION>

                                                                                December 31,
                                                               ------------------------------------------------
(In millions)                                                         2001           2000            1999
                                                               ---------------- --------------- ---------------

<S>                                                                <C>             <C>            <C>
Statutory basis reserves for U.S. companies - net.........         $ 5,786         $ 6,213        $ 7,204
Adjustments to arrive at GAAP basis (1)...................             664             500            636
                                                                   -------         -------        -------
GAAP basis reserves for U.S. companies - net..............           6,450           6,713          7,840
GAAP basis reserves for non-U.S. companies - net..........           5,853           5,489          5,370
                                                                   -------         -------        -------
Total GAAP basis reserves - net...........................          12,303          12,202         13,210
Add reinsurance recoverables..............................           8,579           4,730          4,225
                                                                   -------         -------        -------
GAAP basis reserves - gross...............................         $20,882         $16,932        $17,435
                                                                   =======         =======        =======
</TABLE>


(1)  Statutory  basis  reserve  offsets and  reserves  reclassified  to contract
     deposit assets or liabilities based on risk transfer provisions of SFAS No.
     113.

                                        9


<PAGE>
Asbestos and Environmental Exposure. Included in the Company's liability for
claims and claim expenses are liabilities for asbestos and environmental
exposures. These claims and claim expenses are primarily related to policies
written prior to 1986 as the policies written since 1986 have tended to
explicitly exclude asbestos and environmental risks from coverage and most of
the asbestos and environmental exposures arise from risks located in the United
States.

The three-year development of claims and claim expense reserves associated with
the Company's asbestos and environmental claims, including case and IBNR
reserves, is summarized as follows:
<TABLE>
<CAPTION>


                                                                          Year ended December 31,
                                                                --------------------------------------------
(In millions)                                                       2001           2000            1999
                                                                -------------- -------------- --------------

<S>                <C>                                              <C>            <C>             <C>
Balance at January 1 - gross..............................          $829           $800            $995
Less reinsurance recoverables.............................          (183)          (195)           (206)
                                                                    ----           ----            ----
Balance at January 1 - net................................           646            605             789

Claims and expenses incurred..............................            23             99              (7)
Claims and expenses paid..................................           (48)           (58)           (210)
Claim reserves related to acquired companies..............             -              -              33
                                                                    ----           ----            ----

Balance at December 31 - net..............................           621            646             605
Add reinsurance recoverables..............................           165            183             195
                                                                    ----           ----            ----
Balance at December 31 - gross............................          $786           $829            $800
                                                                    ====           ====            ====
</TABLE>


The amounts in the preceding table are management's best estimate, based on
currently available information, of claims and claim expense payments and
recoveries for asbestos and environmental exposures that are expected to develop
in future years.

The Company monitors evolving case law and its effect on asbestos-related
illness and toxic waste cleanup claims. Changing domestic and foreign government
regulations and legislation, including continuing congressional consideration of
federal Superfund legislation, newly reported claims, new contract
interpretations and other factors could significantly affect future claim
development. While the Company has recorded its best estimate of its liabilities
for asbestos-related illness and toxic waste cleanup claims based on currently
available information, it is possible that additional liabilities may arise in
the future. It is not possible to estimate with any certainty the amount of
additional net claims and claim expenses, or the range of net claims and claim
expenses, if any, that is reasonably possible; therefore, there can be no
assurance that future liabilities will not materially affect the Company's
results of operations, financial position or cash flows.

Other Mass Tort Exposures. In addition to asbestos and environmental exposures,
the Company also may have exposures to other mass torts involving primarily
product liability issues such as tobacco products, gun manufacturers and
silicone breast implants. The Company has, in the past, generally avoided the
products liability reinsurance business, and, based on currently available
information, future liabilities resulting from these matters are not expected to
be material to the Company's results of operations, financial position or cash
flows.
















                                       10