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 and new concepts
of  liability.  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 (i.e., the
"tail").  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.

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
1990 through 2000 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 1990 to 2000.
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, 2000," 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, 2000, 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, 2000

                                                                    Year ended December 31,
                            --------------------------------------------------------------------------------------------------------
(In millions)                 1990     1991     1992     1993      1994      1995      1996      1997     1998      1999      2000
                            --------------------------------------------------------------------------------------------------------
<S>                           <C>      <C>      <C>      <C>       <C>       <C>       <C>       <C>        <C>      <C>      <C>

Net liability for unpaid
   claims and claim
   expenses                 $3,579   $3,596   $3,991   $4,525    $5,071    $9,351    $9,458    $9,114   $12,495   $13,210   $12,202
Cumulative paid as of:
One year later.........        747      665      802      949     1,115     1,964     1,949     2,176     2,867     4,811       ---
Two years later........      1,119    1,103    1,274    1,602     1,804     3,130     3,189     3,241     5,803       ---       ---
Three years later......      1,524    1,499    1,739    2,054     2,341     3,933     3,881     4,863       ---       ---       ---
Four years later.......      1,772    1,784    2,036    2,424     2,708     4,464     5,294       ---       ---       ---       ---
Five years later.......      1,989    2,008    2,293    2,690     2,988     5,686       ---       ---       ---       ---       ---
Six years later........      2,173    2,208    2,485    2,952     3,318       ---       ---       ---       ---       ---       ---
Seven years later......      2,348    2,362    2,688    3,181       ---       ---       ---       ---       ---       ---       ---
Eight years later......      2,482    2,531    2,841      ---       ---       ---       ---       ---       ---       ---       ---
Nine years later.......      2,630    2,653      ---      ---       ---       ---       ---       ---       ---       ---       ---
Ten years later........      2,738      ---      ---      ---       ---       ---       ---       ---       ---       ---       ---

Net liability
   re-estimated as of:
One year later.........     $3,616   $3,625   $3,919   $4,612    $5,173    $9,192    $9,229    $9,179   $12,410   $13,749       ---
Two years later........      3,583    3,587    4,066    4,656     5,313     8,959     9,127     8,655    12,115       ---       ---
Three years later......      3,564    3,701    4,095    4,793     5,256     8,907     8,549     8,453       ---       ---       ---
Four years later.......      3,654    3,687    4,238    4,747     5,155     8,392     8,252       ---       ---       ---       ---
Five years later.......      3,635    3,818    4,154    4,668     4,902     8,029       ---       ---       ---       ---       ---
Six years later........      3,758    3,771    4,075    4,487     4,804       ---       ---       ---       ---       ---       ---
Seven years later......      3,734    3,711    3,942    4,402       ---       ---       ---       ---       ---       ---       ---
Eight years later......      3,674    3,592    3,906      ---       ---       ---       ---       ---       ---       ---       ---
Nine years later.......      3,565    3,591      ---      ---       ---       ---       ---       ---       ---       ---       ---
Ten years later........      3,593      ---      ---      ---       ---       ---       ---       ---       ---       ---       ---
Redundancy (Deficiency)
   at December 31, 2000        (14)       5       85      123       267     1,322     1,206       661       380      (539)      ---
Effect of foreign
   exchange (1)                (42)     (45)     (30)      (2)      (31)     (636)     (635)     (370)     (730)     (668)      ---
                            ------   ------   ------   ------    ------    ------    ------    ------   -------   -------   -------
Redundancy (Deficiency)
   at December 31, 2000,
   excluding foreign
   exchange                 $  (56)  $  (40)  $   55   $  121    $  236    $  686    $  571    $  291   $  (350)  $(1,207)  $   ---
                            ======   ======   ======   ======    ======    ======    ======    ======   =======   =======   =======
</TABLE>

<TABLE>
<CAPTION>
(In millions)                                  1992      1993      1994      1995      1996      1997      1998      1999     2000
                                              -------------------------------------------------------------------------------------
<S>                                                       <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
Less reinsurance recoverables................   (824)     (787)     (949)   (1,794)   (1,411)   (1,822)   (2,847)   (4,225)  (4,730)
                                              ------    ------    ------    ------   -------   -------   -------   -------  -------
Balance at December 31 - net.................  3,991     4,525     5,071     9,351     9,458     9,114    12,495    13,210   12,202
                                              ------    ------    ------    ------   -------   -------   -------   -------  -------
Latest re-estimated liability - gross........  5,031     5,486     5,911     9,540     9,713    10,232    15,394    19,239      ---
Less re-estimated reinsurance recoverables... (1,125)   (1,084)   (1,107)   (1,511)   (1,461)   (1,779)   (3,279)   (5,490)     ---
                                              ------    ------    ------    ------   -------   -------   -------   -------  -------
Latest re-estimated liability - net..........  3,906     4,402     4,804     8,029     8,252     8,453    12,115    13,749      ---
                                              ------    ------    ------    ------   -------   -------   -------   -------  -------
Gross redundancy (deficiency)................   (216)     (174)      109     1,605     1,156       704       (52)   (1,804)     ---
Effect of foreign exchange (1)...............    (39)       (9)      (41)     (785)     (788)     (472)   (1,089)   (1,127)     ---
                                              ------    ------    ------    ------   -------   -------   -------   -------  -------
Gross redundancy (deficiency), excluding
   foreign exchange.......................... $ (255)   $ (183)   $   68    $  820   $   368   $   232   $(1,141)  $(2,931) $   ---
                                              ======    ======    ======    ======   =======   =======   =======   =======  =======
</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.

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)                                      2000         1999         1998
                                                 ----------------------------------
<S>                                                 <C>          <C>          <C>

Balance at January 1 - gross.................... $17,435      $15,342      $10,936
Less reinsurance recoverables...................  (4,225)      (2,847)      (1,822)
                                                 -------      -------      -------
Balance at January 1 - net......................  13,210       12,495        9,114
                                                 -------      -------      -------

Claims and expenses incurred:
   Current year.................................   4,401        4,162        3,286
   Prior years..................................     934          233         (126)
                                                 -------      -------      -------
                                                   5,335        4,395        3,160
                                                 -------      -------      -------

Claims and expenses paid:
   Current year.................................  (1,290)      (1,228)      (1,074)
   Prior years..................................  (4,811)      (2,867)      (2,176)
                                                 -------      -------      -------
                                                  (6,101)      (4,095)      (3,250)
                                                 -------      -------      -------

Claim reserves related to acquired companies....     279          793        3,470

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

Foreign exchange and other......................    (521)        (176)           1
                                                 -------      -------      -------
Balance at December 31 - net....................  12,202       13,210       12,495
Add reinsurance recoverables....................   4,730        4,225        2,847
                                                 -------      -------      -------
Balance at December 31 - gross.................. $16,932      $17,435      $15,342
                                                 =======      =======      =======
</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% and 2% at December 31, 2000 and 1999,  respectively.  The accretion
of discount is included in current  operating results as part of the development
of prior year liabilities. Discounts amoritized as a percentage of claims, claim
expenses and policy  benefits were less than 1% for the years ended December 31,
2000, 1999 and 1998.

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)                                           2000        1999         1998
                                                      ---------------------------------
<S>                                                      <C>         <C>          <C>

Statutory basis reserves for U.S. companies - net.... $ 6,213     $ 7,204      $ 7,679
Adjustments to GAAP basis (1)........................     500         636          667
                                                      -------     -------      -------
GAAP basis reserves for U.S. companies - net.........   6,713       7,840        8,346
GAAP basis reserves for non-U.S. companies - net.....   5,489       5,370        4,149
                                                      -------     -------      -------
Total GAAP basis reserves - net......................  12,202      13,210       12,495
Add reinsurance recoverables.........................   4,730       4,225        2,847
                                                      -------     -------      -------
GAAP basis reserves - gross.......................... $16,932     $17,435      $15,342
                                                      =======     =======      =======
</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)                                     2000        1999         1998
                                                 -------------------------------
<S>                                               <C>          <C>         <C>

Balance at January 1 - gross....................  $800        $995         $462
Less reinsurance recoverables...................  (195)       (206)        (193)
                                                  ----        ----         ----
Balance at January 1 - net......................   605         789          269

Claims and expenses incurred....................    99          (7)          35
Claims and expenses paid........................   (58)       (210)         (39)
Claim reserves related to acquired companies....     -          33          524
                                                  ----        ----         ----

Balance at December 31 - net....................   646         605          789
Add reinsurance recoverables....................   183         195          206
                                                  ----        ----         ----
Balance at December 31 - gross..................  $829        $800         $995
                                                  ====        ====         ====
</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.