<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 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.


<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
1989 through 1999 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 1989 to 1999.
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, 1999," 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, 1999, 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.


<PAGE>

<TABLE>
<CAPTION>

                                           Changes in Historical Reserves for Unpaid Claims and Claim Expenses
                                               For the Last Ten Years - GAAP Basis as of December 31, 1999

                                                                   Year ended December 31,
                           -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
(In millions)               1989     1990      1991     1992     1993       1994     1995     1996      1997     1998     1999
                           -------- --------- -------- -------- --------- -------- -------- --------- -------- -------- ---------

Net liability for unpaid
   claims and claim
<S>                        <C>      <C>       <C>      <C>     <C>       <C>      <C>      <C>        <C>     <C>       <C>
   expenses                $3,338   $3,579    $3,596   $3,991  $4,525    $5,071   $9,351   $9,458     $9,114  $12,495   $13,210
Paid (cumulative) as of:
One year later.......         706      747       665      802     949     1,115    1,964    1,949      2,176    2,867       ---
Two years later......       1,125    1,119     1,103    1,274   1,602     1,804    3,130    3,189      3,241      ---       ---
Three years later....       1,469    1,524     1,499    1,739   2,054     2,341    3,933    3,881        ---      ---       ---
Four years later.....       1,746    1,772     1,784    2,036   2,424     2,708    4,464      ---        ---      ---       ---
Five years later.....       1,929    1,989     2,008    2,293   2,690     2,988      ---      ---        ---      ---       ---
Six years later......       2,072    2,173     2,208    2,485   2,952       ---      ---      ---        ---      ---       ---
Seven years later....       2,229    2,348     2,362    2,688     ---       ---      ---      ---        ---      ---       ---
Eight years later....       2,380    2,482     2,531      ---     ---       ---      ---      ---        ---      ---       ---
Nine years later.....       2,495    2,630       ---      ---     ---       ---      ---      ---        ---      ---       ---
Ten years later......       2,629      ---       ---      ---     ---       ---      ---      ---        ---      ---       ---

Net liability
   re-estimated
   as of:
One year later.......      $3,390   $3,616    $3,625   $3,919  $4,612    $5,173   $9,192   $9,229    $ 9,179  $12,410       ---
Two years later......       3,482    3,583     3,587    4,066   4,656     5,313    8,959    9,127      8,655      ---       ---
Three years later....       3,462    3,564     3,701    4,095   4,793     5,256    8,907    8,549        ---      ---       ---
Four years later.....       3,472    3,654     3,687    4,238   4,747     5,155    8,392      ---        ---      ---       ---
Five years later.....       3,537    3,635     3,818    4,154   4,668     4,902      ---      ---        ---      ---       ---
Six years later......       3,521    3,758     3,771    4,075   4,487       ---      ---      ---        ---      ---       ---
Seven years later....       3,626    3,734     3,711    3,942     ---       ---      ---      ---        ---      ---       ---
Eight years later....       3,608    3,674     3,592      ---     ---       ---      ---      ---        ---      ---       ---
Nine years later.....       3,567    3,565       ---      ---     ---       ---      ---      ---        ---      ---       ---
Ten years later......       3,479      ---       ---      ---     ---       ---      ---      ---        ---      ---       ---
Redundancy (Deficiency)
   at December 31, 1999      (141)      14         4       49      38       169      959      909        459       85       ---
Effect of foreign
   exchange (1)                 6      (38)      (41)     (14)     12       (36)    (467)    (402)      (122)    (323)      ---
                           -------- --------  -------   ------  -------  -------- -------  -------    --------  -------   -------
Redundancy (Deficiency)
   at December 31, 1999,
   excluding foreign
   exchange              $   (135) $   (24)   $  (37)   $  35   $  50    $  133    $ 492    $ 507     $  337    $(238)    $ ---
                           ========  ========  ======  =======  =======   =======  ======   ======    =======   =======   =======
</TABLE>

<TABLE>
<CAPTION>

(In millions)                                            1992     1993       1994       1995     1996      1997      1998     1999
                                                       --------- --------- --------- -------- --------- ---------  -------- --------
<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
Less reinsurance recoverables........................    (824)    (787)      (949)    (1,794)   (1,411)  (1,822)    (2,847)  (4,225)
                                                       --------  -------    -------   -------  --------  --------  -------   -------
Balance at December 31 - net.........................   3,991    4,525      5,071      9,351     9,458    9,114     12,495   13,210
                                                       -------  -------    -------   --------  --------  --------  -------   -------
Latest re-estimated liability - gross................   4,967    5,471      5,926      9,967    10,044   10,421     15,570      ---
Less re-estimated reinsurance recoverables...........  (1,025)    (984)    (1,024)    (1,575)   (1,495)  (1,766)    (3,160)     ---
                                                       -------  --------   ------     -------  --------  --------   -------  -------
Latest re-estimated liability - net..................   3,942    4,487      4,902      8,392     8,549    8,655     12,410      ---
                                                       -------   -------   -------    -------  --------  --------  -------   -------
Gross redundancy (deficiency)........................    (152)    (159)        94      1,178       825      515       (227)     ---
Effect of foreign exchange (1).......................     (14)      13        (37)      (576)     (487)    (157)      (473)     ---
                                                       -------   -------  ---------   -------  --------  --------   -------  -------
Gross redundancy (deficiency), excluding foreign
   exchange.......................................... $  (166)  $ (146)    $   57    $   602    $  338   $  358     $ (700)  $  ---
                                                        =======  =======    =======  =========  =======   =======    ======= =======
</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."


<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. The claims and claim expense reserve
deficiencies  developed  to December 31,  1999,  as  reflected in the  preceding
table,  included reserve  deficiencies of approximately  $52 million in 1989 and
$21 million in 1990  related to the general  liability  business on the books of
Puritan  Excess  and  Surplus  Lines  Insurance  Company  ("PESLIC")  before the
Company's  acquisition of PESLIC in 1994. Prior to 1994,  PESLIC was owned by GE
Capital Corporation.  Additionally,  beginning in 1985, the Company strengthened
the reserves for its excess  liability  and workers'  compensation  business for
qualified self-insured  employers.  Claims and claim expense reserve development
in the mid 1980's in these  businesses  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 most of the recent years.  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.

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.  Partially offsetting the above factors is favorable development in
recent  years  in  medical  professional   liability  and  facultative  casualty
businesses, as well as an increase in net retentions by ceding companies.

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)                                                        1999             1998            1997
                                                                ---------------- --------------- ----------------
<S>                                                                  <C>              <C>            <C>
Balance at January 1 - gross.............................            $15,342          $10,936        $10,869
Less reinsurance recoverables............................             (2,847)          (1,822)        (1,411)
                                                                   ---------        ---------      ---------
Balance at January 1 - net...............................             12,495            9,114          9,458
                                                                    --------        ---------      ---------
Claims and expenses incurred:
   Current year..........................................              4,162            3,286          2,438
   Prior years...........................................                233             (126)            71
                                                                  ----------       ----------    -----------
                                                                       4,395            3,160          2,509
                                                                   ---------        ---------      ---------
Claims and expenses paid:
   Current year..........................................             (1,228)          (1,074)          (612)
   Prior years...........................................             (2,867)          (2,176)        (1,949)
                                                                   ---------        ---------       --------
                                                                      (4,095)          (3,250)        (2,561)
                                                                   ---------        ---------       --------
Claim reserves related to acquired companies.............                793            3,470              -
Claim reserves related to disposed companies.............               (202)               -              -
Foreign exchange and other...............................               (176)               1           (292)
                                                                  ----------     ------------      ---------
Balance at December 31 - net.............................             13,210           12,495          9,114
Add reinsurance recoverables.............................              4,225            2,847          1,822
                                                                   ---------        ---------      ---------
Balance at December 31 - gross...........................            $17,435          $15,342        $10,936
                                                                     =======          =======        =======
</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  2% at December  31, 1999 and 1998.  The  amortization  of discount is
included in current  operating  results as part of the development of prior year
liabilities.

Long-term disability discounts accrued as a percentage of claims, claim expenses
and policy  benefits were less than 1% for the years ended December 31, 1999 and
1998 and  approximately  1% for the year  ended  December  31,  1997.  Discounts
amortized as a percentage  of claims,  claim  expenses and policy  benefits were
less than 1% for the years ended December 31, 1999 and 1998 and approximately 1%
for the year ended December 31, 1997.

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)                                                       1999             1998            1997
                                                               ---------------- --------------- ---------------
<S>                                                                <C>              <C>             <C>
Statutory basis reserves for U.S. companies - net.........         $  7,204         $  7,679        $  5,527
Adjustments to GAAP basis (1).............................              636              667            (118)
                                                                 ----------       ----------      ----------
GAAP basis reserves for U.S. companies - net..............            7,840            8,346           5,409
GAAP basis reserves for non-U.S. companies - net..........            5,370            4,149           3,705
                                                                  ---------        ---------       ---------
Total GAAP basis reserves - net...........................           13,210           12,495           9,114
Add reinsurance recoverables..............................            4,225            2,847           1,822
                                                                  ---------        ---------       ---------
GAAP basis reserves - gross...............................          $17,435          $15,342         $10,936
                                                                    =======          =======         =======
</TABLE>

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

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.  During 1997,  the  Company's  international  operations  completed  the
initial process of identifying  asbestos and environmental  claims that had been
reserved in prior periods but were  initially  aggregated  and coded under other
general lines of business rather than being specifically  identified as asbestos
or environmental claims.

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)                                                       1999           1998           1997
                                                                -------------- -------------- --------------
<S>                                                                  <C>            <C>             <C>
Balance at January 1 - gross..............................           $995           $462            $368
Less reinsurance recoverables.............................           (206)          (193)           (174)
                                                                    -----          -----            ----
Balance at January 1 - net................................            789            269             194

Claims and expenses incurred..............................             (7)            35              54
Claim identification and IBNR allocation..................              -              -              43 (1)
Claims and expenses paid..................................           (210)           (39)            (22)
Claim reserves related to acquired companies..............             33            524               -
                                                                   ------          -----            ----

Balance at December 31 - net..............................            605            789             269
Add reinsurance recoverables..............................            195            206             193
                                                                    -----          -----           -----
Balance at December 31 - gross............................           $800           $995            $462
                                                                     ====           ====            ====
</TABLE>

(1) Prior to  1997,  the  Company's  international  operations  were  unable  to
    identify and segregate  recorded claim reserves that related to asbestos and
    environmental  exposures as they were grouped with claim reserves in various
    lines of business such as general liability.  Beginning in 1997, the Company
    began  identifying  and segregating  the asbestos and  environmental  claims
    related to its international operations.




<PAGE>


The amounts on the  preceding  page are  management's  best  estimate,  based on
currently  available  information,  of claims  and claim  expense  payments  and
recoveries 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 law, 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.