Reinsurance rates generally remained steady in 2007 due in part to a relatively low level of catastrophes in 2006. Capacity restrictions continued in some segments of the marketplace in both years. Our overall reinsurance costs were similar in 2007 and 2006.
Our property reinsurance treaties represent the most significant component of our reinsurance program. Our major property reinsurance treaties expire on April 1, 2009. While we expect that reinsurance rates for property risks will increase in 2009, the final structure of our program and amount of coverage purchased will be determinants of our total reinsurance costs in 2009.
The relatively low loss ratio in each of the last three years reflected the favorable loss experience which we believe resulted from our disciplined underwriting in recent years. Results in all three years, particularly 2008 and 2007, benefited from favorable prior year loss development. For more information on prior year loss development, see “Property and Casualty Insurance-Loss Reserves, Prior Year Loss Development.” The loss ratio was higher in 2008 compared to 2007 due to higher catastrophe losses as well as declining earned premium rates and several large non-catastrophe losses. The loss ratio improved in 2007 compared to 2006 due to mild loss trends in certain classes of business.
Incurred but not reported (IBNR) reserve estimates are generally calculated by first projecting the ultimate cost of all claims that have occurred and then subtracting reported losses and loss expenses. Reported losses include cumulative paid losses and loss expenses plus case reserves. The IBNR reserve includes a provision for claims that have occurred but have not yet been reported to us, some of which are not yet known to the insured, as well as a provision for future development on reported claims. A relatively large proportion of our net loss reserves, particularly for long tail liability classes, are reserves for IBNR losses. In fact, more than 70% of our aggregate net loss reserves at December 31, 2008 were for IBNR losses.
Reinsurance Recoverable. Reinsurance recoverable is the estimated amount recoverable from reinsurers related to the losses we have incurred. At December 31, 2008, reinsurance recoverable included $215 million recoverable with respect to paid losses and loss expenses, which is included in other assets, and $2.2 billion recoverable on unpaid losses and loss expenses.
We experienced favorable development of about $190 million in the homeowners and commercial property classes, primarily related to the 2005 accident year. This favorable development arose from the lower than expected emergence of actual losses during 2006 relative to expectations used to establish our loss reserves at the end of 2005. The severity of late reported property claims that
We experienced favorable development of about $65 million in the run-off of our reinsurance assumed business due primarily to better than expected reported loss activity from cedants.
In April 2008, Chubb repaid $225 million of outstanding 3.95% notes when due.
Chubb also has outstanding $400 million of 6% notes due in 2011, $275 million of 5.2% notes due in 2013, $100 million of 6.6% debentures due in 2018, $200 million of 6.8% debentures due in 2031 and $800 million of 6% notes due in 2037, all of which are unsecured.
In December 2005, the Board of Directors authorized the repurchase of up to 28,000,000 shares of Chubb’s common stock. In December 2006, the Board of Directors authorized the repurchase of up to an additional 20,000,000 shares of common stock. In March 2007, the Board of Directors authorized an increase of 20,000,000 shares to the December 2006 authorization. In December 2007, the Board of Directors authorized the repurchase of up to an additional 28,000,000 shares of common stock. In December 2008, the Board of Directors authorized the repurchase of up to an additional 20,000,000 shares of common stock.
In 2006, we repurchased 25,366,262 shares of Chubb’s common stock through a combination of an accelerated stock buyback program and open market transactions, at an aggregate cost of $1,257 million. In 2007, we repurchased 41,733,268 shares of Chubb’s common stock in open market transactions at a cost of $2,184 million. In 2008, we repurchased 26,328,770 shares of Chubb’s common stock in open market transactions at a cost of $1,311 million. As of December 31, 2008, 19,783,900 shares remained under the December 2008 share repurchase authorization, which has no expiration date. The number of shares we will repurchase in 2009 will depend on the state of the global capital markets and the potential for profitable growth in the property and casualty insurance market.
The increase in the amortization of net losses resulting from the decrease in value of these assets will not have a material adverse effect on results of operations in 2009.