Certain statements in this document are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements are made pursuant to the safe harbor provisions of the PSLRA and include statements regarding our loss reserve and reinsurance recoverable estimates; the impact of future catastrophes (including acts of terrorism); asbestos and toxic waste liability developments; the number and severity of surety-related claims as well as surety market conditions; the impact of changes to our reinsurance program in 2007 and 2008 and the cost and availability of reinsurance in 2009; the adequacy of the rates at which we renewed and wrote new business; premium volume and competition in 2009; property and casualty investment income during 2009; changes in the value of our limited partnership investments during the first quarter of 2009; securities in our investment portfolio that may become other-than-temporarily impaired; cash flows generated by our fixed income investments; the impact of dislocations in the property and casualty insurance market, the ongoing economic downturn and currency rate fluctuations; estimates with respect to our credit derivatives exposure; the repurchase of common stock under our share repurchase program; our capital adequacy and funding of liquidity needs; and the impact of the amortization of net losses relating to our pension and other postretirement benefit plans. Forward-looking statements are made based upon management’s current expectations and beliefs concerning trends and future developments and their potential effects on us. These statements are not guarantees of future performance. Actual results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties, which include, among others, those discussed or identified from time to time in our public filings with the Securities and Exchange Commission and those associated with:
the effects on the capital markets and the markets for directors and officers and errors and omissions insurance;
Net income was $1.8 billion in 2008 compared with $2.8 billion in 2007 and $2.5 billion in 2006. The lower net income in 2008 was due primarily to two factors. First, underwriting income in our property and casualty insurance business was substantially lower in 2008 than in 2007 and 2006. Second, we had realized investment losses in 2008 compared with realized investment gains in 2007 and 2006.
During 2008, we experienced overall favorable development of $873 million on loss reserves established as of the previous year end, due primarily to favorable loss experience in certain professional liability and commercial liability classes as well as lower than expected emergence of losses in the homeowners and commercial property classes. During 2007, we experienced overall favorable development of $697 million due primarily to favorable loss trends in the professional liability classes, lower than expected emergence of losses in the homeowners and commercial property classes and better than expected reported loss activity in the run-off of our reinsurance assumed business. During 2006, we experienced overall favorable development of $296 million due primarily to lower than expected emergence of losses in the homeowners and commercial property classes.
Property and casualty investment income after tax increased by 2% in 2008 and 9% in 2007. The growth in 2008 was limited as average invested assets increased only modestly during the year. For more information on this non-GAAP financial measure, see “Property and Casualty Insurance - Investment Results.”
Net premiums written amounted to $11.8 billion in 2008, a decrease of 1% compared with 2007. Net premiums written in 2007 decreased 1% compared with 2006.
Net premiums written from our insurance business were flat in 2008 compared with 2007 and grew 1% in 2007 compared with 2006. Premiums in the United States, which represent about 75% of our insurance premiums, decreased 2% in 2008 and 1% in 2007. Insurance premiums outside the U.S. grew 6% in 2008 and 10% in 2007. The growth outside the U.S. in 2008 and 2007 was largely attributable to the impact of currency fluctuation due to the weakness of the U.S. dollar. In both years, such growth was 3% when measured in local currencies.
During the second half of 2008, the property and casualty insurance market experienced disruption as a result of broader issues in the financial markets and the economies of the United States and other countries. The crisis in the financial markets had an adverse impact on some of our competitors. This has resulted in an increase in opportunities for us to write new business and we expect further opportunities in 2009. There are some factors that indicate that rates should increase during 2009, but the timing and magnitude of those changes are difficult to predict. Although these developments should have a positive effect on our business in 2009, we expect that the continued economic downturn will negatively impact our business in 2009. We expect net written premiums, excluding the impact of currency fluctuation, will be flat to modestly higher in 2009 compared with 2008. Assuming the foreign currency to U.S. dollar
Our premiums written are net of amounts ceded to reinsurers, who assume a portion of the risk under certain insurance policies we write that are subject to the reinsurance.
The structure of our property catastrophe program for events in the United States was modified in 2007 but the overall coverage was similar to the previous program. In place of traditional reinsurance, we purchased fully collateralized four-year reinsurance coverage for homeowners-related losses sustained from qualifying hurricane loss events in the northeastern part of the United States. This reinsurance was purchased from East Lane Re Ltd., a Cayman Islands reinsurance company, which financed the provision of reinsurance through the issuance of $250 million in catastrophe bonds to investors under two separate bond tranches.
Reinsurance rates for property risks declined somewhat in 2008. Capacity restrictions for certain coverages continued in the marketplace. The overall cost of our property reinsurance program was modestly lower in 2008 than that in 2007.
losses. Our participation in this program limits our initial retention in Florida for homeowners-related losses to approximately $185 million.
On our property catastrophe treaty for events outside the United States, in 2008, we increased the reinsurance coverage in the top layer of the treaty by $50 million and modestly increased our participation in the program. The treaty now provides coverage of approximately 85% of losses (net of recoveries from other available reinsurance) between $75 million and $325 million.
We do not expect the changes we made to our reinsurance program during 2007 and 2008 to have a material effect on the Corporation’s results of operations, financial condition or liquidity.
Most of our ceded reinsurance arrangements consist of excess of loss and catastrophe contracts that protect against a specified part or all of certain types of losses over stipulated amounts arising from any one occurrence or event. Therefore, unless we incur losses that exceed our initial retention under these contracts, we do not receive any loss recoveries. As a result, in certain years, we cede premiums to other insurance companies and receive few, if any, loss recoveries. However, in a year in which there is a significant catastrophic event or a series of large individual losses, we may receive substantial loss recoveries. The impact of ceded reinsurance on net premiums written and earned and on net losses and loss expenses incurred for the three years ended December 31, 2008 is presented in Note (10) of the Notes to Consolidated Financial Statements.
In 2008, net catastrophe losses incurred were $607 million, which represented 5.1 percentage points of the loss ratio. About $310 million of the catastrophe losses in 2008 related to Hurricane Ike, including our estimated share of an assessment from the Texas Windstorm Insurance Association, a windstorm insurance entity created by the State of Texas. Net catastrophe losses incurred were $363 million in 2007, which represented 3.0 percentage points of the loss ratio. Net catastrophe losses incurred in 2006 were $173 million, which were offset in part by a $20 million reduction in previously accrued reinsurance reinstatement premium costs related to Hurricane Katrina. The net impact of catastrophes in 2006 accounted for 1.4 percentage points of the loss ratio.
Our expense ratio was similar in 2008 and 2007, as an increase in commissions was substantially offset by lower operating costs related to the run-off of our reinsurance business. The increase in commissions was largely the result of premium growth outside the United States in countries where commission rates are higher than in the United States as well as modestly higher commission rates in the United States in certain classes of business. The compensation and other operating cost component of our expense ratio related to our ongoing businesses was identical in both years. The expense ratio increased in 2007 compared to 2006 due primarily to higher commissions, largely the result of premium growth outside the United States in certain classes of business with relatively higher commission rates.
Net premiums written from personal insurance, which represented 33% of our premiums written in 2008, increased by 3% in 2008 and 5% in 2007. Net premiums written for the classes of business within the personal insurance segment were as follows:
Our personal insurance business produced highly profitable underwriting results in each of the last three years, but less so in each succeeding year. The combined loss and expense ratios for the classes of business within the personal insurance segment were as follows:
Other personal business produced modestly profitable results in each of the past three years. Our accident and health business was profitable in 2008 compared with highly profitable results in 2007 and 2006. Our yacht business was unprofitable in 2008 compared with profitable results in 2007 and 2006. Yacht results in 2008 were adversely affected by several large non-catastrophe losses as well as several losses related to Hurricane Ike. Our excess liability business showed significant improvement in 2008,
Net premiums written from commercial insurance, which represented 42% of our premiums written in 2008, decreased by 2% in 2008 and 1% in 2007. Net premiums written for the classes of business within the commercial insurance segment were as follows:
The decline in premiums in most of our commercial classes in 2008 and 2007 reflected the highly competitive marketplace, particularly for new business. Growth in the property and marine classes in 2008 was primarily from a syndicated large risks program in both the U.S. and outside the U.S. and a marine initiative. The competitive rate pressures in 2006 in some of the commercial classes continued in 2007. These pressures affected all classes of business in the second half of 2007 and throughout 2008, particularly for new business. This resulted in modest decreases in renewal rates in most classes in both years. Rate declines were more pronounced in certain classes, such as workers’ compensation and large property risks, and also varied by geographic area.
Retention levels of our existing customers remained steady over the last three years. New business volume was slightly higher in 2007 but down in 2008 compared with the respective prior years. The increase in 2007 was due to a few large accounts written in the first half of the year. New business volume in the second half of 2007 and throughout 2008 was down as it became more difficult to find new opportunities at acceptable rates.
Our commercial insurance business produced less profitable underwriting results in 2008 than in 2007 and 2006. The less profitable results in 2008 were largely due to substantially higher catastrophe losses in the multiple peril and property and marine classes, primarily from Hurricane Ike. The impact of catastrophes accounted for 8.1 percentage points of the combined loss and expense ratio for our commercial insurance business in 2008, whereas such impact was 2.6 percentage points in 2007 and negligible in 2006. Results in all three years benefited from favorable loss experience, disciplined risk selection and appropriate terms and conditions in recent years.
Multiple peril results were highly profitable in each of the past three years. The less profitable results in 2008 were in the property component of this business largely due to higher catastrophe losses. The impact of catastrophes accounted for 8.5 percentage points of the combined loss and expense ratio for this class in 2008 compared with 1.7 percentage points in 2007 and 2.9 percentage points in 2006. The property component benefited from low non-catastrophe losses in all three years, particularly outside the United States in 2008. Results in the liability component were highly profitable in all three years.
Our specialty insurance business produced profitable underwriting results in each of the last three years. The combined loss and expense ratios for the classes of business within specialty insurance were as follows:
Our professional liability business produced highly profitable results in 2008 and 2007 compared with profitable results in 2006. The profitability of our professional liability business was particularly strong outside the United States in 2008 and 2007. The employment practices liability and fiduciary liability classes each produced highly profitable results in 2008 and 2007, compared to profitable results in 2006. The directors and officers liability class was profitable in all three years, particularly in 2007. Our errors and omissions liability business produced near breakeven results in 2008 and 2007 compared with highly unprofitable results in 2006. The fidelity class was highly profitable in each of the past three years.
Collectively, the results for the professional liability classes benefited from favorable prior year loss development in 2008 and in 2007 and, to a much lesser extent, in 2006, due to the recognition of the positive loss trends we have been experiencing related to accident years 2005 and prior. These trends were largely the result of a favorable business climate, lower policy limits and better terms and conditions. The expected loss ratio for the 2008 accident year in our professional liability business is above breakeven, and higher than the prior two years, due in part to the uncertainty surrounding the ongoing crisis in the financial markets.
For a transition period of about two years, Harbor Point underwrote specific reinsurance business on our behalf. We retained a portion of this business and ceded the balance to Harbor Point in return for a fronting commission. We received additional payments based on the amount of business renewed by Harbor Point. These amounts were recognized in income as earned.
The Terrorism Risk Insurance Act of 2002 (TRIA) established a temporary program under which the federal government will share the risk of loss arising from certain acts of foreign terrorism with the insurance industry. The program, which was applicable to most lines of commercial business, was scheduled to terminate on December 31, 2005. In December 2005, TRIA was extended through December 31, 2007. Certain lines of business previously subject to the provisions of TRIA, including commercial automobile, surety and professional liability insurance, other than directors and officers liability, were excluded from the program. In December 2007, TRIA was extended through December 31, 2014. The amended law eliminated the distinction between foreign and domestic acts of terrorism, now providing protection from all acts of terrorism. Otherwise, there were no significant changes to the key features of the program.
Our gross case and IBNR loss reserves and related reinsurance recoverable by class of business were as follows:
Loss reserves, net of reinsurance recoverable, decreased by $161 million or 1% in 2008. Loss reserves related to our insurance business increased by $24 million, which reflects a decrease of approximately $550 million related to currency fluctuation due to the strength of the U.S. dollar at December 31, 2008 compared with December 31, 2007. Loss reserves related to our reinsurance assumed business, which is in run-off, decreased by $185 million.
is more complex and typically subject to a higher degree of variability than for short tail classes. As a result, the role of judgment is much greater for these reserve estimates.
Loss development factor methods generally assume that the losses yet to emerge for an accident year are proportional to the paid or reported loss amount observed so far. Historical patterns of the development of paid and reported losses by accident year can be predictive of the expected future patterns that are applied to current paid and reported losses to generate estimated ultimate losses by accident year.
These selections incorporate input from claims personnel, pricing actuaries and underwriting management on loss cost trends and other factors that could affect the reserve estimates.
As part of our loss reserving analysis, we take into consideration the various factors that contribute to the uncertainty in the loss reserving process. Those factors that could materially affect our loss reserve estimates include loss development patterns and loss cost trends, rate and exposure level changes, the effects of changes in coverage and policy limits, business mix shifts, the effects of regulatory and legislative developments, the effects of changes in judicial interpretations, the effects of emerging claims and coverage issues and the effects of changes in claim handling practices. In making estimates of reserves, however, we do not necessarily make an explicit assumption for each of these factors. Moreover, all estimation methods do not utilize the same assumptions and typically no single method is determinative in the reserve analysis for a class of business. Consequently, changes in our loss reserve estimates generally are not the result of changes in any one assumption. Instead, the variability will be affected by the interplay of changes in numerous assumptions, many of which are implicit to the approaches used.
The future impact of the various factors that contribute to the uncertainty in the loss reserving process is extremely difficult to predict. There is potential for significant variation in the development of loss reserves, particularly for long tail classes of business. We do not derive statistical loss distributions or outcome confidence levels around our loss reserve estimate. Actuarial ranges of reasonable estimates are not a true reflection of the potential volatility between carried loss reserves and the ultimate settlement amount of losses incurred prior to the balance sheet date. This is due, among other reasons, to the fact that actuarial ranges are developed based on known events as of the valuation date whereas the ultimate disposition of losses is subject to the outcome of events and circumstances that were unknown as of the valuation date.
impact on the Corporation’s results of operations would be spread over the same period. It is important to note, however, that there is the potential for future variation greater than the amounts discussed below.
Reserves for the professional liability classes other than fidelity were $6.8 billion, net of reinsurance, at December 31, 2008. Based on a review of our loss experience, if the loss development factor for each accident year changed such that the cumulative loss development factor for the most recent accident year changed by 10%, we estimate that the net reserves for professional liability classes other than fidelity would change by approximately $675 million, in either direction. This degree of change in the reported loss development pattern is within the historical variation around the averages in our data.
Reserves for commercial excess liability (excluding asbestos and toxic waste claims) were $2.9 billion, net of reinsurance, at December 31, 2008. These reserves are included within commercial casualty. Based on a review of our loss experience, if the loss development factor for each accident year changed such that the cumulative loss development factor for the most recent accident year changed by 15%, we estimate that the net reserves for commercial excess liability would change by approximately $275 million, in either direction. This degree of change in the reported loss development pattern is within the historical variation around the averages in our data.
Asbestos Reserves. Asbestos remains the most significant and difficult mass tort for the insurance industry in terms of claims volume and dollar exposure. Asbestos claims relate primarily to bodily injuries asserted by those who came in contact with asbestos or products containing asbestos. Tort theory affecting asbestos litigation has evolved over the years. Early court cases established the “continuous trigger” theory with respect to insurance coverage. Under this theory, insurance coverage is deemed to be triggered from the time a claimant is first exposed to asbestos until the manifestation of any disease. This interpretation of a policy trigger can involve insurance policies over many years and increases
insurance companies’ exposure to liability. Until recently, judicial interpretations and legislative actions attempted to maximize insurance availability from both a coverage and liability standpoint.
There have been some positive legislative and judicial developments in the asbestos environment over the past several years:
Various challenges to mass screening claimants have been mounted, including a June 2005 U.S. District Court decision in Texas. Many believe that this decision is leading to higher medical evidentiary standards. For example, several asbestos injury settlement trusts suspended their acceptance of claims that were based on the diagnosis of physicians or screening companies named in the case, citing concerns about their reliability. Further investigations of the medical screening process for asbestos claims are underway.
A number of states have implemented legislative and judicial reforms that focus the courts’ resources on the claims of the most seriously injured. Those who allege serious injury and can present credible evidence of their injuries are receiving priority trial settings in the courts, while those who have not shown any credible disease manifestation are having their hearing dates delayed or are placed on an inactive docket, which preserves the right to pursue litigation in the future.
We have assumed a continuation of the current legal environment with no benefit from any federal asbestos reform legislation. Various federal proposals to solve the ongoing asbestos litigation crisis have been considered by the U.S. Congress over the past few years, but none have yet been enacted. Thus, the prospect of federal asbestos reform legislation remains uncertain.
Our actuaries and claim personnel perform periodic analyses of our asbestos related exposures. The analyses during 2006 noted positive developments, including several settlements, related to certain of our traditional asbestos defendants. At the same time, the analyses indicated that our exposure to loss from claims against our peripheral defendants was somewhat higher than previously expected. The analyses during 2007 noted an increase in our estimate of the ultimate liabilities related to certain of our traditional asbestos defendants. Based on these analyses, we increased our net asbestos loss reserves by $18 million in 2006 and $75 million in 2007. The analyses during 2008 noted no developments that would indicate the need to change our estimate of ultimate liabilities related to asbestos claims.
The following table presents the number of policyholders for whom we have open asbestos case reserves and the related net loss reserves at December 31, 2008 as well as the net losses paid during 2008 by component.
We experienced favorable development of about $120 million in the commercial liability classes. Favorable development, particularly in excess liability and multiple peril liability classes in accident years 2002 through 2006, more than offset adverse development in accident years prior to 1998, which was mostly due to $85 million of incurred losses related to toxic waste claims. The severity of excess liability and multiple peril liability claims has been generally lower than expected and the effects of underwriting changes that affected these years have been more positive than expected. These factors were reflected in the determination of the carried loss reserves for these classes at December 31, 2008.
We experienced favorable development of about $60 million in the run-off of our reinsurance assumed business due primarily to better than expected reported loss activity from cedants.
We experienced favorable development of about $30 million in the workers’ compensation class due in part to the positive effects of reforms in California. This factor was reflected in the determination of carried loss reserves for this class at December 31, 2008.
We experienced favorable development of about $30 million in the personal automobile business due primarily to lower than expected severity. This factor was given only modest weight in our determination of carried personal automobile loss reserves at December 31, 2008.
The net favorable development of $697 million in 2007 was also due to various factors. The most significant factors were:
We experienced favorable development of about $300 million in the professional liability classes other than fidelity, including about $100 million outside the U.S. A majority of this favorable development was in the 2003 through 2005 accident years. Reported loss activity related to these accident years was less than expected due to a favorable business climate, lower policy limits and better terms and conditions. While these accident years were still somewhat immature, we concluded that there was sufficient evidence to modestly decrease the expected loss ratios for these accident years.
We experienced favorable development of about $40 million in the fidelity class and $30 million in the surety class due to lower than expected reported loss emergence, mainly related to more recent accident years.
The net favorable development of $296 million in 2006 was also due to various factors. The most significant factors were:
Our U.S. property and casualty subsidiaries are required to file annual statements with insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities. These annual statements include an analysis of loss reserves, referred to as Schedule P, that presents accident year loss development information by line of business for the nine years prior to 2008. It is our intention to post the Schedule P for our combined U.S. property and casualty subsidiaries on our website as soon as it becomes available.
On an after-tax basis, property and casualty investment income increased by 2% in 2008 and 9% in 2007. The after-tax annualized yield on the investment portfolio that supports our property and casualty insurance business was 3.49% in 2008 compared with 3.50% in 2007 and 3.48% in 2006. Management uses property and casualty investment income after-tax, a non-GAAP financial measure, to evaluate its investment performance because it reflects the impact of any change in the proportion of the investment portfolio invested in tax exempt securities and is therefore more meaningful for analysis purposes than investment income before income tax.
During the latter part of 2008, the U.S. dollar strengthened compared to several of the foreign currencies in which we hold invested assets and the yields on short term investments in the U.S. were historically low. Assuming investment yields and foreign exchange rates remain at current levels, property and casualty investment income is expected to decrease modestly in 2009 compared with 2008.
The business of Chubb Financial Solutions (CFS) was primarily structured credit derivatives, principally as a counterparty in portfolio credit default swap contracts. In 2003, the Corporation announced its intention to exit CFS’s business. Since that date, CFS has terminated early or run-off nearly all of its contractual obligations within its financial products portfolio. As of December 31, 2008, no credit default swap contracts remained outstanding.
Decisions to sell equity securities and fixed maturities are governed principally by considerations of investment opportunities and tax consequences. As a result, realized gains and losses on the sale of these investments may vary significantly from period to period. However, such gains and losses generally have little, if any, impact on shareholders’ equity as all of these investments are carried at fair value, with the unrealized appreciation or depreciation reflected in comprehensive income.
The net realized gains and losses on other invested assets represent the aggregate of distributions to us from the limited partnerships in which we have an interest and changes in our equity in the net assets of the partnerships based on valuations provided to us by the manager of each partnership. Due to the timing of our receipt of valuation data from the investment managers, these investments are reported on a one quarter lag. We have not yet received fourth quarter 2008 valuations from many of the limited partnerships. Based on limited preliminary information about the performance of the limited partnerships during the fourth quarter, we expect to report a decline in our equity in the net assets of these partnerships in our first quarter 2009 results. We cannot precisely quantify the amount of the loss that we will report; however, we currently expect that the loss before tax will be about $300 million, but it is possible the loss could exceed that amount.
In 2005, we transferred our ongoing reinsurance business and certain related assets to Harbor Point Limited. In exchange, we received from Harbor Point $200 million of 6% convertible notes and warrants to purchase common stock of Harbor Point. The transaction resulted in a pre-tax gain of $204 million, of which $171 million was recognized in 2005. In 2008, the notes were converted to 2,000,000 shares of common stock of Harbor Point and we recognized the remaining $33 million gain.
The determination of whether a decline in value of any investment is temporary or other-than- temporary requires the judgment of management. In making the determination, we consider various quantitative criteria and qualitative factors including the length of time and the extent to which the fair
value has been less than the cost, the financial condition and near term prospects of the issuer, whether the issuer is current on contractually obligated interest and principal payments, our intent and ability to hold the investment for a period of time sufficient to allow us to recover our cost, general market conditions and industry or sector specific factors. A fixed maturity security is other-than-temporarily impaired if it becomes likely that we will not be able to collect all amounts due under the security’s contractual terms or if we cannot assert that we will hold the security until we recover our cost. An equity security is other-than-temporarily impaired if it becomes likely that we will not recover our cost in the near term. If a decline in the fair value of an individual security is deemed to be other-than-temporary, the difference between cost and fair value is charged to income as a realized investment loss. The fair value of the investment becomes its new cost basis. The decision to recognize a decline in the value of a security carried at fair value as other-than-temporary rather than temporary has no impact on shareholders’ equity.
As a result of significant financial market disruption during 2008, the fair value of many of our investments declined to a level below our cost. The issuers of the equity securities deemed to be other-than-temporarily impaired during 2008 were among a range of industries and not concentrated within any individual sector. About 75% of the fixed maturities deemed to be other-than-temporarily impaired were corporate securities within the financial services sector. Through December 31, 2008, we continued to receive contractual principal and interest payments on nearly all of our other-than-temporarily impaired fixed maturity securities.
If current conditions in the equity and fixed maturity markets continue in 2009 or if conditions deteriorate, additional securities may be deemed to be other-than-temporarily impaired.
In May 2008, Chubb issued $600 million of unsecured 5.75% senior notes due in 2018 and $600 million of 6.5% senior notes due in 2038.
In 2003, Chubb issued $460 million of unsecured 2.25% senior notes due in 2008 and 18.4 million purchase contracts to purchase its common stock. The notes and purchase contracts were issued together in the form of 7% equity units, each of which initially represented $25 principal amount of notes and one purchase contract. In May 2006, the notes were successfully remarketed as required by their terms. The interest rate on the notes was reset to 5.472% from 2.25%, effective May 16, 2006. Each purchase contract obligated the holder to purchase, on or before August 16, 2006, for a settlement price of $25, a variable number of shares of Chubb’s common stock. The number of shares purchased was determined based on a formula that considered the market price of Chubb’s common stock immediately prior to the time of settlement in relation to the $29.75 per share sale price of the common stock at the time the equity units were offered. Upon settlement of the purchase contracts in August 2006, Chubb issued 12,883,527 shares of common stock and received proceeds of $460 million. In August 2008, the $460 million of notes were paid when due.
Financial strength ratings assess an insurer’s ability to meet its financial obligations to policyholders. The following table summarizes our property and casualty subsidiaries’ financial strength ratings from the major independent rating organizations as of February 26, 2009.
The Corporation’s liquidity requirements in the past have generally been met by funds from operations and we expect that in the future funds from operations will continue to be sufficient to meet such requirements. Liquidity requirements could also be met by funds from the maturity or sale of marketable securities in our investment portfolio. The Corporation also has the ability to borrow under its credit facility and we believe we could issue debt or equity securities.
Our strong underwriting results continued to generate substantial new cash in 2008. New cash from operations available for investment by the property and casualty subsidiaries was approximately $775 million in 2008 compared with $1.6 billion in 2007 and $2.7 billion in 2006. New cash available in 2008 was lower than in 2007 due to a $450 million increase in dividends paid by the property and casualty subsidiaries to Chubb and higher loss payments, partially offset by lower income tax payments. New cash available was lower in 2007 than in 2006 due to a $900 million increase in dividends paid by the property and casualty subsidiaries to Chubb and, to a lesser extent, higher income tax payments.
As a holding company, Chubb’s ability to continue to pay dividends to shareholders and to satisfy its debt obligations relies on the availability of liquid assets, which is dependent in large part on the dividend paying ability of its property and casualty subsidiaries. Our property and casualty subsidiaries are subject to laws and regulations in the jurisdictions in which they operate that restrict the amount of dividends they may pay without the prior approval of regulatory authorities. The restrictions are generally based on net income and on certain levels of policyholders’ surplus as determined in accordance with statutory accounting practices. Dividends in excess of such thresholds are considered “extraordinary” and require prior regulatory approval. During 2008, 2007 and 2006, these subsidiaries paid dividends to Chubb of $2,000 million, $1,550 million and $650 million, respectively. The maximum dividend distribution that may be made by the property and casualty subsidiaries to Chubb during 2009 without prior approval is approximately $1.2 billion.
Chubb has a revolving credit agreement with a group of banks that provides for up to $500 million of unsecured borrowings. There have been no borrowings under this agreement. Various interest rate options are available to Chubb, all of which are based on market interest rates. The agreement contains customary restrictive covenants including a covenant to maintain a minimum consolidated shareholders’ equity, as adjusted. At December 31, 2008, Chubb was in compliance with all such covenants. The revolving credit facility is available for general corporate purposes and to support our commercial paper borrowing arrangement. This agreement has a termination date of October 19, 2012. In August 2008, the agreement was amended to allow Chubb to request on two occasions at any time during the remaining term of the agreement an extension of the maturity date for an additional one year period. On the termination date of the agreement, any borrowings then outstanding become payable.
The above table excludes certain commitments totaling $1.1 billion at December 31, 2008 to fund limited partnership investments. These commitments can be called by the partnerships (generally over a period of five years or less), if and when needed by the partnerships to fund certain partnership expenses or the purchase of investments. It is uncertain whether and, if so, when we will be required to fund these commitments. There is no predetermined payment schedule.
The main objectives in managing our investment portfolios are to maximize after-tax investment income and total investment returns while minimizing credit risks in order to ensure that funds will be available to meet our insurance obligations. Investment strategies are developed based on many factors including underwriting results and our resulting tax position, regulatory requirements, fluctuations in interest rates and consideration of other market risks. Investment decisions are centrally managed by investment professionals based on guidelines established by management and approved by the boards of directors of Chubb and its respective operating companies.
Limited partnership investments by their nature are less liquid and involve more risk than other investments. We actively manage our risk through type of asset class and domestic and international diversification. At December 31, 2008, we had investments in about 95 separate partnerships. We review the performance of these investments on a quarterly basis and we obtain audited financial statements annually.
maturity portfolio was invested in tax exempt bonds compared with 67% at December 31, 2007 and 66% at December 31, 2006.