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Chubb Letter to Treasury Secretary Paulson Opposes Property & Casualty Insurers’ Participation in Capital Purchase Program


Warren, N.J.-- The following is the text of a letter sent yesterday to Secretary of the Treasury Henry M. Paulson, Jr. by John J. Degnan, Vice Chairman and Chief Operating Officer of The Chubb Corporation [NYSE: CB]:

October 28, 2008

The Honorable Henry M. Paulson, Jr.
Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Dear Secretary Paulson:

I am writing on behalf of The Chubb Corporation to express our position as to whether property and casualty insurance companies should be allowed to participate in the Capital Purchase Program (“CPP”) being established pursuant to the Emergency Economic Stabilization Act of 2008 (the “Act”).

As you know, the principal objective of the Act is stated succinctly in Section 2: “to immediately provide authority and facilities that the Secretary of the Treasury can use to restore liquidity and stability to the financial system of the United States.” We do not believe that it is appropriate to include property and casualty insurance companies in the CPP because there is no indication that this objective would be served by such inclusion. To the contrary, most insurers in the P&C industry today appear to be well capitalized and not to present any systemic risk to the economy. The one insurance holding company that received a federal bail-out was deemed to have posed such a threat by virtue of the economic risk attributable to non-insurance activities conducted at the holding company level - not the risk presented by its licensed insurance subsidiaries. Therefore, we do not believe that allowing property and casualty insurance companies to participate in the CPP is consistent with the stated purpose of the Act.

In addition, we urge you to consider the anti-competitive impact of bail-outs in our industry. If P&C insurers are allowed to participate in the CPP, they would have a competitive advantage as a result of their obtaining capital at a cost below that available to other competitors through the private sector. This would be particularly unfair to the companies such as Chubb and other insurers that, as a result of prudent business practices and conservative investing, do not need to avail themselves of the government bail-out. It also would be unfair to those companies that have raised, or will raise, additional capital from the private sector in the current market environment given the significantly higher cost of that capital compared to the costs under the CPP. Participating insurers could try to use the competitive advantage afforded to them by the low-cost CPP capital to build their market share, thereby hurting other industry participants who did not need, or chose not to avail themselves of, the government bail-out under the CPP. We believe that the significant anti-competitive implications of including property and casualty insurers in the CPP must be considered.

A more urgent need for the property and casualty industry is regulatory modernization. Our industry would operate much more efficiently without the constant changes to products, prices and practices foisted upon us by 50 separate state legislatures and 50 regulators. As Secretary of the Treasury, you have championed this type of positive change and we urge you to continue to focus on this effort as the primary source of Treasury assistance to our industry.

We appreciate the opportunity to address this important issue and would be happy to answer any questions you may have.

Sincerely yours,

John J. Degnan
Vice Chairman and Chief Operating Officer
The Chubb Corporation


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