DIRECTORS'
REPORT

Principal activity

The principal activity of the company is the underwriting of specialist lines of general insurance. The company is an indirect, wholly-owned subsidiary of The Chubb Corporation.

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Business review

Results

The company made a profit on ordinary activities before tax of £194.5 million for the year ended 31 December 2009 (2008 restated: £207.9 million).

Dividends

The company did not pay an interim dividend during the year (2008 restated: £12.7 million). The Directors recommend a final dividend for the year of £185.0 million (2008 restated: £nil).

Group reconstruction

On 1 January 2009, following a merger between Chubb Insurance Company of Europe plc and Chubb Insurance Company of Europe SA, Chubb Insurance Company of Europe plc adopted the form of a Societas Europaea registered under the name Chubb Insurance Company of Europe SE (“the company”).

With effect from that date, the company acquired all the rights, obligations, assets and liabilities of Chubb Insurance Company of Europe plc and Chubb Insurance Company of Europe SA, and Chubb Insurance Company of Europe SA was dissolved without liquidation.

Amounts in respect of previous financial years represent the merged results of Chubb Insurance Company of Europe SA and Chubb Insurance Company of Europe plc. Amounts relating to Chubb Insurance Company of Europe SA have been restated to United Kingdom Generally Accepted Accounting Practice from the amounts originally filed in Belgium.

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Risk and capital management

Risk management

The management of the company’s financial risks is governed by the risk management policy of the board of Directors, which sets out responsibility and accountability for risk management within the company. In line with The Chubb Corporation’s enterprise risk management programme, it also defines the board’s appetite or tolerance in relation to key areas of risk. The policy is implemented via the company’s risk management framework, which embeds within the business a consistent approach to the identification, assessment, mitigation, monitoring and reporting of risk. The framework encompasses all of the significant classes of risk to which the company is exposed, namely insurance, operational, credit, market, liquidity and group risk. Through the framework each of the specific risks faced by the company is allocated to an individual for management. They are responsible for ensuring the appropriate controls are in place to keep the risk within proportionate appetite or tolerance thresholds.

The risk management framework is designed to be a reliable source of risk quantification data to support the company’s assessment of its capital resource requirements.

Capital management

The company is committed to ensuring it maintains prudent levels of capital resources to support the business operations and initiatives and the risks which arise from them. These resources provide protection for policyholders, and other interested parties.

Policyholders, reinsurers and other interested parties consider the rating of the company by independent rating agencies as important in assessing the financial strength of the company. Thus, the company monitors the capital resources that it requires in order to ensure they are sufficient to maintain a superior / very strong stand-alone rating from appropriate rating agencies. The company maintained this rating throughout the year and has continued to maintain it since the balance sheet date.

The company is also obliged to ensure its capital resources meet regulatory capital requirements. The company is required by the United Kingdom’s Financial Services Authority (“FSA”) to undertake an Individual Capital Assessment (“ICA”), which is a risk based determination of the capital required to meet all of its financial liabilities with a confidence level of 99.5%. The company has determined the level of capital required on this basis and has elected to maintain capital resources which exceed this regulatory requirement by a margin sufficient to maintain the ratings above. All of the classes of risk faced by the company have been quantified within its ICA. Insurance, operational and group risk are described below. Given their relevance to the assets the company holds to meet its capital requirements, credit, market and liquidity risk are discussed in note 2 to the financial statements, which deals with financial instruments. Capital resources, for the purposes of the ICA, are taken as net assets before deduction of the equalisation provision less any inadmissible assets as prescribed by the FSA rules. As at 31 December 2009, these amounted to £1,109.4 million (2008 restated: £990.5 million).

The European Union’s Solvency II directive will require regulated firms across Europe to meet further requirements in relation to risk and capital management. The company is committed to, and actively engaged in evolving its practice in this area to meet those requirements as they unfold between now and October 2012, when the directive comes into force.

Insurance risk

Insurance risk arises from unexpected significant adverse fluctuations in the frequency and/or severity of claims. Consistent with The Chubb Corporation’s operating philosophy, the company mitigates this risk by maintaining underwriting discipline throughout the company. This policy is supported by each strategic business units’ underwriting guidelines, expertise and appropriate authority limits. These guidelines are updated regularly to reflect developments in the nature of the insurance risks being underwritten. The company also uses a reinsurance programme to manage its insurance risk by providing cover against certain large exposures.

Operational risk

Operational risk can arise where a company suffers a loss as a result of inadequate or failed internal processes. This could be as a result of people’s actions, system processes or external events. The company mitigates this risk through ensuring that material operational risks are identified and controls are adopted to limit these risks.

Group risk

Group risk is defined as detriment to the company arising from actions taken at an ultimate parent company level or from the actions of another subsidiary of that ultimate parent. Group risk is inherent in any multinational organisation and primarily arises from inconsistencies between the laws and regulations to which the various members of the organisation are subject. In particular, the company is subject to the laws of the countries in which it operates in Europe, while The Chubb Corporation is subject to the laws and regulations of the United States of America (including states and territories thereof). The company mitigates this risk through open communication in appropriate committees and other forums through which decision makers are advised of the potential impact that group policy and decisions may have, and how this may be addressed.

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Directors

The following served as Directors from 1 January 2009 to the date of this report unless otherwise indicated:

• M Casella (appointed 1 May 2009)
• J Degnan
• C Giles
• P Haywood
• I Hutchinson (appointed 1 May 2009)
• K O’Shiel
• J Tomlinson (retired 31 December 2009)
• B Van Der Vossen

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Employees

Equal opportunities

The company is fully committed to equal opportunities. The equal opportunities policy applies to all aspects of employment, including recruitment and selection, performance management, dismissal, training and development opportunities, promotion, pay, and terms and conditions of employment.

The company’s employees are diverse and have been chosen for their experience, potential and skills regardless of gender, gender reassignment, sexual orientation, marital status, age, race, colour, nationality, ethnic origin, religion/religious belief or disability.

Health and safety

The company assigns great importance to the health, safety and welfare of its employees and others on its premises. The company has a health and safety policy in place which is the responsibility of the facilities manager.

Employee communication and involvement

The company facilitates open and regular communication with its employees with the intention of keeping them well informed about company matters. The company’s internal intranet is used as a medium to communicate company news, external markets information, financial results, business priorities and other company information.

Employees are also kept well informed about the company’s strategic direction and financial results through “open forum” staff events, email messages from senior management, branch and department update meetings and a quarterly company-wide newsletter.

The company operates a European Works Council (“EWC”) which has been in existence since 1999 and enables management to inform and consult employees about management decisions, thus supporting two-way communication. The purpose of the EWC is to serve as a consultative body, supporting communication between staff and senior management.

Performance management

The company has a structured performance management process in place and individual employee performance is directly linked to their financial rewards. Senior managers are eligible to participate in The Chubb Corporation’s long-term stock incentive plan.

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Charitable donations

During the year, the company made charitable donations of £74,938 (2008 restated: £67,851). These included donations above £2,000 to MND Association (£5,000), Rainbow Trust (£3,000), MacMillan Cancer Support (£2,616), Red Nose Day 2009 (£2,447), Cystic Fibrosis Trust (£2,446) and The Stroke Association (£2,420) for general charitable purposes.

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Branches

Details of the company’s underwriting branches are shown in branch details.

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Policy and practice on payment of creditors

The company’s policy is to agree terms of payment when entering into transactions with suppliers and then pay those suppliers accordingly. The trade creditor days of the company as at 31 December 2009, calculated in accordance with statutory regulations, was 28 days (2008 restated: 34 days).

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Statement of Directors’ responsibilities

The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial period. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The financial statements are required by law to give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing those financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website, www.chubb.com/uk. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

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Statement of disclosure of information to the auditors

So far as each person who was a Director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of fellow Directors and the company's auditor, each Director has taken all the steps that he is obliged to take as a Director in order to make himself aware of any relevant audit information and to establish that the auditor is aware of that information.

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Indemnities for Directors

The company participates in a group insurance policy organised by The Chubb Corporation, which provides third party indemnity for the benefit of the Directors of the company with respect to their directorships of a subsidiary of The Chubb Corporation.

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Reappointment of auditor

In accordance with section 485 of the Companies Act 2006, a resolution will be proposed at the Annual General Meeting for the reappointment of Ernst & Young LLP as the auditor of the company.

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On behalf of the board

R Munro
Secretary

18 March 2010