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PROPOSAL TO APPROVE THE CHUBB CORPORATIONANNUAL INCENTIVE COMPENSATION PLAN (1996) Introduction Pursuant to the Corporation’s Annual Incentive Compensation Plan (1994) (the “1994 Cash Incentive Plan”), key employees of the Corporation and its subsidiaries are eligible to receive annual cash bonuses based on achievement by the Corporation of target financial goals and management s assessment of each participant’s individual performance during that year. In order to enable the Corporation to continue to attract, reward and retain employees whose efforts are largely responsible for the Corporation’s overall success and to qualify annual cash bonus payments to certain executive officers for favorable tax treatment under new tax rules, the Board of Directors adopted, and in April 1994 the Shareholders approved, the 1994 Cash Incentive Plan. The new tax rules are contained in Section 162(m) of the Internal Revenue Code and require that certain complying plans be approved by shareholders at least every five years and that certain major amendments be approved by shareholders. After examining the Corporation s overall compensation structure in consultation with a nationally recognized independent compensation consulting firm, the Organization and Compensation Committee of the Board of Directors (the “Committee”) has concluded that the maximum annual payment to a ‘covered employee” under Section 162(m) of the Internal Revenue Code under the 1994 Cash Incentive Plan should be increased from $1,500,000 to $2,500,000 and that the prior limitation with respect to individual awards of 150% of a salary grade midpoint should be eliminated. Since the change in the maximum annual payment requires shareholder approval it was also concluded to have the entire plan, as amended and renamed the Annual Incentive Compensation Plan (1996) (the “1996 Cash Incentive Plan”) submitted for shareholder approval to comply with the periodic shareholder approval requirement of Section 162(m) and the regulations thereunder. If the 1996 Cash Incentive Plan is not approved by Shareholders, the 1994 Cash Incentive Plan will remain in effect as previously approved by Shareholders. Summary of the 1996 Cash Incentive Plan The following summary of the 1996 Cash Incentive Plan is qualified in its entirety by reference to the complete text of the 1996 Cash Incentive Plan, which is attached to this Proxy Statement as Exhibit A. The Committee is authorized to administer the 1996 Cash Incentive Plan in accordance with its terms. Each year, the Committee selects participants from the officers and key employees of the Corporation and its subsidiaries. The Committee establishes target awards for the year by salary grade or other standards and establishes a target award pool which is the sum of the target awards for such year for all participants. The Committee also establishes target financial goals for such year under which from 25% to 200% of the target award pool can become available for payment. Target awards are based on the Corporation’s combined loss and expense ratio (“combined ratio”) and net income, which is investment income arising from the property and casualty insurance business and underwriting profit or loss from that business, and a comparison of the combined ratio and return on equity with those of key competitors.After the close of the fiscal year, the Committee determines what part of the target award pool is available for payment based on the achievement of the target financial goals. The Committee then, based on these results and upon management’s assessments of each participant’s individual performance during the year, determines what part, if any, of the participant’s target award shall be paid. The Committee is under no obligation to pay all of the available target award pool for a year and in no event can the total amount paid under the 1996 Cash Incentive Plan for a year exceed 200% of the target award pool for such year. In addition, no participant who is a “covered employee” under Section 162(m) of the Internal Revenue Code may receive an award under this Plan greater than $2,500,000. All payments under the 1996 Cash Incentive Plan are made in cash as soon as practicable after the close of a fiscal year, except that under uniform rules established by the Committee, participants may be given the opportunity to defer such payments. While the benefits to be paid for 1996 and future years have not yet been determined by the Committee, the following table shows the amounts paid for 1995 under the existing 1994 Cash Incentive Plan: Name and Principal Position Amount Paid Dean R. O’Hare $ 1,000,000 Chairman and Chief Executive Officer Percy Chubb, III 450,000 Vice Chairman Robert P. Crawford 430,000 Executive Vice President John 1. Degnan 304,000 Senior Vice President Edward Dunlop 250,000 Senior Vice President All current executive officers as a group 3,816,500 (18 persons including those named above) All employees as a group 23,893,208 The affirmative vote of a majority of the votes cast by shareholders entitled to vote at the Annual Meeting is required for approval of the proposal to adopt the 1996 Cash Incentive Plan. The Board of Directors unanimously recommends a vote “FOR” the adoption of the 1996 Cash Incentive Plan.