Chubb Limited
Bärengasse 32
CH—8001 Zurich
Switzerland
chubb.com
Chubb Limited
Chubb Limited
Annual Report
Annual Report
2018
2018
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002CSN9C06
Financial Summary
Chairman and CEO Letter to Shareholders
Review of Operations
Citizenship at Chubb
Chubb Group Corporate Offi cers and Other Executives
Chubb Limited Board of Directors
Shareholder Information
Non–GAAP Financial Measures
Form 10–K
Swiss Statutory Financial Statements
Swiss Statutory Compensation Report
Environmental Statement
1
2
24
44
46
48
49
50
Financial Summary
In millions of U.S. dollars
except per share data and ratios
Gross premiums written
Net premiums written
Net premiums earned
P&C combined ratio
Current accident year P&C combined ratio excluding catastrophe losses
Core operating income
Net income
Diluted earnings per share — net income
Diluted earnings per share — core operating income
Total investments
Total assets
Shareholders’ equity
Book value per share
Tangible book value per share
Core operating return on equity
Core operating return on tangible equity
This document contains non–GAAP financial measures. Refer to pages 50–52 for
reconciliations to the most directly comparable GAAP measures.
NM—not meaningful
Year Ended
Dec. 31, 2018
Year Ended
Dec. 31, 2017
Percentage Change
$37,968
$36,376
((((4.4%
30,579
29,244
30,064
29,034
90.6%
88.0%
4,407
3,962
8.49
9.44
94.7%
87.6%
3,784
3,861
8.19
8.03
100,968
102,444
167,771
167,022
50,312
109.56
65.89
8.7%
14.6%
51,172
110.32
65.87
7.8%
13.4%
4.6%
3.5%
NM
NM
16.5%
2.6%
3.7%
17.6%
–1.4%
0.4%
–1.7%
–0.7%
0.0%
NM
NM
1
Evan G. Greenberg
Chairman and Chief Executive Officer
Chubb Limited/Chubb Group
2
To My Fellow Shareholders
Chubb performed well in a challenging
year for the insurance industry, marked
again by elevated natural catastrophe
losses, underlying underwriting margin
pressures, improving but overly
competitive commercial property and
casualty pricing conditions globally,
and rising but still historically low
interest rates, which began to benefit
insurers’ investment returns. Our
company produced very good financial
results in 2018 including standout
underwriting profitability and record
investment income. We provided
distinguishing service to our customers,
advanced our strategic priorities and
competitive profile, and made good
progress in transforming ourselves to
thrive in a digital age. The investments
we are making to further strengthen
our capabilities will enable us to
grow profitably and take advantage of
opportunity in many places around the
globe long into the future.
Chubb is the world’s largest publicly
traded property and casualty (P&C)
insurer with market cap of $63 billion
at the time of this writing and such a
unique company that I would like to
begin, as I have done in the past, by
describing who we are and what we do.
We write gross premiums of $38 billion,
65% of which come from commercial
lines and 35% from consumer lines,
including Asia life insurance. On the
commercial side, we serve companies
of all sizes globally, from the largest
industrial corporations for virtually
all of their coverage needs through
brokers, to middle–market companies
and small businesses with the broadest
array of coverages of any insurer,
principally distributed through
independent agents. In the United
States, we are the only company with
this combination of product capability
and distribution reach.
On the consumer side, we are a
major personal lines writer, serving
customers ranging from the affluent to
the emerging middle class, depending
on the country. For individuals and
families, we insure their lives and their
health, protect their homes and the
contents, their automobiles and other
valuable assets, from yachts, jewelry
and art to cell phones. We are a truly
global insurer, one of only a few in the
world, with substantial operations in
54 countries and territories. About 40%
of our business originates outside the
United States and is growing faster than
our U.S. business. This local presence
globally enables us to compete for local
business while serving the needs of
multinationals.
Chubb has a portfolio of simply
outstanding businesses that are
difficult or next to impossible to
replicate, and many are market–
leading. Each is a multibillion–dollar
business with substantial scale and
scope for future growth. In the U.S.,
we are the largest commercial insurer
and the leader in casualty products
and risk management services for large
global corporations, the fourth–largest
commercial insurer serving the middle
and small business market, the #3
excess and surplus (E&S) lines writer,
the leading crop insurer for America’s
farmers, and, by far, the #1 provider
of personal lines coverage and service
for affluent individuals and families.
Globally, we are the leaders in financial
lines such as directors and officers
(D&O) and errors and omissions (E&O)
3
coverage for companies, a market
leader in new coverages such as
cyber risk insurance, and a top
personal accident and supplemental
health insurance (A&H) provider for
consumers. In addition to brokers and
independent agents, our products
and services are distributed through
exclusive agents, retail financial
institutions, sponsoring organizations
and various forms of direct marketing.
With $63 billion in total capital and $50
billion in equity, our balance sheet is
backed by ratings of AA from S&P and
A++ from AM Best.
The macro environment in 2018
For most of 2018, the macro operating
environment was generally favorable,
with positive economic conditions
globally, particularly in the U.S. Political
and geopolitical developments across
the globe became a source of tension
and uncertainty, and economic
conditions outside the U.S. weakened,
contributing to financial market
volatility by year–end. Observe: the
economic slowdown in China, with
its political and economic policy
objectives in conflict; the inability
of major democracies to govern and
solve problems; U.S.–China trade and
geopolitical tension; tensions between
the U.S. and its traditional allies; Brexit;
and, in the latter half of the year,
concern in financial markets over
the pace of rising interest rates by
the U.S. Federal Reserve and other
central banks.
In the global P&C industry, we
experienced an improving rate
environment, particularly in the latter
half of 2018. Fourth quarter pricing,
tone and momentum were materially
better than at the same period a year
ago and continued into early 2019.
While the underwriting environment
has improved and continues to do so, it
varies by country and class of business.
Prices in many important classes
remain below what is adequate to earn
a reasonable return for the risk taken.
Frankly, our industry needs rate. A
continuous rise in loss costs, the pace
of which varies by class and country; a
more difficult risk environment in some
important classes; and rates charged
remaining flat or rising at a subdued
pace over an extended period — these
create industry margin pressures. With
elevated natural catastrophe losses,
revenue collected for catastrophe
coverage no longer subsidizes mediocre
or lousy results for many insurers. At
the same time, industry capital remains
abundant and balance sheets are in
reasonable shape overall, moderating
the trend toward improved pricing.
With that said, it appears momentum
is building.
While the natural catastrophes of last
year did not reach the same magnitude
as the record–setting levels of 2017, it
Geographic Sources
of Premium
2018 gross premiums written
Latin America 8%
Asia 11%
Europe/Eurasia & Africa 13%
Bermuda/Canada 5%
United States 63%
Premium Growth by Geography
Percentage change in gross premiums
written in 2018 versus 2017 in
constant dollars
4
United States 2.6%
Latin America 10.3%
Europe/Eurasia & Africa 2.7%
Bermuda/Canada 6.0%
Asia 9.0%
4
was a major year for CATs nonetheless,
with insured losses estimated in the
range of $80 billion, likely the fourth
highest in 50 years. To me, as notable
were the sheer number of natural
events, which exceeded ’17’s total,
the almost biblical range — wind, fire,
flood, quake — and the diversity of
places from which they originated —
the U.S. (hurricanes, floods, wildfires
and winter storms), Japan (typhoons
and earthquakes) and Hong Kong,
China and Australia (typhoons), to
name a few. For Chubb, pre–tax net
catastrophe losses were significantly
lower this year — $1.6 billion compared
to $2.7 billion in 2017 — but about $700
million more than we planned for
when calculating our “expected” CATs
for the year. Nevertheless, the losses
were within our risk tolerance, which
accepts a certain amount of volatility.
This is the business we are in and we
purposely take this risk, so we have no
regrets as long as our underwriting is
good and we are properly paid.
Even with the elevated CATs, we
produced core operating income of
$4.4 billion, or $9.44 per share, up
18% on a per share basis from 2017.
For perspective, with an expected
or average level of annual catastrophe
losses, we would have earned
$5 billion.
The craft of underwriting
A major distinguishing characteristic
of our company is the focus we
place on operational excellence and
execution around our underwriting and
service culture, which are hallmarks
of the company, and our relentless
commitment to underwriting discipline
and profitability. For total clarity of
purpose, Chubb is an underwriting
company — everything starts with
underwriting and it is the wellhead
of our culture. Through careful
portfolio construction and discipline,
we maintain an exceptional level of
underwriting profit. On the other side
of the coin, the craft of underwriting
informs how we grow. We measure
ourselves first by underwriting income
and the combined ratio. Last year we
produced $2.6 billion of pre–tax P&C
underwriting income, compared to
$1.4 billion in 2017. We generated a
2018 calendar year P&C combined ratio
of 90.6%, compared to 94.7% prior
year — a very good result overall and
particularly distinctive when compared
to the 99.2% average combined ratio of
a cohort of major or peer companies
we compete against.
Our underlying underwriting
performance, which unmasks the
impact of catastrophes, was simply
excellent. The P&C combined ratio
for our ’18 business exposure (known
as the current accident year before
catastrophe losses) was 88.0%,
compared with 87.6% prior year. By the
way, simply for clarity, the published
calendar year and current accident
year combined ratios with expected
annual CAT losses were 88.1% and
91.4%, respectively. Again, I think
this is the convention investors in the
industry ought to insist upon versus
the current accident year excluding
CATs, because excluding catastrophes
eliminates losses but retains the
premium, prettying up results. Later in
this letter, I’ll have more to say about
our underwriting culture, and how we
maintain industry–leading margins.
“ We are in the risk
business, we work at
it every day with an
underwriting ethos
and high–performance
culture. We have an
extraordinarily high level
of talent and leadership,
groomed over many
years with a shared set
of values, work ethic
and discipline. And
we do all of this on a
global scale.”
5
For the year, total gross premiums
written for the company were $38
billion while net premiums written,
which are the premiums we retain on
our balance sheet, were $31 billion,
up 4.6%. Global macro conditions
notwithstanding, we expect at a
minimum to maintain a rate of annual
growth in this range in constant dollars,
though with some natural variability
quarter to quarter given the nature of
our business. There is a lot of optimism
and belief in the company about our
capabilities, and I will provide some
general insight into that.
Record investment income
The other and equally important source
of earnings, next to underwriting, is
investment income, which is a
derivative of our basic business. We
take most of our risk on the liability
side of the balance sheet, with our
capital leveraged against insurance
risk exposure. We are predominantly
fixed income investors and have built
a well–balanced and diversified global
portfolio. As long–term savers, rising
rates are a good thing for insurers since
it means growth in investment income.
Last year, off the back of strong cash
flow ($5.5 billion in ’18), rising rates and
returns on our illiquid investments,
our pre–tax adjusted net investment
income of $3.6 billion was up 2.8%, a
record result.
During the year, we took steps to
shorten duration to 3.7 years, which
partially immunizes us from the
mark–to–market impact of rising rates.
As the Federal Reserve raised interest
rates, our reinvestment rate increased
from 2.9% to 3.7% by year’s end — still
low in historic terms but better.
Outside the U.S., economic conditions
are softening and central banks are
reacting by maintaining a low interest
rate policy. While we cannot predict
the timing, driven ultimately by supply
and demand, and likely higher future
inflation, we expect U.S. Treasury
rates will rise further while the yield
curve will steepen, impacted by rising
deficits. In time, rising rates coupled
with our strong operating cash flow
will accelerate investment income
growth. Keep in mind, every 100 basis
points of portfolio yield equals over
$950 million of additional pre–tax
investment income and 1.6% accretion
to our core operating ROE.
3 Year
10 Year
Chubb
1.7x
Peers1
0.9x
Chubb
3.5x
Peers1
1.3x
$50
$50
$29
$34
$30
$30
$23
$14
1.2x
1.0x
2.5x
1.3x
$110
$90
$110
$69
$68
$43
$68
$51
)
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Book Value & Book Value
Per Share Growth
Chubb has outperformed the average
of North American and global peers
over the last three and 10 years in
terms of book value growth on both
a dollar and per share basis.
1 Includes AIG, Allianz, AXA, CNA, HIG, QBE, RSA,
TRV, XL, Zurich. XL’s 2018 results are as of
June 30, 2018.
Source: SNL and company disclosures
6
Insurance is a long–term business
and I believe attractive long–term
shareholder returns are a derivative
of doing our job well. Our strategy
includes the careful construction of our
product portfolio and geographic mix,
the cohorts of customers we pursue
and the distribution we engage to reach
them, our expense structure, the size
and strength of our balance sheet,
and our culture, including the quality,
character, leadership and collective
energy of our people. These are all
important factors and distinguishing
characteristics of our company that
drive long–term sustainable book and
tangible book value growth.
Superior financial performance
ultimately finds its way into the stock
price and market capitalization. It was
not a great year for equities in general,
particularly financials including
insurance stocks, and Chubb was no
exception. Our stock price declined
11.6% in the year and is cheap by almost
any measure. The –9.6% total return
on Chubb’s common stock in 2018
compares reasonably with the S&P
500/Financials (–13%) and S&P 500/
Insurance (–11.2%) indices — hardly
something to brag about. Over the
past three and five years, Chubb has
produced a total shareholder return
of 18% and 41%, respectively, and our
market cap has increased 56% and
69%, respectively. Taking a longer–term
perspective, our 10-year TSR is 209%
and our market cap increased 237%.
Book value, shareholder returns
and capital
Chubb is a growth company as
measured by book value. Book and
tangible book value per share growth
over time are our primary measures
of wealth creation for shareholders.
Last year, both were impacted by the
mark–to–market effect of rising interest
rates on the investment portfolio. Don’t
get distracted by the mark. We are
buy–and–hold fixed income investors
so the mark amortizes to maturity
over a reasonably short period of time
given the short duration of our invested
assets. In 2018, book value per share
declined 0.7% while tangible book
value per share was flat; excluding
the impact of the mark, they grew
2.7% and 5.8%, respectively. These
measures have increased 13.2% and
29.2%, respectively, since the closing
of The Chubb Corporation acquisition
in January of 2016. Tangible book
value per share, which was down just
over 29% at the merger closing, has
recovered 23 points of the dilution as of
this writing. Our core operating ROE of
8.7% last year reflects the impact of the
CATs; with an expected level of CATs,
or an average amount in a normal year,
it was 9.8%. If we included private
equity gains in core operating income,
as most competitors do, the core
operating ROE would be 10.6%.
Over the last 10 years, our book value
has more than tripled and grown at a
compound annual rate of 13.3% while
tangible book value has grown 11%
annually; over the past three years,
annual growth has been 20% and about
9%, respectively. As the nearby charts
illustrate, Chubb’s book value growth
on both a dollar and per share basis
has significantly outperformed that
of our peers.
“ A major distinguishing
characteristic of our
company is the focus
we place on operational
excellence and execution
around our underwriting
and service culture,
which are hallmarks of
the company, and our
relentless commitment to
underwriting discipline
and profitability.”
7
Chubb’s long–term investors believe
in and appreciate our company.
They know that we have been good
stewards of shareholder capital. We
have followed a clear and consistent
capital management strategy, retaining
capital for risk and growth, and using
M&A only when it furthers what we
are doing organically and generates
superior returns. We have made $36
billion in acquisitions over the past
decade and produced good financial
returns (including an IRR of 20%).
More importantly, we made ourselves
better by adding substantial capability
to our company that will contribute to
superior returns well into the future.
To me, many of the transactions
that have taken place recently in our
industry make little strategic sense —
the prices paid were excessive and the
deals seem to be either about size for
size’s sake, or motivated by a short–
term desire to dress up results and
deflect away from the core issues the
companies are wrestling with. Most
asset classes globally, in my opinion,
are overvalued as a consequence of
extraordinary liquidity, a product of
central bank accommodation. Low
rates have encouraged investors to
seek absolute rather than risk–adjusted
returns. That won’t last forever. Stress
and volatility will create opportunity
and we are patient.
Beyond what we need for risk and
growth including M&A, we return
surplus capital to shareholders. We
have a 25–year track record of annual
dividend increases with a target payout
ratio of approximately 30%. In 2018,
we returned to shareholders over $1.3
billion in dividends and over $1 billion
in share repurchases for a total payout
of $2.3 billion, or 54% of our earnings.
We repurchased our shares at an
average price of $132, which equals a
price–to–book of 1.2 — a bargain.
Growing profitably while
preserving margins
Chubb is focused on growth while
preserving underwriting margins.
We balance our global command
and control discipline with an
aggressiveness and nimbleness
toward market opportunity — a real
trick — that together with our local
presence and capability provides us
great advantage. Further, portfolio
management, including a willingness
to trade market share for underwriting
profitability, along with relentless
expense management, contributes to
our competitive profile. This is our craft
of underwriting and no one does it
better than Chubb.
As I said earlier, generally speaking,
loss costs rise every year, and if pricing
remains flat or declines even modestly,
loss ratios come under pressure. Rising
loss costs across the industry, both
casualty and property related, are
pressuring loss ratios and impacting
a number of important short–tail lines,
P&C Combined Ratio
versus Peers
The company’s underwriting results
have outperformed the average of
North American and global peers
over the last 10 years.
105%
100%
95%
90%
85%
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1 Includes AIG, Allianz, AXA, CNA, HIG, QBE, RSA,
TRV, XL, Zurich. XL’s 2018 results are for the
AXA–XL division of AXA.
Source: SNL and company disclosures
Peers1
Chubb
Averages:
1 year
3 year
5 year
10 year
99.2%
99.4%
98.2%
98.1%
90.6%
91.3%
89.8%
90.4%
8
prior year fourth quarter. Going into
’19, market tone is improving and the
momentum is building for the most
part in an orderly fashion in a number
of major markets — the U.S., London
and Australia, for example. I was and
remain encouraged by what I see.
In other markets where rates were
declining, pricing for the most part at
least went flat, which is a start. The
improvement in pricing is welcome and
needed to ameliorate margin pressure.
Again, the industry needs rate, and
pricing in the U.S. and many other
markets has not been keeping pace
with loss cost trends.
I might add that it isn’t simply about
rate. As important, deductibles or
retentions and attachment points
have also not kept pace. They have
remained static for years. A million–
dollar deductible 10 years ago is worth
a fraction of its value today. From
cohorts of businesses with modestly
rising loss costs, to those exposed to a
more hostile risk environment where
loss costs are rising more rapidly, most
classes of business are contributing to
industry margin pressure. We have also
begun to see some signs of dislocation
in the market — carriers curbing their
appetite for certain lines of business
with reduced limits or exiting from
markets altogether — a natural reaction
to poor underwriting results. Chubb’s
risk appetite has not changed — it
remains robust and stable. We have
an exceptionally strong balance sheet,
risk–taking capability and appetite we
are willing to deploy.
such as homeowners and commercial
property. They also affect certain long–
tail lines such as primary and excess
general casualty and professional
lines, from public company D&O and
medical malpractice to employment
practices liability.
Growing and writing business
profitably on a global scale is about
understanding individual risk cohorts,
structuring and pricing them properly
across dozens of products and
geographies. It’s about the discipline
to walk away from business and shrink
when necessary, which is difficult for
managers to do. Over the years, Chubb
has proven its mettle in this regard as
we have demonstrated that we will
shrink entire businesses if pricing is not
adequate to earn a reasonable margin.
For example, our London wholesale
business at Lloyd’s, our U.S. E&S
business and our global reinsurance
business all shed as much as a third of
their size over the last 10 years due to
inadequate pricing.
Sometimes our active portfolio
management is not “visible.” For
example, our North America
mid–market and small commercial
business grew about 3.5% last year.
In reality, core P&C lines grew almost
5% while financial lines were flat due
to underwriting actions. Sure, on the
surface, this discipline can result in
more modest growth. But premiums
aren’t always a proxy for earnings.
Oftentimes, insurers dress up their top
line to indicate a short–term image of
strength when, in fact, it’s weakness.
At the beginning of this letter, I
characterized commercial P&C
insurance market conditions last year
as improving, with pricing in aggregate
around the globe in the fourth quarter
better than what we saw in the third
quarter, and materially better than the
“ Chubb is focused on
growth while preserving
underwriting margins.
We balance our global
command and control
discipline with an
aggressiveness and
nimbleness toward
market opportunity — a
real trick — that together
with our local presence
and capability provides
us great advantage.”
9
A competitive advantage of Chubb
is our expense management, which
contributes toward a lower combined
ratio. We are significantly more efficient
than our peers with an expense ratio
that’s four-to-six percentage points
lower than most U.S. commercial P&C
insurers regardless of size. We expect
our scale plus expense initiatives,
including those produced by our digital
efforts, will drive our expense ratio
lower over time. This will make us even
more compelling in the marketplace
by giving us the freedom to offer more
competitive prices and operate at
higher loss ratios without sacrificing
profitability.
Our expense discipline has contributed
to the industry’s best combined ratio.
As you can see from the chart nearby,
over the last 10 years our combined
ratio has outperformed that of our
peers by about eight percentage
points. While past performance is no
guarantee of future results, and we are
in the risk business, we work at it every
day with an underwriting ethos and
high–performance culture, which
encompasses our management
discipline, organization structure,
and command and control processes,
including the checks and balances,
rewards systems, organizational
transparency and management
information across the company. We
have an extraordinarily high level of
talent and leadership, groomed over
many years with a shared set of values,
work ethic and discipline. And we do
all of this on a global scale — frankly,
what other insurer in the world does
this as well as Chubb?
Seizing growth opportunities
against market realities
Given our extensive capabilities, global
presence and clarity of mission, we
have plenty of growth opportunity
even when economic or insurance
market conditions are not universally
favorable. One reason is our well–
diversified spread of businesses
around the world. For example, when
one business is down due to local
conditions, another is most certainly
up somewhere else.
As an organization, we are ready and
well positioned to deliver the power of
today’s Chubb. For the past few years,
from our strategies on down, we have
put in place so many more capabilities
to grow. Today, instead of building
and creating capability, our people in
most important businesses and
countries are simply outward–focused,
executing, and my management
team and I can feel the momentum
building. We are nimble, flexible and
always hungry — we strive to pounce
on opportunity when we see it. The
external environment is extremely
dynamic — markets and product lines
within markets can soften or harden
quickly, economic conditions can
improve or decline quickly. Our ability
to react rapidly and opportunistically
is a hallmark quality of Chubb, and
rest assured we know we can always
improve — we are a self–critical,
frank culture.
Growth Opportunity
Snapshot Today
2018 net premiums written: $31 billion
Developed Segments /
Stable Earnings
Generators
Low–to–mid single–digit
expected growth
U.S. Large and Specialty
Commercial P&C
U.S. Mid–Market
Commercial P&C
U.S. Agriculture
U.S. High Net Worth
Personal Lines
International Large
Commercial P&C
U.K./Europe
Commercial P&C
66%
34%
Growth Segments /
Increasing Earnings
Contributors
Double–digit
expected growth
Small Commercial
Globally
International
Mid–Market
Commercial P&C
A&H Globally
International
Personal Lines
Asia and
Latin America
Asia Life Insurance
10
casualty to property, political risk,
D&O, cyber and environmental, our
ability to serve these large sophisticated
organizations through our global
network, and with superior technology,
is unmatched. We produced mid–single
digit growth in our $7.6 billion North
American major accounts business and
even better growth internationally.
Complementing our large corporate
capabilities in the U.S. is our
commercial P&C franchise that
serves the middle–market business
community. We have an extensive local
presence on a national basis and an
ability to serve these companies as they
manage their business inside the U.S.
and beyond its borders. Our product
breadth ranges from basic package
plans to broad specialty coverages —
the same as our large corporate
division. We have nearly two dozen
industry practices that bring deep
knowledge and an ability to meet the
coverage needs of specific industries
like life sciences, healthcare and
advanced manufacturing. With
the benefit of a well–oiled field
organization, and armed with the
broadest array of products and service
capability for this segment, our $5.3
billion middle–market business grew
low–single digits last year and by year–
end began to accelerate on the back of
an improving price environment.
Our global excess and surplus lines
(E&S) wholesale businesses, which
include Westchester in the U.S., Chubb
Global Markets in London and Chubb
Bermuda, write about $4 billion in
As you can see from the chart nearby,
more than a third of our businesses
today can be characterized as growth
segments with double–digit growth
potential, while our other major
developed businesses have more
stable, low–to–mid single–digit potential
— which is pretty darn good given
their size and market conditions. But
remember, conditions can change
quickly, turning businesses that were
treading water, or had even shrunk,
into double–digit growth performers.
Earlier, I mentioned our London
wholesale business shedding a third
of its size over the past 10 years. In
the fourth quarter of last year and
continuing into ’19, that business
started growing double–digit on the
back of a stronger underwriting
environment. Similarly, market
conditions in Australia for most
commercial P&C lines improved rapidly
at the end of ’17 and growth there is
registering at a double–digit pace.
These are examples of how conditions
change quickly and, by being nimble,
Chubb taking advantage. I want to
highlight a few of our businesses for
you from each category, starting with
several divisions in North America,
where net premiums written overall
grew low–to–mid single digits last year.
For serving the insurance needs of
large domestic and multinational
corporations, Chubb is the clear
leader in the U.S. and has significant
capabilities and presence, including
offices, people, products, technology
and distribution in 53 other countries
throughout Asia, Latin America and
across the continent of Europe. We
have longstanding relationships with
nearly every member of the Fortune
1000. With over 200 distinct products
ranging from primary risk management
“ Given our extensive
capabilities, global
presence and clarity of
mission, we have plenty
of growth opportunity.
We are ready and well
positioned to deliver the
power of today’s Chubb.”
11
gross premiums annually and have
about a 2.5% share of the $160 billion
global E&S market. E&S insurers
specialize in hard–to–place or unusual
risks that require tailored coverages
standard companies cannot or won’t
write. We have a very broad product
lineup — from specialty property and
liability offerings to product recall,
and railroad and airlines liability, as
examples. For several years now, our
E&S companies have been shrinking,
driven by soft prices and irrational
behavior by competitors. This is a
market that needs rate, and we are
definitely seeing a more positive
environment, and consequently growth
has begun to pick up as more risks
move toward adequate pricing.
I would be remiss if I didn’t mention
Chubb is the leading crop insurer in
the U.S. with a $2.3 billion agriculture
insurance business and an agribusiness
serving the commercial P&C needs
of farmers and ranchers. This is a
distinctive franchise for the company
with a 19% share of the $9 billion
crop insurance market. With superior
technology and a nationwide field
organization of 5,600 independent
agents, this business is all about how
we serve farmers and the government,
and the processes of risk selection and
claims management. We had another
very good year in 2018 in this business,
highlighted by a current accident year
combined ratio of 82.9% and $385
million in underwriting income. This
is a great franchise for Chubb.
numerous double–digit opportunities
across both commercial and consumer
lines. In particular, our operations
in the Asia Pacific and Latin America
regions have significant presence and
capabilities. These two regions led all
other parts of the world in growth and
I believe they will continue to do so
for Chubb in the foreseeable future.
Adding to our emerging markets
growth potential, we announced
major distribution agreements in the
last 12 months with Grab, the leading
ridesharing firm in Southeast Asia;
Citibanamex, the number two financial
group in Mexico; and Banco de Chile,
the country’s largest domestic bank.
These are in addition to the agreement
we have with DBS Bank, one of
Southeast Asia’s largest banks based
in Singapore, among others in Asia
and Latin America. In aggregate, these
agreements give us access to tens of
millions of potential new customers.
Building on our leadership serving the
U.S. middle–market community, we
have exported our knowledge, know–
how and technology to a number of our
operations around the world and have
an excellent opportunity for consistent,
high single– to low double–digit growth
in our middle–market business outside
the U.S. We have the on–the–ground
presence, people and capabilities,
including distribution and technology,
to succeed in this segment and we
are focusing on a targeted group of
countries, with particular focus on
developing economies where much of
the growth is coming from small and
mid–sized businesses.
Growth isn’t our number one priority
at the moment in our $5 billion U.S.
personal lines business for affluent
clients, although it certainly is and
will remain an important dimension.
I believe there is plenty of opportunity
to grow over time. We are focused
on addressing the elevated loss ratio
we have been experiencing in our
homeowners book, a trend we began
to spot almost two years ago and an
industrywide issue. We are on track
with a number of coverage, pricing
and underwriting strategies to address
the loss ratio and, at the same time,
customer needs without cheapening
the product, and it will take some time
to show through in the results on a
run–rate basis. In the meantime, we
continue to distinguish ourselves in
the marketplace with the industry’s
finest protection and claims service
for our discerning clients. We continue
to invest in and expand our product
offerings and services, including
meeting clients’ global coverage and
service needs and enhancing their
digital experience with the company.
We are employing highly targeted
digital marketing channels to generate
thousands of potential client leads
monthly, as well as reach clients and
agents with timely and relevant insights
on how to prevent losses and protect
their families.
Growth segments — increasing
earnings contributors
Turning to the other side of the growth
prospects chart, we have a number of
businesses that represent significant
opportunity over the short and long
term. Our $10.8 billion international
P&C business in aggregate grew in the
high single digits last year and has
12
growth in our worksite marketing
division called Chubb Workplace
Benefits. This business takes advantage
of our extensive nationwide broker and
agent relationships to offer a suite of
voluntary benefits for the employees
of mid–to–large companies — a great
example of cross–sell in action. We
have been incubating this business
quietly and it’s now growing double–
digit and producing $150 million in
premiums. Outside of North America,
we are growing our consumer lines
with the emerging middle class in Asia
and Latin America as one of our key
targets. Supplementing our primary
telemarketing, agency and broker
channels, new digital distribution
partners are becoming major
contributors to growth.
Lastly, revenue in our Asia–focused
life business was $2.4 billion. We
have 37,000 captive agents in the six
Asian countries with life operations,
plus another 43,000 in China, where
we have a 36% stake in Huatai Life.
Our life business earned over $100
million of income last year and is
on track to growing to $250 million
within a reasonably short period, and
that doesn’t include our Chinese life
company investment, Huatai Life.
We announced in early 2019 that we
are increasing ownership in Huatai
Insurance Group Company Limited, the
holding company of Huatai Life, Huatai
Property & Casualty and Huatai Asset
Management. With our increased
stake, Huatai Group becomes the first
Cyber insurance is a growing business
and Chubb has become a top provider
of coverage. Exposures are growing as
a result of a digitized world and we are
responding to the needs of businesses
and individuals. We distinguish
ourselves not only with our insurance
coverage — our promise to pay claims —
but with a suite of services that clients
need. We help them identify, address
and potentially prevent a cyber risk
event. When an incident occurs, we
provide services ranging from legal
and forensics to customer–based call
center activity and public relations —
all of which, when done quickly, limit
the damage.
In 2018, we continued to make
significant progress with our small
commercial business initiative globally.
Starting from a relatively small base in
’17, we produced strong double–digit
growth throughout the year, achieving
an annual run rate of over $1 billion in
premium, and project this business to
exceed several billion dollars over time.
In the U.S., this is a highly automated
digital experience, where 80% or more
of the submissions are not touched by
humans after they leave the agent’s
office. Technology is a competitive
weapon. We have over 4,000 agents
in the U.S. on our Chubb MarketplaceSM
platform quoting, issuing and servicing
clients. Internationally, we are
expanding product and distribution,
both traditional and digital, through
easy–to–use technology.
On the consumer side, we expect
stronger growth in our large $4.6
billion global A&H and $2.2 billion
international personal lines businesses.
In the U.S., we are achieving rapid
“ Digital and the use of
data to improve risk
selection and pricing are
the industry’s arms race
and they will determine
the future industry
winners while making
our industry more vital
and relevant. At Chubb,
we intend to be one of
those winners.”
13
domestic Chinese financial services
holding company to convert to a Sino–
foreign equity joint venture and is a
major and necessary milestone towards
our goal of majority and beyond
ownership. Huatai Group’s insurance
operations have more than 600
branches and 11 million customers.
Ensuring Chubb is compelling
in a digital age
I’m encouraged by the digital trend
of our industry. A number of carriers
are investing in and embracing the
use of data, both sources and tools,
to improve risk selection and pricing
along with technology to streamline
the value chain and internal costs while
improving the customer experience.
This is the industry’s arms race and
it will determine the future industry
winners while making our industry
more vital and relevant.
At Chubb, we intend to be one of
those winners. We are continuing
to execute on our strategic plans to
transform ourselves to ensure Chubb
is compelling in a digital age. We are
making good progress and our
transformation is already contributing
to revenue growth and expense
reduction opportunities. These will
continue over the medium term
while redefining or modernizing what
insurance does and how it does it.
Our vision is to offer a best–in–
class customer experience with an
omnichannel capability that gives
customers anytime–anywhere access
to Chubb through the channel that
suits them best. Using data, analytics
and technology, we are building API
connections to apps, mobile–friendly
sites and portals that focus on the
customer to enhance outcomes and
broaden the value we provide.
Our investments in new technologies
and digital innovation are contributing
to our risk selection and pricing
capabilities. By unlocking the
significant power of internal and
external data analytics, machine–
learning and web–scraping, we are
gaining greater insights at the micro–
risk cohort level, powering product
innovation and, overall, improving our
cycle of change across the organization.
These technologies also enhance the
customer experience at the point of
sale with two–question quoting in small
commercial and quote–to–bind in a
matter of minutes as near–term
objectives. In terms of efficiencies, the
use of robotics and artificial intelligence
will allow our underwriters to spend
more of their time on higher value,
portfolio–level activities and our claims
handlers on more time–sensitive,
complex claims. By eliminating low–
value activities and their expense, we
project hundreds of millions of dollars
in savings over the course of the next
five years.
Our expanding digital capabilities
are giving us new distribution
opportunities where we live in our
partner’s digital ecosystem, offering
intuitive product placements and
customer value propositions to millions
of new customers in e–commerce
sectors such as ridesharing and the gig
economy, as well as more traditional
sectors such as retail, travel and
banking. We are winning significant
distribution agreements like the ones
I mentioned earlier as a result of our
brand, product and service capability,
and technology that integrates with
our partners’ digital channels, both
mobile and web.
Premium Distribution
by Product
2018 net premiums written
Global Reinsurance 2%
Agriculture 5%
Global A&H and Life 18%
Personal Lines 22%
14
Large Corporate
Commercial P&C 18%
Middle Market/
Small Commercial
P&C 26%
Wholesale Specialty
Commercial P&C 9%
from rural to urban living, including
suburban sprawl — and so many located
near water and wilderness because
that’s where people want to live. Add
to that government social policies that
insulate people and society from the
true costs of their decisions. Hurricanes
Florence, Michael and Harvey were
significant events causing record
flooding in the U.S. Meanwhile, 2018
was the deadliest and most destructive
wildfire season on record in California
following ’17’s record–setting wildfires.
Given the long–term threat and the
short–term nature of politics, the failure
of policymakers to address climate
change, including these issues and
the costs of living in or near high–risk
areas, is an existential threat.
As an underwriting company, our job
is to understand, structure and assume
climate change–related risk for a fair
price, and only do so to the extent
of our balance sheet wherewithal
and our ability to spread the risk to
third–party capital. Our approach to
underwriting is fact–based and relies
on both our own experience and
scientific expertise, and that of the
expert network we engage outside
our organization. Climate risk is
complex and requires a deep and
evolving understanding of the physical
processes causing weather extremes.
These tools are improving and are
providing better insights to aid in how
we think about these perils, but much
Our insurance products and services
are changing as we move from a
model of “repair and replace” to
“predict and prevent.” Our recently
announced partnership with Hartford
Steam Boiler is advancing this value–
added service proposition for our
consumer and commercial customers
in the U.S. By using IoT sensors and
other devices to actively monitor the
home or workplace for water leaks,
changes in temperature, humidity
or even vibration, we can anticipate
and prevent damage. Ultimately,
such technology has the potential to
fundamentally change the relationship
customers have with their insurers.
The dynamic external risk
environment
Our industry has a duty and an
opportunity to help society manage a
risk environment that is both dynamic
and changing due to natural and man–
made activity. Three areas I am going to
highlight with emerging or evolving risk
exposures are climate change, privacy
and litigation.
Climate change is a reality and its
effects can be seen by an increased
frequency and severity of natural
catastrophes. Climate change is
contributing to higher sea surface
temperatures, rising sea levels and an
increasing trend in extreme weather
events, including floods, droughts,
winter storms, heat waves, wildfires
and hurricane intensity. These weather
events are colliding with the realities of
urbanization — the growing exposures
from the concentration of people and
values created by the long–term shift
“ Our industry has a duty
and an opportunity to
help society manage a
risk environment that
is both dynamic and
changing due to natural
and man–made activity.”
15
remains unknown. For example,
what were traditionally non–modeled
risks can now be better analyzed, but
flood models, for instance, are more
advanced than those for wildfire,
which remain relatively crude. We
also recognize that no matter how
good, there is still much basis risk in
our conclusions. However, keep in
mind that natural catastrophes are a
short–tail risk, so losses are understood
relatively quickly, and we can in most
cases react to what we observe.
As tools evolve, so does our appetite.
Last year, I suggested that the U.S.
could benefit from the expertise and
capacity of private insurers to help
solve the growing flood exposure
problem, aside from what the
essentially bankrupt National Flood
Insurance Program provides. At Chubb,
we are going from viewing flood on
solely a defensive basis to taking a
cautiously offensive approach. We have
launched a flood center of excellence
and are beginning to offer greater
flood protection to businesses and
consumers. Stay tuned.
As for wildfires, we, like other insurers,
are willing to take the risk as long as
we get paid for it. That means the
political and regulatory environment
has to cooperate or they will have
an availability of insurance problem,
which, by example, we are beginning to
see signs of in the state of California. If
the kinds of wildfire events we have
seen the last two years continue, that
problem is going to grow. We must face
the reality that there is a greater cost
citizens must bear to remain protected.
Insurers don’t have a printing press.
Concerning privacy in a digital age, the
General Data Protection Regulation,
or GDPR, is a European law on data
protection and privacy that gives rights
to individuals to have access to their
data and provides them a right to be
forgotten. Discussions are now taking
place in the U.S. about consumer
privacy legislation, and I’m in favor
of the principle. The implementation
of privacy legislation, however, has
major implications for consumers
and American business including the
insurance industry.
Legislation should be in keeping with
our American social and cultural
values — after all, the right of privacy
and the protection of the individual are
intrinsic to our democracy. We need
a national standard, not fragmented
state–by–state, that takes a principles–
based approach so that companies and
organizations adopt privacy protections
appropriate to specific risks without
impacting their continued innovation
and economic competitiveness. A
national privacy law should give
individuals transparency and control of
their data, but at the same time provide
flexibility and impose reasonable
limitations on the data collection
burden of companies.
Lastly, we should be thoughtful about
unintended consequences, such as data
protection enquiries being used as a
shortcut to avoid discovery rules in a
legal dispute.
Finally, litigation activity continues
unabated, driven by both the legal
and social environments. Exposures
are increasing, particularly in markets
such as the U.S., U.K. and Australia.
Securities class action (SCA) litigation is
having a material impact on corporate
directors and officers (D&O) and certain
errors and omissions (E&O)–related
coverages where suits are filed for any
corporate misfortune that impacts the
share price — almost an operational risk
type cover. At the same time, the causes
of potential misfortune are increasing.
For instance, product liability exposure
automatically becomes a D&O suit.
So does a cyber breach or an M&A
transaction. All of these cases, whether
meritorious or not, result in substantial
legal and, often, settlement expenses.
Societal changes are also increasing
exposures and suits, such as the
#metoo movement and sexual abuse
claims, and that includes reviver laws
which reopen and extend the statute of
limitations — a development that may
produce similarly adverse impacts on
insurers.
Excessive litigation is a tax on
Corporate America and costs continue
to rise for both public and private
companies as the frequency and
severity of litigation from securities
class actions and M&A objections
have worsened. Nearly 10% of the
16
Fortune 500 last year was a target of
a class action. The number of federal
SCAs filed last year was the highest
on record and more than double
the number in 2014. Another
consequence: the number of public
companies is less than half of what it
was in 1996, and excessive litigation
is a contributing factor.
Chamber of Commerce’s Institute for
Legal Reform and a number of our
underwriting and brokerage peers,
and in collaboration with Stanford
Law School, we are at the early stages
of an effort that will require federal
legislation once again to address
this. We are realists — this will be a
long battle.
The legal profession is a profit–making
industry like any other, but our terribly
inefficient system benefits lawyers
at the expense of shareholders. For
example, in the case of most D&O
SCAs and M&A objection litigation,
instead of shareholders getting
compensated for actual damages,
the primary beneficiary was the legal
profession. Based on our data, about
half of the money paid in securities
claims, including legal expenses and
settlements, in the last five years has
gone to the lawyers, both plaintiff
and defense, and in the case of M&A
objections, over 65%. In fact, 85%
of settled M&A claims provide no
monetary benefit to shareholders —
all of the money goes to lawyers.
Our job is not simply to aid and abet
this system, which drains our economy
of time and money. It’s to help lead
American business to advocate for
reforms such as requiring fees paid to
plaintiffs’ attorneys be proportional,
barring fees for frivolous disclosure
suits, and requiring disclosure of all
relationships between plaintiffs and
their lawyers — and that includes
any third–party funders. Litigation
funding is a growing problem in the
U.K., and it’s wreaking absolute havoc
in Australia. As members of a broad
coalition, which includes the U.S.
The need for American leadership
I expect ’19 will be more challenging
from a macroeconomic perspective
with global growth slowing. The U.S.
economy remains the brightest spot
among major economies. Geopolitical
conditions will remain volatile, fed by
a number of powerful forces — rising
nationalism and populism, inability
of major democracies to effectively
govern, trade tensions, Brexit, the
U.S.–China relationship, and the
unsustainability of China’s current
economic model and growth. Business
thrives in an environment of certainty,
and while a global recession is unlikely
in 2019, we are beginning to talk
ourselves unnecessarily into one in the
next few years.
Of late, I have added my voice to raise
concern about the rise of populism.
Growing populism is likely the
consequence of a period of relatively
rapid change brought about by
globalization and technology, leading to
an increase in overall global prosperity,
particularly in the developed world.
They have also led to increased stress
“ Excessive litigation
is a tax on Corporate
America and costs
continue to rise for
both public and private
companies as the
frequency and severity
of litigation from
securities class actions
and M&A objections
have worsened.”
17
and declining living standards for many
and created enormous wealth for a
few. Many feel vulnerable, frustrated
and disillusioned and long for a return
to the past. They feel their local and
national identities are threatened, and
this produces a growing sense
of intolerance.
Our country’s brand of nationalism,
as articulated by our leadership, has
impacted our policies and relationships
and, in turn, our image and standing in
world trade and geopolitics. America’s
reputation for reliability and its
credibility on the world stage have been
damaged. We are a growing source
of instability and uncertainty for our
allies, who struggle to understand our
nation’s views versus our leadership’s,
and that’s not in our national interest.
We are undermining the liberal world
order we constructed, including a
system of strategic alliances we built
and supported for over seven decades.
These alliances are a force multiplier
for America’s values and power in the
world. Other countries are beginning to
seek alternatives, and rivals for global
influence fill the leadership vacuum we
create with an image of global order
that hardly mirrors our own values
and beliefs.
At the same time, democratic
governments around the world
are failing to govern, incapable of
delivering on the promises they make
to address their people’s needs.
Alternatives such as authoritarian rule
begin to look more efficient. It’s an
illusion and it’s dangerous.
Leadership comes from strength,
confidence and a belief in our
values. That means running our
own race well, addressing our own
state of competitiveness, including
infrastructure, skills training
and education to equip a greater
percentage of our population to
flourish, government investment in
R&D, military modernization, and
fiscal discipline including entitlement
reform needed to tackle an out–
of–control federal deficit. We have
enormous inefficiency in government
and growing political polarization. We
tolerate behavior in political leadership
unheard of in the private sector. We
must have a modern, practical yet
humanitarian immigration policy that
responds to both our needs and the
values of who we are as a nation of
immigrants — a policy that secures
our borders, provides us with the
large numbers of foreign skilled and
unskilled labor our economy requires,
and welcomes with open arms those
who seek a better life.
America is more than just a nation; it is
an ideal, a beacon for the democratic
principles that underpin the liberal
world order that has, in turn, served
us and other nations so well. The irony
is that we have never lived in a better
time — more people around the world
have been lifted out of poverty, more
diseases have been eradicated, more
wealth has been created, and more
of us have enjoyed the benefits of
innovation, good health, and relative
peace and prosperity than at any other
time in human history. As Americans,
we should remember who we are —
the keepers of a grand experiment in
democracy. We should feel confident to
promote our values and not be insecure
about defending them.
Leading with our vision of
global trade
Global trade relies on the notion of
comparative advantage. Self–sufficiency
is not possible for a modern nation in
a globalized world. For global trade
to work, major countries must play
by substantially similar rules as they
pursue their interests. And here lies
the core issue with today’s U.S.–China
trading relationship.
Discussions to resolve, or more
likely ameliorate temporarily, issues
surrounding our trading relationship
with China are occurring at a time
when each country is assessing
the relationship and intentions of
the other from a broader context.
The conclusions each reaches will
determine how best to engage in
the longer term given our respective
national interests. Both sides have
constituents that are beginning to
frame the relationship as one of
enemies. Arriving at that conclusion,
however, would be a major strategic
mistake and would create the
wrong future.
We have moved from a period marked
more by strategic engagement to one
of strategic competition in the areas of
trade, security and political ideology.
Trust and honest communication at
official levels are lacking. China views
the U.S. as attempting to hold back its
natural rise, while the U.S. views itself
as simply defending its interests against
organized predatory behavior. With a
deep–seated sense of insecurity that is
part of our national psyche, we tend
18
to underestimate the strengths of
our economic and political system,
characterized by a belief in markets,
rule of law, and rights of the individual.
In comparison, we overestimate,
almost in mythical terms, the strengths
of China and the threats they present.
by both nations to a more nationalistic
model of self–sufficiency. That’s not
a path to greater prosperity. We
don’t support tariffs as a strategy —
that’s counterproductive. We do,
however, support efforts to defend
our economic interests.
China has deep structural issues. They
have reversed direction in terms of
market–oriented reforms and have
moved toward greater party control
and industrial policy — a mix of
competing priorities to continue to
grow and create prosperity for their
people while exerting greater central
and authoritarian control over their
economy and society. The economic
consequences of this approach are
beginning to show as evidenced by
inefficient capital allocation, excessive
leverage and speculation, declining
investment and returns on investment,
a stagnating private sector and capital
flight. In time, China will recalibrate
priorities and return to a path of
greater market–oriented reforms.
The United States and China, the two
largest economies in the world, have
benefited enormously from trade and
investment ties over the years. The U.S.
and U.S. companies have benefited
and continue to benefit from access to
a sizable and growing Chinese market,
while China has benefited from access
to the U.S. market and U.S. commercial
support going back many decades, and
this has supported China’s rise. On
the trade front, U.S. business seeks a
constructive U.S.–China relationship.
How we find a path of accommodation
in each of our own interests,
recognizing the differences between
our systems and cultures, is the
question. We don’t support a retreat
China should begin by taking the
necessary steps to implement the
structural reforms that it has already
publicly acknowledged and which are
in their own interest. We advocate for
a practical, results–oriented dialogue,
with progress that can be monitored
and measured. If implementation is
done comprehensively, private sector
confidence, both Chinese and foreign,
will be lifted and those advocating for
constructive engagement will begin to
gain greater political support. Without
reciprocal access to each other’s
markets and protection of rights and
property, other nations will naturally
deny China the same opportunity.
Turning to our relationship with
Mexico and Canada, deeper economic
integration in North America is vital.
The new United States–Mexico–Canada
Agreement (USMCA) modernizes
the original NAFTA agreement in
some important ways; it substantially
preserves the original agreement
but includes some revised and new
terms that are troubling and not in
our interest, such as the renegotiated
investor dispute settlement provision.
However, it is important that Congress
ratify the USMCA. Strategically, with
the election last year of a new left–
leaning and populist government in
“ Good corporate
citizenship lies at our
core: how we practice
our craft of insurance,
how we work together
to serve our customers,
how we treat each other
and how we work to help
make a better world for
our communities and
our planet.”
19
Mexico, it is in our national interest
that we increase our engagement with
Mexico and maintain a path of deeper
North American economic integration.
Our southern neighbor’s leadership
agenda is moving the country back
toward 1960s style socialist and
populist economics and politics,
which are clearly not in the long–
term interests of their people or the
prosperity of North America.
To sum up, we must lead with our
vision of global trade and investment
in line with rules–based and market–
oriented liberal values. We should
support multilateral agreements such
as the Trans–Pacific Partnership while
in parallel we do the hard, long–term
work of modernizing and renovating
the World Trade Organization. In
December, the U.S. Congress passed
the Asia Reassurance Initiative Act. It
started with a core bipartisan group of
senators who felt the need to reaffirm
America’s commitment to traditional
western values. The Act restates
those values and outlines a new set of
programs designed to strengthen ties
with friends and allies in Asia. Congress
stepped in to underline the continuing
need for American leadership, and
while the Act is a modest step, it’s
welcome by our friends and partners
in Asia. I hope we will follow through
and match pronouncements with
real action. An open trading system
has been the great engine of global
prosperity during the past 50 years.
The world needs a forward–leaning
American agenda to support the next
50 years of prosperity.
Our commitment to citizenship
Good corporate citizenship lies at our
core: how we practice our craft of
insurance, how we work together to
serve our customers, how we treat each
other and how we work to help make
a better world for our communities
and our planet. Citizenship is about
responsibility and we express our
responsibility in a way that reflects
our core values and our mission to
protect the present and build a better
future. We accomplish our mission by
providing the security from risk that
allows people and businesses to grow
and prosper; by sustaining a culture
that values and rewards excellence,
hard work, integrity, inclusion and
opportunity; by working to protect
our planet and assist less fortunate
individuals and communities in
achieving and sustaining productive
and healthy lives; and by promoting
the rule of law. This is what citizenship
means to us.
We act on this promise of responsibility
through a wide range of activities that
include our contributions of time and
money:
• As a corporate citizen, we recognize
our responsibility to assist less
fortunate individuals and communities
in achieving and sustaining productive
and healthy lives in geographic areas
where we operate. We do this through
the Chubb Charitable Foundation,
which addresses actionable problems
and contributes to helping alleviate
poverty, improve the health of at–
risk populations, provide access to
quality education and protect the
environment. To give a few examples,
for many years, our Foundation
has supported the good work of the
International Rescue Committee,
including its efforts to help refugees
get settled and establish productive
lives. The Foundation has helped build
schools in China and Vietnam, fund
micro–finance projects in Mexico and
Colombia, and serve as a major partner
for Teach for America and Teach for
All programs in the United States and
around the globe. In total, we have
contributed more than $100 million
over the last 10 years to support three
core areas — education, poverty and
health, and the environment.
• As a corporate citizen, we recognize
the reality of climate change and the
substantial impact of human activity,
and our environmental activities
reflect our desire to do our part as
a steward of the Earth. We support
important environmental projects
through our Foundation including the
protection of biodiversity and saving
land. For example, since 2005, our
unique Chubb Land Legacy Fund has
supported The Conservation Fund,
one of America’s top environmental
preservation organizations, which
has protected 8 million acres of vital
land and water habitats across the
nation. Our Foundation has supported
the work of The Nature Conservancy
(TNC) in the repair and protection of
the unique and critically important
Mesoamerican Reef along Mexico’s
Yucatan Peninsula, which helps protect
the local coastal infrastructure and
economy against storm surge. In 2018
the Foundation made a major grant
to TNC for a wetlands restoration
and resilience project in Miami–Dade
County designed to serve as a model to
be replicated in other urban coastal
20
areas. We are also actively engaged
in reducing our own operations’
greenhouse gas emissions and in the
last three years have reduced our GHG
footprint by 21%.
• As a corporate citizen, we recognize
the rule of law as the foundation of
a liberal world order we embrace,
essential to the proper functioning
of markets and the protection of
personal freedoms. We promote its
preservation and advancement through
our unique Chubb Rule of Law Fund,
which has sponsored nearly 50 projects
across the globe to improve access
to justice, strengthen courts, fight
corruption and create the conditions
of security and freedom in which our
customers, employees and fellow
citizens can thrive.
• As a corporate citizen, we also
recognize our responsibility to
ensure opportunity within our own
organization, where we foster a diverse
and inclusive meritocracy. We can’t
succeed unless we give everyone the
opportunity to thrive and advance
in our company, and we hold our
leaders accountable for improving the
advancement of women and people
of all races, nationalities and religions
around the globe. We are making good
progress on this front, which we closely
monitor, and will continue to make
strides.
In short, our commitment to global
citizenship is unwavering. It is who
we are.
Stronger, smarter, more efficient
and more capable
I want to thank all of my fellow
employees and my senior management
team for their outstanding effort last
year. They never cease to amaze me
— they are craftsmen of insurance,
technically proficient and so
dedicated to our clients and business
partners, and they are truly the best
representatives of our stellar brand.
They love our company and being a
part of our journey. I also want to thank
my active and supportive Board of
Directors — I appreciate their counsel
and commitment to our mission.
I would like to acknowledge the
contributions of James Zimmerman,
who is retiring from the Board this
year after more than 10 years of
service, including serving as Chubb
Corporation’s lead director. It has been
a pleasure to work with Jim. With such
a team around me, I must be one of the
luckiest business leaders.
I am convinced, and I hope you are
too, that Chubb is a proven long–term
shareholder value creation story.
Our presence and capabilities are so
compelling, and we are not finished
with this story by any stretch. In fact,
we are getting stronger, smarter, more
efficient and more capable every day.
While we face many challenges in the
world around us — some of which are
out of our control — we are optimistic
about our future and passionate about
the pursuit and execution of our desire
to outperform.
On behalf of the entire organization,
thank you for your investment and
trust in us.
Sincerely,
Evan G. Greenberg
Chairman and Chief Executive Officer
2121
A Global Leader in Property and Casualty Insurance
A local presence in 54 countries and territories around the world
Chubb has operations in the countries and territories listed here and can help
clients manage their risks anywhere in the world.
Argentina
Australia
Austria
Bahrain
Belgium
Bermuda
Brazil
Canada
Chile
China
Colombia
Czech
Republic
Denmark
Ecuador
Egypt
Finland
France
Germany
Gibraltar
Hong Kong
Hungary
Japan
Korea
Macao
Malaysia
Mexico
Indonesia
Netherlands
Pakistan
Panama
Peru
Philippines
Poland
Portugal
Ireland
Italy
New Zealand
Puerto Rico
Norway
Russia
Saudi Arabia
Singapore
South Africa
Spain
Sweden
Switzerland
Taiwan
Thailand
Tunisia
Turkey
United Arab
Emirates
United
Kingdom
United States
Vietnam
22
Chubb Senior Operating Leaders
Paul J. Krump
Executive Vice President
Chubb Group;
President
North America Commercial
and Personal Insurance
John Keogh
Executive Vice Chairman
Chubb Limited/Chubb Group;
Chief Operating Officer
John Lupica
Vice Chairman
Chubb Group;
President
North America Major
Accounts and Specialty
Insurance
Juan C. Andrade
Executive Vice President
Chubb Group;
President
Overseas General Insurance
Chubb’s senior operating leadership includes the company’s
Chief Operating Officer and the leaders of North America
and Overseas General insurance operations.
23
North America Insurance
Key Financial Results
Dollars in millions
Total North America
P&C Insurance
2018
Gross premiums written
Net premiums written
Combined ratio
P&C current accident year
combined ratio excluding
catastrophe losses
$23,957
$18,736
88.4%
85.5%
North America Commercial
P&C Insurance
2018
Gross premiums written
Net premiums written
Combined ratio
P&C current accident year
combined ratio excluding
catastrophe losses
Segment income
$16,336
$12,485
87.0%
87.3%
$3,665
North America Personal
P&C Insurance
2018
Gross premiums written
Net premiums written
Combined ratio
P&C current accident year
combined ratio excluding
catastrophe losses
Segment income
$5,330
$4,674
96.6%
81.9%
$378
North America Agricultural
Insurance
2018
Gross premiums written
Net premiums written
Combined ratio
Segment income
$2,291
$1,577
75.5%
$383
24
Executive Vice Chairman, Chubb Group
and Chief Operating Officer. “We’re
very clear–minded about what rates we
believe are adequate — by product, by
industry and by region — for us to take
the risk.”
“When it comes to claims and risk
engineering, Chubb continued to be
there for our clients,” said Paul Krump,
Executive Vice President, Chubb
Group and President of North America
Commercial and Personal Insurance.
“The investments we have made in our
claims operation and our people enable
us to continue to set the standard for
the industry.”
While underwriting and claims
excellence are proven Chubb strengths,
the company remained focused on
pursuing growth opportunities in
its North American businesses. To
seize those opportunities, the company
executed a range of strategies focused
on both customers and distribution
partners.
Total net premiums written for
the company’s North America P&C
insurance businesses were $18.7 billion,
up 3.7% from 2017. Chubb’s focus on
carefully managing its risk exposures
is evident in its P&C underwriting
results for all of North America. In a
year with elevated natural–catastrophe
losses, Chubb reported a world-class
combined ratio of 88.4% for its North
America P&C insurance operations.
Chubb’s insurance businesses in North
America serve clients ranging from
the largest multinationals, mid-size
companies and small businesses to
successful individuals and families,
and the agriculture community. The
company is the largest commercial
lines insurer in the U.S., with
market–leading positions in several
customer segments.
In 2018, two trends in the operating
environment stood out. First,
throughout the year, P&C pricing in the
U.S. began to improve in many product
lines and accelerated in the second half.
For Chubb, this was an opportunity to
demonstrate leadership in driving for
rate adequacy in an industry that needs
it. Chubb’s underwriting discipline
in all market conditions — including
a dynamic one where rates in many
product lines are beginning to achieve
better levels of adequacy — enables it to
provide a stable and steady market for
agents, brokers and clients.
The second trend was the continued
elevated level of natural catastrophes,
including Hurricane Michael, Hurricane
Florence, and another year of record-
breaking wildfires in California. In
response to the catastrophes of 2018,
Chubb once again demonstrated its
industry-leading claims capabilities and
delivered on its service commitment to
customers during their time of need.
“Chubb is an underwriting company,
and we know we don’t operate in one
big, monolithic general insurance
market. We’re present in many markets
and we survey them constantly,
allowing us to be nimble and seize
on opportunities as local market
conditions change,” said John Keogh,
Chubb’s North America
Insurance Business Units
Major Accounts
Commercial P&C insurance products
for the large corporate market sold
by retail brokers
Commercial
Insurance
Commercial P&C insurance products
for middle–market companies sold by
independent agents and retail brokers
Small
Commercial
P&C insurance products for small
commercial clients sold by
independent agents and retail brokers
Personal Risk
Services
Personal lines coverage, including
home, auto, valuables, umbrella and
recreational marine insurance, for
successful individuals and families
sold by independent agents and brokers
Westchester
Commercial P&C excess and surplus
lines sold through wholesale brokers
Chubb Bermuda
Liability, property, political risk
coverages and captive programs sold
by large international brokers
Agriculture
Crop insurance from Rain and Hail
and farm and other P&C coverages,
sold by agents and brokers
The depth and strength of Chubb’s
management team was evident in 2018,
as several North American business
units underwent leadership transitions.
In those divisions — Major Accounts,
Field Operations, Agriculture and
Chubb Bermuda — the succession
was seamless, with experienced and
capable Chubb leaders, each with long
tenure, moving into the new division
president roles.
“Chubb has a deep bench of leadership
talent, and each of these transitions
was planned and implemented
seamlessly,” said John Lupica, Vice
Chairman of Chubb Group and
President, North America Major
Accounts and Specialty Insurance.
“It’s gratifying to see our trusted,
experienced colleagues take on new
leadership responsibilities. There’s a
great Chubb story behind each of these
executive moves.”
North America Commercial P&C
Insurance
Chubb is the largest commercial lines
insurer in the U.S., offering a full range
of traditional and specialty products for
businesses of all sizes. Net premiums
written for North America Commercial
P&C Insurance increased 3.9% to $12.5
billion from prior year. The combined
ratio for the segment was 87.0%.
Excluding catastrophe losses, the P&C
current accident year combined ratio
was 87.3%. Segment income was
$3.7 billion.
“For our major accounts and specialty
businesses, 2018 was another strong
year,” said Mr. Lupica. “We set out to
deliver a more coordinated Chubb for
25
North America Insurance
“ We don’t operate in
one big, monolithic
general insurance
market. We’re present
in many markets
and we survey them
constantly, allowing us
to be nimble and seize
on opportunities as
local market conditions
change.”
— John Keogh
26
also have access to a Claims Client
Executive. Chubb’s commitment
to make the company accessible to
clients is also evident in Worldview®,
the award–winning proprietary portal
that enables client risk managers and
brokers to manage and track all aspects
of their insurance program in real time.
Some 10,000 clients and brokers utilize
the system.
In 2018, the retention rate for Major
Accounts was more than 90%, and
cross–selling services to existing
customers accounted for more than
75% of new business. Key areas of
focus during the year included further
strengthening priority industry
practices, including transportation,
private equity, real estate and
construction. For private equity
firms, for example, Chubb introduced
a comprehensive solution that
combines four coverages focused on
management, outside directorship,
professional services and employment
practices liability into one policy.
In the excess and surplus lines, or
E&S market, Westchester specializes
in hard–to–place casualty, property
catastrophe and specialty lines for
large corporate, middle–market and
small businesses. For retail brokers that
do not have the capability or expertise
for E&S products, Westchester is an
important channel to access Chubb.
Westchester also exemplifies the
company’s commitment to under–
writing discipline. In a challenging
our distribution partners and clients.
New business growth was strong year
over year, and we had solid retentions
in both accounts and premium. While
our excess and surplus business was
impacted by the active CAT season, this
is a market that moves quickly, and the
fourth quarter was strong in terms of
rate, premium and new business.”
Major Accounts, Chubb’s P&C
business unit that serves large
companies, is recognized for the
breadth and depth of its product and
service offerings. It’s a high–touch
business where Chubb, with its strong
client– and broker–centric culture,
has developed long–term, enduring
relationships. Serving this market
requires not only strong technical
underwriting but also a global platform
able to execute a complex, bespoke
insurance program in many territories
around the world. Major Accounts
serves more than 90% of the
Fortune 1000.
“Clients need the capabilities that
Chubb provides — from underwriting
and claims, to fronting, sophisticated
collateral arrangements, audit, and
third–party administered claims
and risk management services, both
bundled and unbundled,” said Mr.
Lupica. “No one in the marketplace
does this better than Chubb.”
To meet these complex needs, Major
Accounts clients have access to a Global
Client Executive, who serves as a single
point of contact and knows the insured
and its insurance needs closely. The
Global Client Executive is there to help
navigate the Chubb network across the
globe. For claims handling, customers
North American
Business Unit Leaders
(From left)
James Williamson
Vice President
Chubb Group;
Division President
North America Small
Commercial Insurance
Frances D. O’Brien
Senior Vice President
Chubb Group;
Division President
North America Personal
Risk Services
C. Scott Gunter
Senior Vice President
Chubb Group;
Division President
North America
Commercial Insurance
Christopher A. Maleno
Senior Vice President
Chubb Group;
Division President
North America Field
Operations
(From left)
Matthew Merna
Division President
North America
Major Accounts
Scott Arnold
Division President
Chubb Agriculture;
President
Rain and Hail
Judy Gonsalves
Vice President
Chubb Group;
Division President
Chubb Bermuda
Bruce L. Kessler
Senior Vice President
Chubb Group;
Division President
Westchester
27
North America Insurance
“ For our major
accounts and specialty
businesses, 2018 was
another strong year. We
set out to deliver a more
coordinated Chubb
for our distribution
partners and clients.
New business growth
was strong year over
year, and we had solid
retentions in both
accounts and premium.”
— John Lupica
28
operating environment in 2017, Chubb
shrank the E&S property business
by approximately 8% to maintain
underwriting profitability. In 2018,
the market shifted, and Chubb moved
quickly to seize the opportunity,
growing its E&S property business
by 14%.
Westchester had another successful
year growing wholesale small business.
The book grew 30% year over year
on the strength of our offerings, new
distribution channels and the growth of
our microdigital platform. Building out
APIs with key distribution partners was
a focus on the digital front.
In 2018, Chubb Bermuda remained
focused on its core excess businesses,
including property, excess casualty and
financial lines, as well as its political
risk business. The operation, which
complements the Major Accounts
business, remained relevant on a global
scale, delivering Chubb’s high severity/
low frequency business model to clients
and brokers around the world. In 2018,
the political risk group experienced
a record year in terms of revenue
and profitability.
Commercial Insurance, the P&C
business unit that serves middle–
market companies, is distinguished by
its more than 20 industry practices,
each handled by teams of experienced
underwriting, claims and risk
engineering professionals who
understand the particular exposures of
that industry. Commercial Insurance’s
core package product is complemented
by an extensive range of standard and
specialty coverages.
In recent years, the business has
focused on expanding and deepening
its industry practices, and 2018 was
no exception. One industry receiving
increased focus was manufacturing,
where companies in North America
face growing risks in their operations
from increasingly complex automation,
technology and cyber exposures.
For middle–market businesses, the
experience and insights of underwriters
and risk engineers who can assess
those risks and offer actionable steps to
mitigate potential losses is a benefit of
insuring with Chubb.
Chubb’s extensive product offerings
also create opportunities for cross–
selling. “About half our new business
comes from selling additional coverages
to existing clients,” said Mr. Krump.
“Our ability to meet the needs of
middle–market customers is also
due to the strength of our extensive
network of branches, which delivers
service locally. We have 1,000 Chubb
colleagues servicing our Commercial
Insurance customers in North
America.”
One example of cross–selling — and of
the power of the Chubb organization
— can be found in the manufacturing
practice, where underwriters are
successfully offering product recall
coverage to middle–market companies
— a specialty product underwritten by
the company’s Westchester affiliate.
Another example is using the Chubb
branch network to bring the company’s
accident and health insurance products
to middle–market customers.
More broadly, the Chubb branch
network in North America, which
has 48 offices, had a strong year, with
cross–selling through retail agents
and brokers accounting for 62% of
new business. “We have solid growth
strategies with our top brokers and
agents, and the comfort level of our
branch team with our expanded
product offering, and with working
together as colleagues, is at an all–time
high,” said Mr. Lupica.
all of their small business accounts.
Designed in partnership with our
agents, Chubb Marketplace was first
introduced to a few hundred agencies
in late 2017. Adoption has been
rapid and accelerating. By the end of
2018, more than 4,000 agencies had
requested and received access to the
platform. Each day, an average of
1,000 agents log in to the platform
to transact business. More than
80% of submissions for the core
package product are processed on a
straight–through basis, where the
agent receives a fast answer from
the system without having to interact
with an underwriter.
North America Agricultural
Insurance
Chubb’s Rain and Hail subsidiary is
the leading crop insurance managing
general agency in North America. The
business serves approximately 125,000
farmers, insuring more than 100
different crops over 65 million acres.
In addition to Rain & Hail, the North
America Agricultural Insurance
segment includes farm, ranch and
P&C commercial agriculture coverages.
In 2018, the segment produced a
combined ratio of 75.5% and segment
income of $383 million. Net premiums
written were $1.6 billion, up 4.0%.
For Chubb’s Small Commercial
division, 2018 was a year of significant
progress and achievement. Growth
in net premiums written accelerated
throughout the year, and the business
unit ended 2018 with an annual run
rate of $400 million. The opportunity
in this highly fragmented market
segment is vast — some 33 million small
businesses that spend $100 billion on
insurance. Chubb has approached this
market with a clear vision: delivering
an exceptional experience to our agents
through technology that is simple
and efficient, enabling them to spend
more time on advising their small
business customers and building their
businesses.
The company has differentiated itself
with Chubb MarketplaceSM, an intuitive
digital platform that makes it easy
for agents to quote, issue and service
The company continues to enhance
Chubb Marketplace, including adding
products and increasing the threshold
of clients that it can service. For
example, in 2018, Chubb introduced a
suite of property and liability insurance
products focused on the specific
needs of small life sciences firms and
artisan contractors. Dental malpractice
insurance is also now available through
Chubb Marketplace. New suites of
coverages for restaurant owners,
religious groups and veterinarians will
be launched in the coming months.
Crop insurance is a successful
public–private partnership that
operates with a proven model. Chubb
distinguishes itself in the multi–peril
crop insurance market through its
track record of delivering superior
service, demonstrated commitment
to the market and national scale,
including distribution through 5,600
independent agents, the largest agency
footprint in this sector. Clients also
value the business’s online portal
that facilitates the payment of
claims quickly.
“Multi–peril crop insurance is a vital
part of the chain of commerce for
agricultural communities, and it’s a
core business for Chubb as well,” said
“We’re going to continue to focus
on the agent experience by further
enhancing our technology and the
use of third–party data that makes it
even easier to do business with us,”
said Mr. Krump. “At the same time,
we will continue to build our team to
service this growing business. With our
industry–leading capabilities and rapid
growth, we’re finding it easy to attract
the very best talent to join our Small
Commercial team.”
29
Mr. Lupica. “2018 was another great
year in terms of our performance,
growing our policy count and further
building the brand, which is the best in
the industry.”
In 2018, Rain and Hail entered into a
multi–year agreement with Bushel™,
a software platform that allows grain
elevators, cooperatives and ethanol
plants to connect with their growers
digitally. The addition of Bushel to Rain
and Hail’s platform provides growers
and agents a fast and efficient way to
report critical production information
that can help save them time during the
harvest season.
North America Personal P&C
Insurance
Chubb is the leading provider of
personal lines insurance for successful
individuals and families in the U.S.
and Canada. Chubb Personal Risk
Services shares many of the strengths
of the company’s North American
commercial P&C insurance businesses,
including a broad product offering,
superior claims and risk consulting
services, and access to Chubb’s
extensive branch network in the U.S.
and Canada. Clients of Chubb Personal
Risk Services also benefit from the
company’s global presence, which
offers protection for their assets around
the world.
Net premiums written for the North
America Personal P&C Insurance
segment were $4.7 billion for the
year, up 3.1% from 2017. In a year of
elevated industry losses from natural
catastrophes, the 2018 combined ratio
was 96.6%. The current accident year
combined ratio excluding catastrophe
losses was 81.9%. Segment income was
$378 million.
Chubb has built and is widening its
leadership position with this discerning
market segment by continuing to raise
the bar in terms of service. “Here’s
how we think about our relationships
with customers, and with agents and
brokers: we look for ways to do more
and we look for ways to say ‘yes,’” said
Mr. Krump.
In a world that is rapidly digitizing,
and where customers expect to be able
to interact 24/7 through the channel
they prefer, saying “yes” also means
a commitment to invest in digital
technology to enhance the customer
and agent experience. For Chubb, the
digital journey encompasses marketing,
quoting, onboarding, providing risk
consulting services and superior claims
handling.
In 2018, Chubb Personal Risk
Services enhanced its web portal and
introduced a mobile app with features
that include biometric login, voice
commands, text and email alerts, and a
simpler approach for paying bills. With
the app, customers can easily pull up
their auto identification information
or, if they have a claim, choose to file
the first notice of loss digitally. The tool
also enables customers to sign up for
North America Insurance
“ The natural
catastrophes of 2017
and 2018 heightened
awareness among
homeowners about
their insurance policy
and what it covers.
That has created an
opportunity for us to
really show what
Chubb brings to the
table, for our customers
and for agents and
brokers.”
— Paul Krump
30
policyholders in wildfire–prone states
are enrolled in this complimentary
service.
Chubb also differentiates itself in the
market through the breadth of
its products, which are crafted to
meet the needs of different customer
segments. In 2018, the company
launched a supplement to its
Masterpiece® homeowners policy
that offers individuals and families in
North America enhanced protections
for cyberattacks. The policy
includes protections from extortion
and ransomware, financial loss,
cyberbullying, cyber disruption, and
breach of privacy. Clients also benefit
from discounted access to third–
party resources, with tools ranging
from how to secure the home Wi–Fi
network and mobile devices to how to
spot signs of online manipulation.
“When I look across our businesses in
North America, and around the world,
I saw in 2018 a higher level of comfort
and confidence of our people,” said Mr.
Keogh. “As we focus on executing our
strategies, there is a quiet confidence
across the company. And that gives me
a great deal of optimism as we look to
the future.”
services such as Chubb Property
ManagerSM, which provides
policyholders with assistance for
second homes that suffer damage from
hurricane–force winds.
“The natural catastrophes of 2017
and 2018, including major hurricanes
and wildfires in the U.S. and Canada,
has heightened awareness among
homeowners about their insurance
policy and what it covers,” said
Mr. Krump. “That has created an
opportunity for us to really show what
Chubb brings to the table, for our
customers and for agents and brokers.”
At the top of the list of differentiators
is the superior claim service offered
by Chubb, which has been validated
by independent sources such as J.D.
Power. The client retention rate for
Chubb Personal Risk Services was
96% in 2018.
But Chubb’s definition of service
begins long before a customer may
have a claim. Chubb’s risk consultants
can be deployed to policyholder
homes to assess risks from water,
electrical systems or other exposures.
Policyholders also have access to
Chubb’s network of service providers,
including appraisers, with expertise in
assets ranging from art and jewelry to
yachts and collector cars.
Through digital marketing efforts, the
company engages with clients to raise
awareness about risks such as flooding
and internal water leaks. Water
damage from burst pipes, frayed hoses
and other plumbing failures are the
number one loss a homeowner is
likely to face and a growing industry
issue. Through these awareness
and education campaigns, Chubb
encourages policyholders to install
water leak detection devices or to turn
off their main water valve when they
leave their home for extended periods
of time. In 2018, Chubb entered into a
partnership with Hartford Steam Boiler
Inspection and Insurance Company
to begin installing web–connected
sensors in the homes and businesses
of Chubb policyholders. The devices
monitor for water leaks and changes in
temperature, humidity, vibration and
water pressure that, if left undetected,
can lead to severe property damage,
including to valuables such as fine art
and wine collections.
Chubb has also been using analytics
to identify clients that have a higher
propensity for a loss, and is working
with them and their agents proactively
to mitigate or prevent a loss from
happening in the first place.
Chubb’s commitment to prevent
customer losses was also evident in the
wildfire defense services deployed to
protect homes before, during and after
the California wildfires. Available in 18
states, our WDS partners monitor the
homes of our policyholders and, based
on the threat level, will take actions
such as clearing of hazardous objects
and material around the home to create
a more defensible space, installing
sprinklers, addressing hot spots
and, as a last line of defense in home
protection, applying fire retardant gel
to the home. Tens of thousands of
31
Overseas General Insurance
Key Financial Results
Dollars in millions
Overseas General Insurance
2018
Gross premiums written
Net premiums written
Combined ratio
P&C current accident year
combined ratio excluding
catastrophe losses
Segment income
$10,885
$8,902
90.4%
90.5%
$1,401
32
in terms of geography, branch offices,
product and distribution, continues
to be a competitive advantage and key
growth driver for us.”
“This business, which operates in
more than 50 countries and with over
450 local offices, is truly in an elite class
among global insurers,” said Mr. Keogh.
“It’s also home to some of Chubb’s
most compelling growth opportunities,
including small and middle-market
commercial P&C, personal lines and
accident and health. Asia and Latin
America are the regions where
Chubb has forged some of our most
significant long-term distribution
agreements, which enable us to reach
our partners’ vast customer bases
through digital channels.”
In 2018, Chubb launched its
partnership with DBS Bank in
Singapore and formed new distribution
partnerships with Grab, the leading
on-demand transportation platform
in Southeast Asia; Citibanamex, a
subsidiary of Citigroup Inc. and one of
Mexico’s premier financial institutions;
and, in early 2019, with Banco de Chile,
the largest bank based in Chile. These
new distribution partnerships give
Chubb access to millions of potential
new customers.
Growth in Chubb’s international retail
P&C operations was highlighted by
the strong results in Australia, where
Chubb moved quickly and pursued
a strategy of accelerated growth as
underwriting and market conditions
became more favorable. The company’s
continued emphasis on building its
middle–market and small commercial
Chubb’s international general insurance
operation is comprised of two main
businesses: one with distribution
through retail channels in five regions
of the world and the other an excess
and surplus (E&S) lines business with
distribution through brokers in the
London wholesale market and Lloyd’s.
Toward the end of 2018, the
international operating environment
for Chubb improved in a number
of important business lines and
geographies, notably in Australia
and the London wholesale market.
In both market segments in 2018,
Chubb demonstrated its underwriting
discipline and ability to move quickly
to seize opportunities as market
conditions changed.
At the same time, Chubb’s focus on
executing its strategies produced
strong growth and profitability for the
Overseas General Insurance segment.
Commercial P&C and personal lines
businesses performed well and the
company deepened and accelerated
its globally integrated capabilities to
deliver for customers and distribution
partners, particularly in Asia and Latin
America. Net premiums written were
$8.9 billion, up 6.6%. The combined
ratio for the year was 90.4%. The
current accident year combined ratio
excluding catastrophe losses was
90.5%, and segment income was $1.4
billion, up 15% from prior year.
“Our international operations
performed well in 2018,” said Juan C.
Andrade, Executive Vice President,
Chubb Group and President, Overseas
General Insurance. “The pace of
growth increased as we continued to
leverage the power of today’s Chubb
through our expanded distribution,
product capabilities and customer
segmentation. Our diversified platform,
Chubb’s Overseas General Insurance
Business Units
International
Commercial P&C, A&H and traditional
and specialty personal lines sold by
retail brokers, agents and other channels
in five regions:
Europe
Asia Pacific
Operations in the U.K. and 18 other
countries comprised of P&C commercial
lines and consumer lines, including
A&H and specialty personal lines
Operations in 13 countries and territories
serving commercial customers
and consumers with P&C, A&H and
personal lines
Latin America
Operations in nine countries serving
commercial customers with P&C
products and consumers through A&H
and personal lines
Far East
Operations in Japan serving commercial
customers with P&C products
and consumers through A&H and
personal lines
Eurasia & Africa
Operations in nine countries serving
commercial customers with P&C
products and consumers through A&H
and personal lines
Chubb Global Markets Commercial P&C excess and surplus
lines and A&H sold by wholesale
brokers in the London market and
through Lloyd’s
businesses globally also contributed to
the improved results. In addition, the
major accounts segment, which serves
the large corporate market, produced
good growth in the U.K., Ireland
and Continental Europe as market
conditions improved in 2018 after
several years of declining rates.
In the middle-market P&C segment,
a key focus was expanding Chubb’s
dedicated industry practices, which
bring together teams of experienced
underwriting, claims and risk
engineering professionals that
understand the particular exposures
of that industry. Industry practices
helping to drive growth during the
year included technology, life sciences
and real estate. Further developing
the company’s multiline capability,
which combines property and casualty
with specialty lines and multinational
capabilities, remained a priority.
In the small commercial segment,
the focus was on expanding product
offerings to distribution partners via
easy-to-use technology solutions, which
can be integrated with affiliate and
partner platforms for a streamlined
customer experience. Chubb continues
to implement better and faster analytics
capabilities and increase the volume of
business it processes digitally.
Personal lines generated strong
growth in 2018, particularly in the
emerging markets of Asia and Latin
America. Highlights included the
company’s motor insurance business
in Mexico, which is recognized for its
top-tier sales and service capabilities.
“The investments we have made in
technology, product development,
customer segmentation, and traditional
bancassurance and digital distribution
are paying off,” said Mr. Andrade.
33
Overseas General Insurance
“ Our international
operations performed
well in 2018. The pace of
growth increased as we
continued to leverage the
power of today’s Chubb
through our expanded
distribution, product
capabilities and customer
segmentation.”
— Juan Andrade
The company’s unique cell phone cover
and other consumer protection and
service propositions within Chubb’s
specialty personal lines (SPL) portfolio
are an excellent fit with the needs of
a growing middle class in emerging
markets. The business achieved
significant growth across Asia and
Latin America in 2018.
Chubb’s international accident and
health business is focused on driving
profitable growth through its core
direct marketing business, growing
group business through large and small
brokers and agents, and growing the
leisure and business travel insurance
segment. All of this is enabled by
investments in digital technology,
distribution expansion, product
enhancements, and servicing and
processing efficiency.
“Chubb’s international accident and
health business is well diversified by
geography, distribution methods,
products and customer segments. This
diversification provides a powerful
platform for Chubb to deliver our
specialty A&H products globally,” said
Joe Vasquez, Senior Vice President,
Chubb Group, Global Accident &
34
Health. “Our continued investment
in our A&H platform allows us to go
beyond traditional direct marketing
where we are now seamlessly
integrating our products and services
into the customer journeys of our
distribution partners.”
Chubb’s Asia Pacific region generated
gross premiums written of $2.7 billion,
up 11.3% in constant dollars from
prior year, which represents 7% of the
company total. “In Asia, as in Latin
America, we focus on the emerging
middle class and small and mid-size
businesses,” said Mr. Andrade. “Our
broad product offering, technologically
advanced front-end systems and
multichannel distribution platform,
which is enabled by our significant
branch network, have been the
backbone of our small commercial
and middle–market growth.”
Digital capabilities are at the heart
of Chubb’s distribution partnership
with DBS Bank, the largest banking
group in Southeast Asia. Within the
first 12 months, Chubb rolled out
over 60 general insurance products
across five markets. The products,
offered on an exclusive or preferred
basis, are distributed through multiple
DBS banking channels, including all
of its digital platforms. One of those
products, CyberSmartSM, was developed
through Chubb’s annual employee
innovation competition, which
encourages volunteer teams from
around the world to build innovative
new product ideas. The winning
entry was developed by an all-women
Singapore-based team. CyberSmart,
which is available as a family plan for
parents and as an individual plan for
young adults, provides cover for cyber
bullying, online privacy invasion and
identity theft.
In its partnership with Grab, Chubb is
now offering insurance solutions for
the ride-hailing firm’s driver-partners
through the Grab app. Drivers can
select different insurance products,
including coverages for loss of income
and personal accidents, to protect
their livelihoods and their families.
Chubb plans to further expand this
partnership throughout Southeast Asia
in future years.
Chubb is also pursuing growth
strategies in the developed economies
of Asia Pacific, including Australia and
Korea, where the company conducts
consumer direct marketing programs.
The company has a significant presence
in Korea for supplemental A&H and
residential coverages and is building
a strong digital capability to further
enhance distribution opportunities in
this critical market.
In 2018, Chubb launched a Major
Accounts division in Asia Pacific,
featuring a dedicated service
encompassing underwriting, risk
engineering and claims for the region’s
large, global and multinational clients
and business partners. The division
leverages the model the company
successfully uses in other regions,
including Global Client Executives,
Claims Client Relationship Managers
and risk engineers, to meet the
complex insurance needs of large
enterprises.
In China, the largest economy in
Asia and the second-largest in the
world, Chubb focused on building and
deepening its presence. The company
operates a fully licensed, 100% Chubb-
owned subsidiary with branch offices
in Shanghai, Beijing, Jiangsu and
Guangdong. Chubb China offers one
Overseas General
Regional and Business Unit Leaders
(From left)
Juan Luis Ortega
Senior Vice President
Chubb Group;
Regional President
Latin America
David Furby
Senior Vice President
Chubb Group;
Regional President
European Group
Paul McNamee
Senior Vice President
Chubb Group;
Regional President
Asia Pacific
(From left)
Darryl Page
Vice President
Chubb Group;
Division President
Personal Insurance
Timothy O’Donnell
Vice President
Chubb Group;
Division President
Commercial Property
and Casualty
John Thompson
Division President
International Accident
& Health
35
Overseas General Insurance
“ Our continued investment
in our A&H platform allows
us to go beyond traditional
direct marketing, where
we are now seamlessly
integrating our products
and services into the
customer journeys of our
distribution partners.”
— Joe Vasquez
of the largest commercial P&C product
portfolios in the Chinese insurance
market. It also offers a series of
protection products such as personal
accident, homeowners, travel and
personal devices insurance via the
rapidly growing internet channel to
Chinese families and individuals across
the country.
Chubb has a strategic cooperation
agreement with PICC Property
and Casualty Company of China,
which is the country’s largest P&C
insurance company. The agreement,
which was reached in 2017, involves
establishing dedicated underwriting
and service centers for Chinese-
affiliated enterprises in Chubb’s offices
throughout the world. In addition,
Chubb will make its global insurance
capabilities available to PICC and
its customers.
Chubb’s Latin America region
generated gross premiums written
of $2.7 billion, up 10.2% in constant
dollars from 2017, representing 7% of
the company total. Continuing
36
channels, including in-branch,
automated teller machines, direct
marketing and a number of digital
channels including mobile.
Europe is Chubb’s second–largest
region behind North America,
operating in 19 countries, with $3.6
billion of gross premiums written,
representing 10% of the company
total. In 2018, Chubb maintained
strong profitability with continued
underwriting discipline and achieved
solid premium growth across the
region, driven by commercial P&C,
where highlights included further
progress developing industry practices,
as well as new business wins and
increased account penetration in the
Major Accounts segment. For the year,
gross premiums written were up
1.7% in constant dollars.
On January 1, 2019, the company
completed the move of its European
Union headquarters to Paris as
planned. Chubb’s approach has
ensured that its customers, brokers and
other partners will have continuous,
uninterrupted service regardless of the
final outcome of Brexit negotiations.
The company continues to maintain a
significant presence in the U.K.
In property and casualty lines, further
building out Chubb’s capabilities
to serve small and middle-market
businesses remained a priority. Among
the new industry practices launched
in the U.K. and Ireland was real estate.
Chubb also introduced a new service
for multinational companies and
large middle-market businesses that
combines the company’s capabilities
execution of growth strategies,
along with an improving operating
environment, contributed to solid
premium revenue in the company’s
personal lines and commercial
P&C businesses.
Chubb’s performance in Mexico,
where the company has a network of
46 branches across the nation, stood
out, led by growth in motor and P&C
coverages for small business. Chubb
deepened its presence in Mexico with
the long-term exclusive agreement
with Citibanamex, which will distribute
Chubb’s general insurance products
through the bank’s branches as well as
a variety of digital and direct marketing
channels. The agreement encompasses
coverages for motor insurance,
homeowners, and small-to-medium
enterprises, A&H insurance products,
and commercial P&C coverages for
larger businesses.
Chubb’s business across Latin America
is well balanced. In Brazil, the company
has the second-largest commercial
P&C business, which is distinguished
by its track record of superior
technical ability and multiple affinity
distribution partnerships. Chubb also
has a strong presence in the Andean
region — Colombia, Ecuador, Peru,
Argentina and Chile — that accounts
for 30% of the total region, and where
the company operates in all segments
of commercial P&C through brokers
and affinity partners. In the Caribbean
and Central America, Chubb operates
through wholly owned subsidiaries
in Puerto Rico and Panama and
partnerships in other locations.
Early in 2019, Chubb signed a
distribution agreement with Banco
de Chile through which Chubb will
distribute its life and general insurance
products on an exclusive basis in Chile
through Banco de Chile’s multiple
A&H is a significant growth engine in
the region with Chubb further building
out its multi-channel distribution with
agents, brokers, direct marketing
and online digital. Chubb remains
focused on adding direct marketing
partners through customer–segmented
campaigns as well as new online
travel partners by seamlessly
integrating insurance products into
their digital purchase path. Each
channel is supported by continuous
enhancements to product offerings
within personal accident, supplemental
medical and travel categories.
In Eurasia and Africa, although
growth was limited by economic and
political factors, Chubb had a good
year, producing a strong combined
ratio on the back of improved
operational efficiency and disciplined
underwriting management. In line
with other markets, the region saw
improved pricing and withdrawal of
both local and international capacity,
particularly for larger and more
technical risks, affording the company
the opportunity to build its position in
several product lines.
Chubb Global Markets
Chubb Global Markets, the company’s
London market wholesale and
international excess and surplus
business, provides global access to
specialist underwriters in aviation,
energy, financial lines, marine, political
risk and credit, property, and accident
and health.
in terrorism and political violence
underwriting, risk engineering, global
security, catastrophe modeling
and digital.
Cyber insurance, where Chubb is a
leader globally, remained a fast-growing
product category in Europe, as well
as in other regions. The global cyber
practice benefitted from investment in
accelerating cyber underwriting, claims
and risk engineering resources across
all regions. The business launched
a global cyber incident reporting
platform to provide customers with
immediate access to local experts who
can assist with event response. The
platform is accessible via mobile app,
web portal and a telephone hotline.
Cyber customers also have access to
a new website where they can register
for pre- and post-event services based
on their geographic location. The
company also launched a new cyber
loss mitigation service for password
management and phishing training
to insureds in Europe, an example
of Chubb using claims insights
to drive new areas of loss mitigation
services in areas of highest claims
frequency.
Chubb’s Far East region, which
encompasses Japan, had an excellent
year, driven by the strong performance
of its P&C and A&H businesses,
enabling the company to continue to
outpace the market in growth. In P&C,
Chubb’s success stems from its targeted
middle–market and small commercial
segments, via brokers and agents, with
increased capabilities in multinational,
risk engineering and cyber, as well
as additional underwriting focus on
industry practices, particularly life
science and technology. These also
enable Chubb to take advantage of
market opportunities within the large
commercial segment.
In recent years, the commercial P&C
E&S market was the most competitive
insurance market in the world. In 2018,
however, the E&S rating environment
in London began to improve in
numerous lines. Chubb, with its focus
on driving for rate adequacy, resumed
growth after several years of shrinking
the business. Other initiatives in 2018
included exploring new distribution
channels outside of wholesale brokers
and expanding digital distribution. This
business continues to rank in the top
quartile for profitability at Lloyd’s.
“We recognized and moved quickly
to take advantage of changing and
dynamic market conditions,” said Mr.
Andrade. “The way we’ve managed
Chubb Global Markets exemplifies both
our underwriting discipline as well
as our ability to be nimble when we
see opportunity. Looking ahead, we
expect to expand existing lines that are
within our risk appetite, and consider
additional lines where we find rate
adequacy and improving terms and
conditions.”
“Looking across our business globally,
Chubb has built a company with
scale, a deep local presence, brand
recognition and an unmatched
reputation for service,” said Mr. Keogh.
“Our customers and distribution
partners should know that we are not
resting on our laurels. We continue to
invest in our business, our people and
our digital transformation.”
“We are proud of what we’ve built
here,” he continued. “But there is so
much more that we can imagine for
this company in the future, so much
opportunity to build well beyond what
we are today, in terms of products,
services, capabilities, as well as
opportunities for our people.”
37
Life Insurance
Key Financial Results
Dollars in millions
Life Insurance
2018
Net premiums written
and deposits*
Segment income
$3,808
$308
“ Chubb Life’s patient
strategy to develop
and build the business
by diversifying and
expanding its captive
agency force, opening
new offices, focusing
on protection–oriented
products and pursuing
digital initiatives
produced excellent
results in 2018.”
— Russell Bundschuh
*Includes deposits collected on universal life and
investment contracts. Consistent with GAAP, premiums
collected on universal life and investment contracts are
considered deposits and excluded from revenue.
38
Chubb’s Life Insurance segment
comprises two businesses. Chubb
Life is an international life insurer,
primarily focused on Asia, that
provides protection and savings–
oriented life insurance products to
individuals and groups. Combined
Insurance provides personal accident
and supplemental health insurance
coverages to consumers in North
America.
For the year, the Life Insurance
segment generated net premiums
written and deposits of $3.8 billion,
up 6.5% from prior year.
Chubb Life
Chubb Life serves the needs of
consumers through a variety of
distribution channels including
primarily captive agents, but also
through banks, retailers, brokers,
independent agents and direct
marketing. In the six Asian markets
where Chubb Life has full operations —
Hong Kong, Indonesia, Korea, Taiwan,
Thailand and Vietnam — the number
of captive agents has grown to 37,000.
In China, the company is also a joint
venture partner in Huatai Life, a fast–
growing life insurer that serves more
than 1.3 million customers across 19
provinces with a broad portfolio of
savings and protection products.
Across the region, Chubb Life focuses
on two market segments. In emerging
economies where growing middle class
consumers are beginning to accumulate
wealth, the company’s protection–
oriented products provide individuals
and families a vehicle to transfer the
financial risks associated with death,
illness and accidents. In the developed
markets of Asia where the company
operates, Chubb’s life insurance
products are a tool for legacy planning
and wealth management.
“Chubb Life’s patient strategy to
develop and build the business by
diversifying and expanding its captive
agency force, opening new offices,
focusing on protection–oriented
products and pursuing digital initiatives
produced excellent results in 2018,”
said Russell Bundschuh, Senior Vice
President, Chubb Group and President
of Chubb Life. “With earnings topping
$100 million for the year, Chubb Life
continued to advance its potential to
make meaningful contributions to
the company’s premium growth and
profitability over time.”
Chubb Life’s growth was fastest in the
emerging economies of Thailand and
Vietnam, and in the developed market
of Korea. In Thailand, the business
opened 10 new offices in 2018, and
grew the agency force by nearly 18%,
to about 3,500 captive agents. Among
the new protection–oriented products
launched in 2018 were a 20–year term
life policy and a whole life extra series,
which provides a cash benefit that
contributes to retirement funds while
also offering family protection in the
event of an unexpected incident.
In Vietnam, 19 new offices were opened
and the number of agents grew 9%
to more than 29,500. Chubb Life is
focused on diversifying its product
offer to enhance its competitiveness in
the market and give customers more
options. Examples of new products
Global A&H, Life Insurance and Reinsurance
Business Unit Leaders
(From left)
Kevin Goulding
President
Combined Insurance
Joe Vasquez
Senior Vice President
Chubb Group;
Global Accident & Health
Russell Bundschuh
Senior Vice President
Chubb Group;
President
Chubb Life
James E. Wixtead
Senior Vice President
Chubb Group;
President
Chubb Tempest Re Group
Cunqiang Li
Chief Operating Officer
Chubb Life
39
Life Insurance
in Thailand include C–Care, which
offers protection against cancer, and
Education Endowment, which covers
multiple risks, such as hospitalization
for critical illnesses, total disability and
death, for children up to age 27. The
comprehensive product also provides
an educational fund.
In Korea, Chubb Life is emphasizing
digital channels for a number of new
products, including coverages for
certain cancers, as well as a preferred
term life policy.
“We have a number of digital initiatives
focused on enhancing service for our
agents,” said Mr. Bundschuh. “For
example, in Hong Kong and Korea we
are enabling individual agents to have
a microsite on the Chubb platform that
allows them to communicate directly
with their clients, as well as cross–sell.”
In China, Huatai Life had an excellent
year in 2018, with its rate of growth
again outpacing the overall market. The
business entered two new provinces
and increased its network of exclusive
agents by 7% to approximately 43,000.
Across the region, Chubb Life is also
developing strategies to expand
sales through banks and brokers. For
example, in Taiwan, Chubb Life has
traditionally sold products through
banks. Now, the focus has expanded to
drive sales growth through the broker
channel, which is well suited to market
protection–oriented products.
40
Our Combined Insurance core sales
force is focused on distributing
our personal accident, life and
supplemental health insurance
coverages direct to consumers. The
business ended 2018 with close to
2,300 agents and plans to grow
to 3,000 agents in 2019. In hiring,
Combined Insurance continues to
expand the number of Spanish–
speaking agents as well as veterans
looking to re–enter the civilian
workforce. The business has received
numerous recognitions for its diverse
and military–friendly hiring practices.
For example, the company was named
the #1 Military Friendly Employer in
the over $1 billion revenue category
by VIQTORY for 2019. Combined
Insurance has also been named a
“Best for Vets” employer by Military
Times and a Top Diversity Employer
by Hispanic Network Magazine. The
company has appeared for four
consecutive years on the HNM Best
of the Best Lists, which identifies
organizations that embrace a wide
range of perspectives, attract the
very best talent and understand the
demographics of the marketplace
and its needs.
“We continue to see opportunity
in building our capabilities for the
underserved Latino market in the U.S.,”
said Mr. Vasquez. “Our core hospital,
indemnity and life insurance product
offerings, as well as coverages for
critical illness, help to fill a big gap in
the marketplace.”
“Looking to 2019, we will continue our
focus on building the business through
geographic expansion, growing our
agency force, introducing products that
give our customers greater choice, and
further developing our distribution
channels, including digital,” said Mr.
Bundschuh. “We believe we are well
positioned to continue to build the
breadth and depth of our life business
across the region.”
Combined Insurance
Combined Insurance generated solid
results in 2018. An area of particular
strength was Chubb Workplace
Benefits, which produced another year
of double–digit growth. The business,
which serves large and middle–market
companies by partnering with benefit
brokers, agents and consultants, offers
a line of supplemental insurance
products, including accident, critical
illness, hospital indemnity, life and
disability income. Launched in 2016
under the Chubb Workplace Benefits
brand, the business brought together
Combined Insurance’s workplace
products with Chubb’s extensive
branch network and our substantial
relationships with national and regional
insurance brokerage firms. In 2018,
Chubb Workplace Benefits generated
over $150 million of premiums.
The continued growth and expansion
of Chubb Workplace Benefits
demonstrates both the breadth of
Chubb’s A&H offerings as well as the
power of its branch network in the
U.S. This business continues to be
positioned for growth over the next
few years.
With its financial strength, diverse risk
appetite and seasoned underwriting
team, the business is strongly
positioned to tailor reinsurance
programs to meet clients’ specific
needs. Because Chubb Tempest Re is
part of a larger insurance group, it also
has ample flexibility to adjust its risk
appetite to market conditions.
“When we do not have the opportunity
to achieve rate adequacy, we can return
capital to our parent company, which
can be deployed to other businesses
where there is more opportunity,”
noted Mr. Wixtead. “This is a strength
we have by being part of Chubb.”
Global Reinsurance
Key Financial Results
Dollars in millions
Global Reinsurance
2018
Gross premiums written
Net premiums written
Combined ratio
P&C current accident year
combined ratio excluding
catastrophe losses
Segment income
$722
$671
101.8%
81.6%
$277
“ Tempest Re has
successfully navigated
different cycles during
its 25–year history
and we stand ready to
deploy more capital
and capacity should
the market opportunity
develop favorably.
If not, then we will
continue to service our
clients with our current
risk appetite.”
— James Wixtead
Chubb’s reinsurance business, which
operates under the Chubb Tempest Re
brand, offers a broad range of products
to a diverse group of primary property
and casualty insurers worldwide.
Doing business globally with offices in
Bermuda, Stamford, London, Montreal,
Shanghai and Zurich, the business
has deep underwriting, actuarial and
claims expertise.
The elevated level of natural
catastrophes in 2018, following a
record year for CATs in 2017, brought
additional pressure to property
catastrophe reinsurers, including both
traditional carriers and the insurance–
linked securities (ILS) market. In
non–property lines, incremental
improvement in pricing and terms and
conditions created some opportunities
for reinsurers.
In 2018, Chubb’s Global Reinsurance
segment posted net premiums
written of $671 million, down 2% from
prior year. The combined ratio was
101.8%, and the current accident year
combined ratio excluding catastrophe
losses was 81.6%. Segment income was
$277 million, up 41% from 2017.
“Tempest Re has successfully navigated
different cycles during its 25–year
history and we stand ready to deploy
more capital and capacity should the
market opportunity develop favorably,”
said James Wixtead, Senior Vice
President, Chubb Group and President
of Chubb Tempest Re Group. “If not,
then we will continue to service our
clients with our current risk appetite,
as our platform allows for Tempest to
be patient and wisely deploy capital
where we can gain the best margins.”
41
Corporate and Global
Functional Leaders
(From left)
Sean Ringsted
Executive Vice President
Chubb Group;
Chief Risk Officer and
Chief Digital Officer
Philip Bancroft
Executive Vice President
Chubb Limited/
Chubb Group;
Chief Financial Officer
Timothy Boroughs
Executive Vice President
Chubb Group;
Chief Investment Officer
(From left)
Joseph Wayland
Executive Vice President
Chubb Limited/
Chubb Group;
General Counsel
Julie Dillman
Senior Vice President
Chubb Group;
Global Head of
Operations
Rainer Kirchgaessner
Executive Vice President
Chubb Group;
Global Corporate
Development Officer
42
00 (From left)
Paul Medini
Senior Vice President
Chubb Group;
Chief Accounting Officer
Paul O’Connell
Senior Vice President
Chubb Group;
Chief Actuary
Monique Shivanandan
Vice President
Chubb Group;
Chief Information Officer
(From left)
Jo Ann Rabitz
Global Human
Resources Officer
Chubb Group
Michael W. Smith
Senior Vice President
Chubb Group;
Global Claims Officer
Ivy Kusinga
Chief Culture Officer
Chubb Group
43
00 Citizenship at Chubb
Our Mission
Protecting the Present and Building a Better Future
Philanthropy
Chubb recognizes its responsibility
to assist less fortunate individuals
and communities in achieving and
sustaining productive and healthy lives
in geographic areas where the company
operates. The company’s philanthropy
is funded principally through the
Chubb Charitable Foundation and the
Chubb Rule of Law Fund.
The Chubb Charitable Foundation
addresses actionable problems and
contributes to helping alleviate
poverty, improve the health of at–
risk populations, provide access to
quality education and protect the
environment. In the last 10 years, the
company has contributed more than
$100 million to the Foundation.
For many years, for example, the
Foundation has supported the
International Rescue Committee,
including its efforts to help refugees
get settled and establish productive
lives. The Foundation has helped build
schools in China and Vietnam, fund
micro-finance projects in Mexico and
Colombia, and serve as a major partner
for Teach for America and Teach for
All programs in the United States and
around the globe.
Good corporate citizenship lies at our core — how
we practice our craft of insurance, how we work
together to serve our customers, how we treat each
other, and how we work to help make a better world
for our communities and our planet. Citizenship
is about responsibility — and we express that
responsibility in a way that reflects our core values
and our mission to protect the present and build a
better future.
We accomplish our mission by providing the security
from risk that allows people and businesses to grow
and prosper. Our mission is realized by sustaining a
culture that values and rewards excellence, integrity,
inclusion and opportunity; by working to protect our
planet and assisting less fortunate individuals and
communities in achieving and sustaining productive
and healthy lives; and by promoting the rule of law.
From our roots in 18th century Philadelphia, we
have built Chubb to be a dynamic, forward-looking
global enterprise with a commitment to responsible
citizenship. We act on this promise of responsibility
through a wide range of activities that include our
contributions of time and money.
For more information about Global Citizenship at Chubb,
please visit About Us on chubb.com.
44
Environment
Diversity and Inclusion
Chubb Rule of Law Fund
Chubb recognizes the reality of climate
change and the substantial impact of
human activity on our planet. Our
environmental activities reflect our
desire to do our part as a steward of
the Earth. Through our Foundation,
we support important environmental
projects, including the protection of
biodiversity and saving land.
Since 2005, for example, the Chubb
Land Legacy Fund has supported The
Conservation Fund, one of America’s
top environmental preservation
organizations, which has protected
8 million acres of vital land and water
habitats across the nation. The Chubb
Charitable Foundation has supported
the work of The Nature Conservancy
(TNC) in the repair and protection of
the unique and critically important
Mesoamerican Reef along Mexico’s
Yucatan Peninsula, which helps protect
the local coastal infrastructure and
economy against storm surge. In 2018
the Foundation made a major grant
to TNC for a wetlands restoration
and resilience project in Miami–Dade
County designed to serve as a model
to be replicated in other urban
coastal areas.
Chubb has had a formal program
to measure, record and reduce
greenhouse gas (GHG) emissions in its
own operations since 2006. From 2015
to 2018, Chubb has reduced its absolute
global GHG emissions by 21%. In 2018,
the company earned a score of B on the
CDP’s climate change program ranking.
At Chubb, we recognize our
responsibility to ensure opportunity
within our own organization, where
we foster a diverse and inclusive
meritocracy. We can’t succeed unless
we give everyone the opportunity to
thrive and advance in our company,
and we hold our leaders accountable
for improving the advancement
of women and people of all races,
nationalities and religions around
the globe.
The company’s extensive efforts
in this area include mentorships,
affinity groups, diversity awareness
training, management development
programs, and mandating diverse
slates in recruiting and promotion.
Examples of initiatives include the
company’s Business Roundtables and
Regional Inclusion Councils, which
promote dynamic networking across
the business and engage hundreds of
employees in constructive dialogue.
Other initiatives include Chubb Start, a
program that supports the continuous
professional development of early
career women, and Chubb Signatures,
a global and regional lecture series for
successful senior women, diverse men
and inclusion champions to share their
unique backgrounds, experiences and
hard-earned lessons in business.
As a corporate citizen, Chubb
recognizes the rule of law as the
foundation of a liberal world order that
the company embraces as essential to
the proper functioning of markets and
the protection of personal freedoms.
Through the Chubb Rule of Law
Fund, a unique corporate initiative,
we support projects around the world
that promote the preservation and
advancement of the rule of law.
Since it was founded in 2008, the
Fund has supported 45 projects in 50
countries focused on improving access
to justice, strengthening courts, fighting
corruption and creating the conditions
of security and freedom in which our
customers, employees and fellow
citizens can thrive.
The Chubb Rule of Law Fund is funded
by the Chubb Charitable Foundation
and contributions from 15 of Chubb’s
partner law firms. In 2018, 10 new
projects were funded. Among them
were an initiative in Sri Lanka to
support the legal community in its
effort to encourage post-civil war
reconciliation and the restoration
of the rule of law; a program in
Brazil to support the provision of
defense counsel for indigent criminal
defendants; and a project to support
a pan-African network of judges and
lawyers committed to the development
of commercial law competence.
45
Officers and Executives
Chubb Group Corporate Officers
Evan G. Greenberg*
Chairman and
Chief Executive Officer
Chubb Limited/Chubb Group
John Keogh*
Executive Vice Chairman
Chubb Limited/Chubb Group;
Chief Operating Officer
John Lupica*
Vice Chairman
Chubb Group;
President
North America Major Accounts
and Specialty Insurance
Paul J. Krump*
Executive Vice President
Chubb Group;
President
North America Commercial
and Personal Insurance
Juan C. Andrade*
Executive Vice President
Chubb Group;
President
Overseas General Insurance
Philip Bancroft*
Executive Vice President
Chubb Limited/Chubb Group;
Chief Financial Officer
Timothy Boroughs*
Executive Vice President
Chubb Group;
Chief Investment Officer
Rainer Kirchgaessner
Executive Vice President
Chubb Group;
Global Corporate
Development Officer
Sean Ringsted*
Executive Vice President
Chubb Group;
Chief Risk Officer and
Chief Digital Officer
*Executive Officers for SEC reporting purposes
46
Joseph Wayland*
Executive Vice President
Chubb Limited/Chubb Group;
General Counsel
Brad Bennett
Senior Vice President
Chubb Group;
Regional President
Far East
Russell Bundschuh
Senior Vice President
Chubb Group;
President
Chubb Life
Julie Dillman
Senior Vice President
Chubb Group;
Global Head of Operations
David Furby
Senior Vice President
Chubb Group;
Regional President
European Group
C. Scott Gunter
Senior Vice President
Chubb Group;
Division President
North America
Commercial Insurance
Bruce L. Kessler
Senior Vice President
Chubb Group;
Division President
Westchester
Christopher A. Maleno
Senior Vice President
Chubb Group;
Division President
North America Field Operations
Patrick McGovern
Senior Vice President
Chubb Group;
Chief Communications Officer
Paul McNamee
Senior Vice President
Chubb Group;
Regional President
Asia Pacific
Paul Medini
Senior Vice President
Chubb Group;
Chief Accounting Officer
Frances D. O’Brien
Senior Vice President
Chubb Group;
Division President
North America Personal
Risk Services
Paul O’Connell
Senior Vice President
Chubb Group;
Chief Actuary
Juan Luis Ortega
Senior Vice President
Chubb Group;
Regional President
Latin America
Michael W. Smith
Senior Vice President
Chubb Group;
Global Claims Officer
Joe Vasquez
Senior Vice President
Chubb Group;
Global Accident & Health
James E. Wixtead
Senior Vice President
Chubb Group;
President
Chubb Tempest Re Group
Ross Bertossi
Vice President
Chubb Group;
Global Underwriting
Joseph S. Clabby
Vice President
Chubb Group;
Chairman
Chubb Bermuda;
Executive Vice President
North America Field Operations
Michael J. Coleman
Vice President
Chubb Group;
Chairman, Chubb Agriculture;
Chairman, Rain and Hail
Sean Corridon
Vice President
Chubb Group;
Deputy Chief Investment Officer
Judy Gonsalves
Vice President
Chubb Group;
Division President
Chubb Bermuda
Michael Kessler
Vice President
Chubb Group;
Chief Reinsurance Officer
Timothy O’Donnell
Vice President
Chubb Group;
Division President
Commercial Property and Casualty
Overseas General Insurance
Darryl Page
Vice President
Chubb Group;
Division President
Personal Insurance
Overseas General Insurance
Monique Shivanandan
Vice President
Chubb Group;
Chief Information Officer
James Williamson
Vice President
Chubb Group;
Division President
North America Small
Commercial Insurance
Other Executives
Scott Arnold
Division President
Chubb Agriculture;
President
Rail and Hail
Jodi Hanson Bond
Executive Vice President
Global Government
and Industry Affairs
Adam Clifford
Division President
Continental Europe
Dimitry DiRienzo
Chief Auditor
Chubb Group
Samantha Froud
Chief Administration Officer
Bermuda Operations
Kevin Goulding
President
Combined Insurance
Marcos Gunn
Division President
Northern Latin America;
Chief Operating Officer
Latin America
Mark Hammond
Treasurer
Chubb Group
Stephen M. Haney
Division President
North America Surety;
Chief Underwriting Officer
Global Surety
Ivy Kusinga
Chief Culture Officer
Chubb Group
Eric Larson
Chief Compliance Officer
Chubb Group
Cunqiang Li
Chief Operating Officer
Chubb Life
David Lupica
Chief Operating &
Distribution Management Officer
Westchester
Timothy Mardon
Division President
Chubb Tempest Re Bermuda
Matthew Merna
Division President
North America Major Accounts
Scott A. Meyer
Division President
North America Financial Lines
Michael O’Donnell
Division President
Chubb Tempest Re USA
Jo Ann Rabitz
Global Human Resources Officer
Chubb Group
Steve Roberts
Division President
Chubb Tempest Re International
David Robinson
Division President
U.K. & Ireland
Matthew Shaw
Division President
Chubb Global Markets
John Thompson
Division President
International Accident & Health
Overseas General Insurance
Derek Talbott
Division President
North America Property
Giles Ward
Regional President
Eurasia & Africa
47
Chubb Limited Board of Directors
Evan G. Greenberg
Chairman and
Chief Executive Officer
Chubb Limited
Michael G. Atieh
Retired Chief Financial
and Business Officer
Ophthotech Corporation
Sheila P. Burke
Faculty Research Fellow
John F. Kennedy School
of Government
Harvard University
James I. Cash
Emeritus Professor of
Business Administration
Harvard University
Mary Cirillo
Retired Executive
Vice President and
Managing Director
Deutsche Bank
Michael P. Connors
Chairman and
Chief Executive Officer
Information Services
Group, Inc.
John A. Edwardson
Retired Chairman and
Chief Executive Officer
CDW Corporation
Board Committees
Audit Committee
Robert W. Scully, Chair
James I. Cash
Kimberly A. Ross
Theodore E. Shasta
David H. Sidwell
Compensation Committee
Michael P. Connors, Chair
Mary Cirillo
Robert M. Hernandez
James M. Zimmerman
Nominating & Governance
Committee
Mary Cirillo, Chair
Michael P. Connors
Robert M. Hernandez
James M. Zimmerman
Risk & Finance Committee
Olivier Steimer, Chair
Michael G. Atieh
Sheila P. Burke
John A. Edwardson
Eugene B. Shanks, Jr.
Executive Committee
Evan G. Greenberg, Chair
Mary Cirillo
Michael P. Connors
Robert M. Hernandez
Robert W. Scully
Olivier Steimer
Robert M. Hernandez
Lead Director
Chubb Limited
Retired Vice Chairman
and Chief Financial Officer
USX Corporation
Kimberly A. Ross
Former Chief
Financial Officer
Baker Hughes
Robert W. Scully
Retired Co–President
Morgan Stanley
Eugene B. Shanks, Jr.
Retired President
Bankers Trust Company
Theodore E. Shasta
Retired Partner
Wellington Management
Company
David H. Sidwell
Retired Chief
Financial Officer
Morgan Stanley
Olivier Steimer
Former Chairman
Banque Cantonale
Vaudoise
James M. Zimmerman
Retired Chairman and
Chief Executive Officer
Federated Department
Stores, Inc. (Macy’s)
48
Shareholder Information
Visit investors.chubb.com,
write to the Investor Relations
Department at Chubb Limited or
e–mail investorrelations@chubb.com
for copies of the company’s reports
to the Securities and Exchange
Commission on Form 10–K,
Form 10–Q or Form 8–K, all of which
are available without charge.
Address Investor Relations Inquiries to:
Investor Relations
Chubb Limited
1133 Avenue of the Americas
41st Floor
New York, NY 10036
Tel: 212 827 4400
E–mail: investorrelations@chubb.com
Transfer Agent & Registrar
Independent Auditors
PricewaterhouseCoopers AG
Birchstrasse 160
8050 Zurich
Switzerland
Tel: 41 58 792 44 00
PricewaterhouseCoopers LLP
Two Commerce Square, Suite 1800
Philadelphia, PA 19103 USA
Tel: 267 330 3000
New York Stock Exchange Symbol
CB
Chubb Common Shares CUSIP Number
H1467J 104
Computershare
462 South 4th Street
Louisville, KY 40202 USA
U.S.: 877 522 3752
Outside the U.S.: 201 680 6898
Address Shareholder Inquiries to:
By regular mail:
Computershare
P.O. Box 505000
Louisville, KY 40233–5000 USA
By overnight delivery:
Computershare
462 South 4th Street
Louisville, KY 40202 USA
Website:
www–us.computershare.com/investor
Send Certificates for Transfer and
Address Changes to:
Computershare
P.O. Box 505000
Louisville, KY 40233–5000 USA
Price Range of Common Shares and Dividends
As of February 14, 2019, the company had 458,380,937 Common Shares outstanding with 7,440 registered holders of Common Shares.
The accompanying table sets forth the cash dividends and the high/low closing sales prices of the company’s Common Shares, as reported
on the NYSE Composite Tape for the periods indicated. We have paid dividends each quarter since we became a public company in 1993.
The method of payment of our dividend approved at our May 2018 and May 2017 annual general meetings was a distribution from capital
contribution reserves (additional paid–in capital).
2018
Dividends
2017
Dividends
Quarter Ending
High
Low
USD
CHF
High
Low
USD
CHF
March 31
June 30
$156.15
$134.57
$0.71
0.66
$140.38
$128.48
$0.69
0.69
$138.29
$124.57
$0.73
0.73
$147.58
$135.48
$0.71
0.69
September 30
$140.12
$126.81
$0.73
0.72
$149.87
$134.88
$0.71
0.68
December 31
$136.59
$120.19
$0.73
0.73
$155.19
$144.70
$0.71
0.70
This annual report contains trademarks, trade names and service marks owned by Chubb Limited and its subsidiaries, including Chubb®, Chubb logo®,
Chubb. Insured®. and Craftsmanship®. In addition, this report contains trademarks, trade names or service marks of companies other than Chubb, which belong
to their respective owners.
This report is printed on paper containing 10% post–consumer recycled content. These papers are certified to the international standards of the Forest
Stewardship Council (FSC), which promotes responsible management of the world’s forests.
49
Non–GAAP Financial Measures
Non–GAAP Financial Measures
This document contains non–GAAP financial measures. These
measures should not be viewed as a substitute for measures
determined in accordance with generally accepted accounting
principles (GAAP). Amounts below are shown in millions of U.S.
dollars, except for ratios, share and per share data.
We provide certain financial measures on a constant-dollar basis.
We believe it is useful to evaluate the trends in these measures
exclusive of the effect of fluctuations in exchange rates between the
U.S. dollar and the currencies in which our international business
is transacted, as these exchange rates could fluctuate significantly
between periods and distort the analysis of trends. The impact is
determined by assuming constant foreign exchange rates between
periods by translating prior period results using the same local
currency exchange rates as the comparable current period.
Core operating income is a non–GAAP financial measure that
excludes the after–tax impact of adjusted realized gains (losses),
net realized gains (losses) included in other income (expense)
related to partially owned entities, Chubb integration expenses,
and the amortization of the fair value adjustments related to
purchased invested assets and long–term debt from the acquisition
of The Chubb Corporation (Chubb Corp). We exclude adjusted
realized gains and losses because the amount of these gains
(losses) is heavily influenced by, and fluctuates in part according
to, the availability of market opportunities. We exclude Chubb
Corp integration expenses due to the size and complexity of this
acquisition. These integration expenses are distortive to our results
and are not indicative of our underlying profitability. We believe
that excluding these integration expenses facilitates the comparison
of our financial results to our historical operating results. Chubb
Corp integration expenses are incurred by the overall company and
are therefore included in Corporate. These costs are not related to
the ongoing activities of the individual segments and are therefore
excluded from our definition of segment income as well.
Core operating income with expected level of catastrophe
losses (CATs) is a non–GAAP financial measure which excludes
catastrophe losses above or below management’s view of typical
catastrophe losses for that period. The adjustment for normalized
catastrophe activity reduces the unusually large impact of
catastrophe activity which is not indicative of our underlying
performance.
50
The following table presents the reconciliation of Net income
to Core operating income:
(in millions of U.S. dollars, except share
and per share data)
Net income, as reported
Amortization of fair value adjustment
of acquired invested assets and
long–term debt, pre–tax (1)
Tax benefit on amortization
adjustment
Chubb integration expenses, pre–tax
Tax benefit on Chubb integration
expenses
Adjusted realized gains (losses),
pre–tax (2)
Net realized gains (losses) related to
unconsolidated entities, pre–tax (3)
Tax (expense) benefit on adjusted
net realized gains (losses)
Full Year
2018
Full Year
2017
$3,962
$3,861
(215)
(283)
40
(59)
12
(649)
431
(5)
85
(310)
93
91
406
(5)
Core operating income
$4,407
$3,784
Add: Actual CATs above expected
levels, after–tax
Core operating income with expected
level of CATs
583
$4,990
Denominator
466,802,348
471,196,901
Diluted earnings per share
Net income
Amortization of fair value adjustment
of acquired invested assets and long–
term debt, net of tax (1)
Chubb integration expenses,
net of tax
Adjusted net realized gains (losses),
net of tax
Core operating income
% Change from prior year
$8.49
$ 8.19
(0.37)
(0.42)
(0.10)
(0.46)
1.04
$8.03
(0.48)
$9.44
17.6%
(1) Related to the acquisition of The Chubb Corporation.
(2) Excludes realized losses on crop derivatives of $3 million and $7 million for 2018 and
2017, respectively.
(3) Realized gains (losses) on partially owned entities, which are investments where we
hold more than an insignificant percentage of the investee’s shares. The net income or
loss is included in other income (expense).
Core operating return on equity (ROE) and Core operating
return on tangible equity (ROTE) are non-GAAP financial
measures. The ROE and ROTE numerator includes core operating
income. The ROE and ROTE denominator includes the average
shareholders’ equity for the period adjusted to exclude unrealized
gains (losses) on investments, net of tax. The ROTE denominator is
also adjusted to exclude goodwill and other intangible assets, net
of tax. These measures enhance the understanding of the return
on shareholders’ equity by highlighting the underlying profitability
relative to shareholders’ equity excluding the effect of unrealized
gains and losses on our investments, and Core operating ROTE
further highlights the underlying profitability relative to tangible
shareholders’ equity. Core operating ROE with expected level
of CATs and mark-to-market on private equities excludes
catastrophe losses above or below management’s view of typical
catastrophe losses for that period and includes the change in the fair
value of private equity funds which are recorded as realized gains
and losses and excluded from core operating income. We believe
that this measure provides comparison with our peer companies
that record the fair value changes of private equity funds within
core operating income as a component of investment income.
Also, the adjustment for normalized catastrophe activity reduces
the unusually large impact of catastrophe activity which is not
indicative of our underlying performance.
(in millions of U.S. dollars except ratios)
Net income
Core operating income
Core operating income with expected
level of CATs
Core operating income with expected
level of CATs and mark-to-market on
private equities of $382 million
Full Year
2018
Full Year
2017
$3,962
$4,407
$3,861
$3,784
$4,990
$5,372
Equity — beginning of period, as reported
Less: unrealized gains (losses) on
investments, net of deferred tax (1)
$51,172
$48,275
1,154
1,058
Equity — beginning of period, as adjusted
$50,018
$47,217
Less: goodwill and other intangible assets,
net of tax
$20,621
$20,019
Equity — beginning of period, as
adjusted, excluding goodwill and other
intangible assets
Equity — end of period, as reported
Less: unrealized gains (losses) on
$29,397
$27,198
$50,312
$51,172
investments, net of deferred tax
(545)
1,450
Equity — end of period, as adjusted
$50,857
$49,722
Less: goodwill and other intangible assets,
net of tax
$20,054
$20,621
Combined ratio measures the underwriting profitability of our
property and casualty (P&C) business. P&C combined ratio,
Current accident year (CAY) P&C combined ratio excluding
catastrophe losses, CAY P&C combined ratio with expected
level of CATs, and P&C combined ratio with expected level of
CATs are non–GAAP financial measures. Refer to the Non–GAAP
Reconciliation section in the 2018 Form 10–K, on pages 73–75, for the
definition of these non–GAAP financial measures and reconciliation
to the combined ratio by segment.
Total P&C
Full Year
2018
Total P&C
Full Year
2017
90.6%
94.7%
0.0%
90.6%
5.9%
0.0%
94.7%
10.2%
–3.3%
–3.1%
Total North
America P&C
Insurance (1)
Full Year
2018
88.4%
0.0%
88.4%
6.6%
–3.7%
87.6%
85.5%
88.0%
3.4%
91.4%
–3.3%
88.1%
Combined ratio
Add: impact of gains and
losses on crop derivatives
P&C combined ratio
Less: Catastrophe losses
Less: Prior period
development
CAY P&C combined ratio
excluding CATs
Add: Expected level of CATs
CAY P&C combined ratio
with expected level of CATs
Add: Prior period
development
P&C combined ratio with
expected level of CATs
(1) Total North America P&C Insurance includes the company’s North America Commercial
P&C Insurance, North America Personal P&C Insurance, and North America Agricultural
Insurance segments. Refer to the Non-GAAP Reconciliation section in the 2018 Form 10-K,
on page 74 for the reconciliation to the combined ratio by segment.
Equity — end of period, as adjusted,
excluding goodwill and other
intangible assets
$30,803
$29,101
The following table presents the reconciliation of catastrophe losses,
pre–tax, to catastrophe losses above expected levels, pre–tax:
(in millions of U.S. dollars)
Catastrophe losses, pre–tax
Less: Expected levels of CATs, pre–tax
Catastrophe losses above expected levels,
pre–tax
Full Year
2018
$1,626
937
$689
Equity — end of period, as adjusted
Add: Actual CATs above expected levels,
after-tax
Equity — end of period, as adjusted, with
expected level of CATs
$50,857
583
$51,440
Weighted average equity, as reported
Weighted average equity, as adjusted
Weighted average equity, as adjusted,
excluding goodwill and other intangible assets
Weighted average equity, as adjusted with
expected level of CATs
ROE
Core operating ROE
Core operating ROTE
Core operating ROE with expected
level of CATs
Core operating ROE with expected level of
CATs and mark–to–market on private equities
$50,742
$50,438
$49,724
$48,470
$30,100
$28,150
7.8%
7.8%
13.4%
$50,729
7.8%
8.7%
14.6%
9.8%
10.6%
(1) In 2018, the company adopted new guidance that requires the reclassification of $417
million of unrealized appreciation to beginning retained earnings related to public
equities and cost-method private equities. In addition, the company reclassified tax
expense of $121 million related to the unrealized appreciation of investments as of
December 31, 2017 to beginning retained earnings representing the stranded tax effects
related to the 2017 U.S. Tax Reform which reduced the tax expense on unrealized
appreciation of investments. This reduction in tax was recorded in net income in Q4 2017
as part of the U.S. Tax Reform benefit.
51
Non–GAAP Financial Measures (continued)
Tangible book value per common share is a non–GAAP financial
measure and is shareholders’ equity less goodwill and other
intangible assets, net of tax, divided by the shares outstanding. We
believe that goodwill and other intangible assets are not indicative
of our underlying insurance results or trends and make book value
comparisons to less acquisitive peer companies less meaningful.
(in millions of U.S. dollars,
except share and per
share data)
Shareholders’ equity
Less: goodwill and
other intangible
assets, net of tax
Numerator for tangible
book value per share
December 31
2018
December 31
2017
% Change
$50,312
$51,172
20,054
20,621
$30,258
$30,551
Shares outstanding
459,203,378
463,833,179
Book value per
common share
Tangible book value
per common share
$109.56
$110.32
–0.7%
$ 65.89
$65.87
0.0%
Book value per common share excluding mark-to-market
is a non-GAAP measure and is shareholders’ equity less unrealized
investment gains and (losses), net of tax, divided by shares
outstanding. Tangible book value per common share excluding
mark-to-market is a non-GAAP measure and is shareholders’
equity less goodwill and other intangible assets, net of tax, and
unrealized investment gains and (losses), net of tax, divided by
shares outstanding. We exclude unrealized investment gains (losses)
because the amount of these gains (losses) is heavily influenced by
changes in market conditions, including interest rate changes. We
believe these measures are meaningful to understanding growth
in book and tangible book value by highlighting the underlying
profitability relative to shareholders’ equity excluding the effect of
unrealized gains and losses on our investments.
The following table provides a reconciliation of Book value and
Tangible book value per share, excluding mark–to–market:
(in millions of U.S. dollars,
except share and per
share data)
Shareholders’ equity
Less: unrealized
gains (losses) on
investments, net
of deferred tax
Book value excluding
mark–to–market
Less: goodwill and
other intangible
assets, net of tax
Tangible book value
excluding mark–to–
market
December 31
2018
January 1
2018
% Change
$50,312
$51,172
(545)
1,154
$50,857
$50,018
20,054
20,621
$30,803
$29,397
Shares outstanding
459,203,378
463,833,179
P&C underwriting income is a non–GAAP financial measure which
excludes the Life Insurance segment. P&C underwriting income is
used to monitor results of operations without the impact of certain
factors as detailed below. We believe that P&C underwriting income
is a useful measure as it enhances the understanding of our results
of operations by highlighting the underlying profitability of our P&C
insurance business.
The following table presents a reconciliation of Net income to P&C
underwriting income:
(in millions of U.S. dollars)
Net income
Less:
Income tax (expense) benefit
Chubb integration expenses
Amortization expense of purchased
intangibles
Other income (expense)
Interest expense
Net investment income
Net realized gains (losses)
Life Insurance underwriting loss (1)
Add:
Crop derivative losses
P&C underwriting income
Full Year
2018
Full Year
2017
$3,962
$3,861
(695)
(59)
(339)
434
(641)
3,305
(652)
(5)
(3)
139
(310)
(260)
400
(607)
3,125
84
(147)
(7)
$2,611
$1,430
(1) Excludes gains (losses) on fair value changes in separate account assets of $(38) million
in 2018 and $97 million in 2017 and Life Insurance net investment income of $341 million
in 2018 and $313 million in 2017.
International life insurance revenue is a non–GAAP financial
measure which includes international life insurance net
premiums written and deposits collected. Deposits collected
on universal life and investment contracts (life deposits) are not
reflected as revenues in our consolidated statements of operations
in accordance with GAAP. However, new life deposits are an
important component of production and key to our efforts to grow
our business.
(in millions of U.S. dollars)
International life insurance net premiums
written
International life deposits
Total international life insurance revenue (1)
Full Year
2018
$887
1,538
$2,425
(1) Excludes Combined North America and Life reinsurance businesses.
Adjusted net investment income is net investment income
excluding the amortization of the fair value adjustment on
acquired invested assets. We believe this measure is meaningful as
it highlights the underlying performance of our invested assets and
portfolio management in support of our lines of business.
The following table presents a reconciliation of net investment
income to adjusted net investment income:
(in millions of U.S. dollars)
Net investment income
Less:
Amortization expense of fair
value adjustment on acquired
invested assets
Adjusted net investment income
Full Year
2018
Full Year
2017
$3,305
$3,125
(248)
(332)
$3,553
$3,457
2.8%
Book value per share
excluding mark–to–
market
Tangible book value
per share excluding
mark–to–market
52
$ 110.75
$ 107.84
2.7%
$67.08
$63.38
5.8%
% Change from prior year
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
For the Transition Period from to
Commission File No. 1-11778
CHUBB LIMITED
(Exact name of registrant as specified in its charter)
Switzerland
(State or other jurisdiction of incorporation or organization)
98-0091805
(I.R.S. Employer Identification No.)
Baerengasse 32
Zurich, Switzerland CH-8001
(Address of principal executive offices) (Zip Code)
+41 (0)43 456 76 00
(Registrant’s telephone number, including area code)
Title of each class
Common Shares, par value CHF 24.15 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
NO
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES
NO
NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). YES
NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by
reference into Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” "smaller reporting
company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES
NO
The aggregate market value of voting stock held by non-affiliates as of June 29, 2018 (the last business day of the registrant's most recently
completed second fiscal quarter), was approximately $59 billion. For the purposes of this computation, shares held by directors and officers
of the registrant have been excluded. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are
affiliates of the registrant.
As of February 14, 2019 there were 458,380,937 Common Shares par value CHF 24.15 of the registrant outstanding.
Certain portions of the registrant's definitive proxy statement relating to its 2019 Annual General Meeting of Shareholders are incorporated
by reference into Part III of this report.
Documents Incorporated by Reference
CHUBB LIMITED INDEX TO 10-K
PART I
ITEM 1. Business
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2.
Properties
ITEM 3.
Legal Proceedings
ITEM 4. Mine Safety Disclosures
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
ITEM 6.
of Equity Securities
Selected Financial Data
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
Financial Statements and Supplementary Data
ITEM 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14. Principal Accounting Fees and Services
PART IV
ITEM 15. Exhibits, Financial Statements Schedules
ITEM 16. Form 10-K Summary
Page
2
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98
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100
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109
1
PART I
ITEM 1. Business
General
Chubb Limited is the Swiss-incorporated holding company of the Chubb Group of Companies. Chubb Limited, which is
headquartered in Zurich, Switzerland, and its direct and indirect subsidiaries (collectively, the Chubb Group of Companies,
Chubb, we, us, or our) are a global insurance and reinsurance organization, serving the needs of a diverse group of clients
worldwide. At December 31, 2018, we had total assets of $168 billion and shareholders’ equity of $50 billion. Chubb was
incorporated in 1985 at which time it opened its first business office in Bermuda and continues to maintain operations in
Bermuda. We have grown our business through increased premium volume, expansion of product offerings and geographic
reach, and the acquisition of other companies, including The Chubb Corporation (Chubb Corp), to become a global property and
casualty (P&C) leader.
With operations in 54 countries and territories, Chubb provides commercial and personal property and casualty insurance,
personal accident and supplemental health insurance (A&H), reinsurance, and life insurance to a diverse group of clients. We
offer commercial insurance products and service offerings such as risk management programs, loss control, and engineering
and complex claims management. We provide specialized insurance products ranging from Directors & Officers (D&O) and
professional liability to various specialty-casualty and umbrella and excess casualty lines to niche areas such as aviation and
energy. We also offer personal lines insurance coverage including homeowners, automobile, valuables, umbrella liability, and
recreational marine products. In addition, we supply personal accident, supplemental health, and life insurance to individuals in
select countries.
We serve multinational corporations, mid-size and small businesses with property and casualty insurance and risk engineering
services; affluent and high net worth individuals with substantial assets to protect; individuals purchasing life, personal
accident, supplemental health, homeowners, automobile, and specialty personal insurance coverage; companies and affinity
groups providing or offering accident and health insurance programs and life insurance to their employees or members; and
insurers managing exposures with reinsurance coverage.
At December 31, 2018, we employed approximately 32,700 people. We believe that employee relations are satisfactory.
We make available free of charge through our website (investors.chubb.com, under Financials) our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, if any, filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after they have been electronically
filed with or furnished to the U.S. Securities and Exchange Commission (SEC). Also available through our website (under
Investor Relations / Corporate Governance) are our Corporate Governance Guidelines, Code of Conduct, and Charters for the
Committees of our Board of Directors (the Board). Printed documents are available by contacting our Investor Relations
Department (Telephone: +1 (212) 827-4445, E-mail: investorrelations@chubb.com).
We also use our website as a means of disclosing material, non-public information and for complying with our disclosure
obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Investor Relations portion of
our website, in addition to following our press releases, SEC filings, and public conference calls and webcasts. The information
contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this
report. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other
information regarding issuers that file with the SEC.
Customers
For most commercial and personal lines of business we offer, insureds typically use the services of an insurance broker or agent.
An insurance broker acts as an agent for the insureds, offering advice on the types and amount of insurance to purchase and
also assisting in the negotiation of price and terms and conditions. We obtain business from the local and major international
insurance brokers and typically pay a commission to brokers for any business accepted and bound. Loss of all or a substantial
portion of the business provided by one or more of these brokers could have a material adverse effect on our business. In our
opinion, no material part of our business is dependent upon a single insured or group of insureds. We do not believe that the
loss of any one insured would have a material adverse effect on our financial condition or results of operations, and no one
insured or group of affiliated insureds account for as much as 10 percent of our total revenues.
2
Competition
Competition in the insurance and reinsurance marketplace is substantial. We compete on an international and regional basis
with major U.S., Bermuda, European, and other international insurers and reinsurers and with underwriting syndicates, some of
which have greater financial, technological, marketing, distribution and management resources than we do. In addition, capital
market participants have created alternative products that are intended to compete with reinsurance products. We also compete
with new companies and existing companies that move into the insurance and reinsurance markets. Competitors include other
stock companies, mutual companies, alternative risk sharing groups (such as group captives and catastrophe pools), and other
underwriting organizations. Competitors sell through various distribution channels and business models, across a broad array of
product lines, and with a high level of variation regarding geographic, marketing, and customer segmentation. We compete for
business not only on the basis of price but also on the basis of availability of coverage desired by customers and quality of
service.
The insurance industry is changing rapidly. Our ability to compete is dependent on a number of factors, particularly our ability to
maintain the appropriate financial strength ratings as assigned by independent rating agencies and effectively utilize new
technology in our business. Our broad market capabilities in personal, commercial, specialty, and A&H lines made available by
our underwriting expertise, business infrastructure, and global presence, help define our competitive advantage. Our strong
balance sheet is attractive to businesses, and our strong capital position and global platform affords us opportunities for growth
not available to smaller, less diversified insurance companies. Refer to “Segment Information” for competitive environment by
segment.
Trademarks and Trade Names
Various trademarks and trade names we use protect names of certain products and services we offer and are important to the
extent they provide goodwill and name recognition in the insurance industry. We use commercially reasonable efforts to protect
these proprietary rights, including various trade secret and trademark laws. We intend to retain material trademark rights in
perpetuity, so long as it satisfies the use and registration requirements of applicable countries. One or more of the trademarks
and trade names could be material to our ability to sell our products and services. We have taken appropriate steps to protect
our ownership of key names, and we believe it is unlikely that anyone would be able to prevent us from using names in places
or circumstances material to our operations.
Segment Information
Chubb operates through six business segments: North America Commercial P&C Insurance, North America Personal P&C
Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. The
following table presents net premiums earned (NPE) by segment:
Years Ended December 31
(in millions of U.S. dollars, except for percentages)
2018 Net
Premiums
Earned % of Total
2017 Net
Premiums
Earned % of Total
2016 Net
Premiums
North America Commercial P&C Insurance
$ 12,402
42% $ 12,191
Earned % of Total
43%
42% $ 12,217
North America Personal P&C Insurance
North America Agricultural Insurance
Overseas General Insurance
Global Reinsurance
Life Insurance
Total
4,593
1,569
8,612
670
2,218
15%
5%
29%
2%
7%
4,399
1,508
8,131
704
2,101
15%
6%
28%
2%
7%
4,319
1,316
8,132
710
2,055
15%
5%
28%
2%
7%
$ 30,064
100% $ 29,034
100% $ 28,749
100%
The results of operations of Chubb Corp are included from the acquisition date forward (i.e., after January 14, 2016).
Additional financial information about our segments, including net premiums earned by geographic region, is included in
Note 14 to the Consolidated Financial Statements.
3
North America Commercial P&C Insurance (42 percent of 2018 Consolidated NPE)
Overview
The North America Commercial P&C Insurance segment comprises operations that provide P&C insurance and services to large,
middle market, and small commercial businesses in the U.S., Canada, and Bermuda. This segment includes:
• Major Accounts, a retail division focused on large institutional organizations and corporate companies
• Commercial Insurance, which includes the retail division focused on middle market customers and small businesses
• Westchester and Chubb Bermuda, our wholesale and specialty divisions
Products and Distribution
Major Accounts provides a broad array of traditional and specialty P&C, A&H, and risk management products and services to
large U.S. and Canadian-based institutional organizations and corporate companies. Major Accounts distributes its insurance
products primarily through a limited number of retail brokers. In addition to using brokers, certain products are also distributed
through general agents, independent agents, managing general agents (MGA), managing general underwriters, alliances, affinity
groups, and direct marketing operations. Products and services offered include property, professional liability, cyber risk, excess
casualty, commercial marine, surety, environmental, construction, medical risk, inland marine, A&H coverages, as well as claims
and risk management products and services.
The Major Accounts operations, which represented approximately 40 percent of North America Commercial P&C Insurance’s net
premiums earned in 2018, are organized into the following distinct business units, each offering specialized products and
services targeted at specific markets:
• Chubb Global Casualty offers a range of customized risk management primary casualty products designed to help large
insureds, including national accounts, address the significant costs of financing and managing risk for workers’
compensation, general liability and automobile liability coverages. Chubb Global Casualty also provides products which
insure specific global operating risks of U.S.-based multinational companies and include deductible programs, captive
programs, and paid or incurred loss retrospective plans. Within Chubb Global Casualty, Chubb Alternative Risk Solutions
Group underwrites contractual indemnification policies which provides prospective coverage for loss events within the
insured’s policy retention levels, and underwrites assumed loss portfolio transfer (LPT) contracts in which insured loss
events have occurred prior to the inception of the contract.
• Property provides products and services including primary, quota share and excess all-risk insurance, risk management
programs and services, commercial, inland marine, and aerospace products.
• Casualty Risk provides coverages including umbrella and excess liability, environmental risk, casualty programs for
commercial construction related projects for companies and institutions, and medical risk specialty liability products for the
healthcare industry.
• Surety offers a wide variety of surety products and specializes in underwriting both commercial and contract bonds and has
the capacity for bond issuance on an international basis.
• Accident & Health (A&H) products include employee benefit plans, occupational accident, student accident, and worldwide
travel accident and global medical programs. With respect to products that include supplemental medical and hospital
indemnity coverages, we typically pay fixed amounts for claims and are therefore insulated from rising healthcare costs.
A&H also provides specialty personal lines products, including credit card enhancement programs (identity theft, rental car
collision damage waiver, trip travel, and purchase protection benefits) distributed through affinity groups.
• Financial Lines provides management liability and professional liability (D&O and E&O), transactional risk and cyber risk
products to public companies as well as to private and not for profit organizations.
• ESIS Inc. (ESIS) is an in-house third-party claims administrator that performs claims management and risk control services
for domestic and international organizations as well as for the North America Commercial P&C Insurance segment. ESIS
services include comprehensive medical managed care; integrated disability services; pre-loss control and risk
management; health, safety and environmental consulting; salvage and subrogation; and healthcare recovery services. The
net results for ESIS are included in North America Commercial P&C Insurance’s administrative expenses.
The Commercial Insurance operations, which include Small Commercial, represented approximately 40 percent of North
America Commercial P&C Insurance’s net premiums earned in 2018. Commercial Insurance provides a broad range of P&C,
professional lines, and A&H products targeted to U.S and Canadian-based middle market customers in a variety of industries
4
with annual revenues generally greater than $30 million, while the Small Commercial operations provide a broad range of
property and casualty, workers' compensation, small commercial management and professional liability for small businesses
based in the U.S., targeted to customers with annual revenues up to $30 million.
• Commercial Insurance products and services offered include traditional property and casualty lines of business, including
Package, which combines property and general liability, workers' compensation, automobile, umbrella; financial lines of
business, including professional liability, management liability and cyber risk coverage; and other lines including
environmental, A&H, and international coverages. Commercial Insurance distributes its insurance products through a North
American network of independent retail agents, regional brokers, and multinational and digital brokers. Generally, our
customers purchase insurance through a single retail agent or broker, do not employ a risk management department, and
do not retain significant risk through self-insured retentions. The majority of our customers purchase a Package product or a
Portfolio product, which is a collection of insurance offerings designed to cover various needs.
• Small Commercial Insurance products and services offered include property and casualty lines of business, including a
business owner policy which contains property and general liability; financial lines, including professional liability,
management liability, cyber risk; and other lines including workers’ compensation, automobile liability, and international
coverages. Products are generally offered through a North American network of independent agents and brokers, as well as
eTraditional, which are digital platforms where we electronically quote, bind, and issue for agents and brokers. An example
of this is our North America Small Commercial Marketplace.
Wholesale and Specialty, which represented approximately 20 percent of North America Commercial P&C Insurance’s net
premiums earned in 2018, comprises Westchester and Chubb Bermuda.
• Westchester serves the market for business risks that tend to be hard to place or not easily covered by traditional policies
due to unique or complex exposures. Products offered include wholesale excess and surplus lines property, casualty,
environmental, professional liability, inland marine, and product recall coverages in the U.S., Canada, and Bermuda.
• Chubb Bermuda provides commercial insurance products on an excess basis including excess liability, D&O, professional
liability, property, and political risk, the latter being written by Sovereign Risk Insurance Ltd., a wholly-owned managing
agent. Chubb Bermuda focuses on Fortune 1000 companies and targets risks that are generally low in frequency and high
in severity. Chubb Bermuda offers its products primarily through the Bermuda offices of major, internationally recognized
insurance brokers.
Competitive Environment
Major Accounts competes against a number of large, national carriers as well as regional competitors and other entities offering
risk alternatives such as self-insured retentions and captive programs. The markets in which we compete are subject to
significant cycles of fluctuating capacity and wide disparities in price adequacy. We pursue a specialist strategy and focus on
market opportunities where we can compete effectively based on service levels and product design, while still achieving an
adequate level of profitability. We also achieve a competitive advantage through Major Accounts’ innovative product offerings
and our ability to provide multiple products to a single client due to our nationwide local presence. In addition, all our domestic
commercial units are able to deliver global products and coverage to customers in concert with our Overseas General Insurance
segment.
The Commercial Insurance and Small Commercial Insurance operations compete against numerous insurance companies
ranging from large national carriers to small and mid-size insurers who provide specialty coverages and standard P&C products.
Recent competitive developments include the growth of new digital-based distribution models.
Westchester competes against a number of large, national carriers as well as regional competitors and other entities offering risk
alternatives such as self-insured retentions and captive programs. Chubb Bermuda competes against international commercial
carriers writing business on an excess of loss basis.
5
North America Personal P&C Insurance (15 percent of 2018 Consolidated NPE)
Overview
The North America Personal P&C Insurance segment includes the business written by Chubb Personal Risk Services division,
which includes high net worth personal lines business, with operations in the U.S. and Canada. This segment provides affluent
and high net worth individuals and families with homeowners, automobile and collector cars, valuable articles (including fine
arts), personal and excess liability, travel insurance, and recreational marine insurance and services. Our homeowners business,
including valuable articles, represented 68 percent of North America Personal P&C Insurance’s net premiums earned in 2018.
Products and Distribution
Chubb Personal Risk Services offers comprehensive personal insurance products and services to meet the evolving needs of high
net worth families and individuals. Our seamless customer experience and superior coverage protect not only our clients’ most
valuable possessions, but also their standard of living. Our target customers consist of high net worth consumers with insurance
needs that typically extend beyond what mass market carriers can offer. These coverages are offered solely through independent
regional agents and brokers.
Competitive Environment
Chubb Personal Risk Services competes against insurance companies of varying sizes that sell personal lines products through
various distribution channels, including retail agents as well as online distribution channels. We achieve a competitive
advantage through our ability to address the specific needs of high net worth families and individuals, to provide superior
service to our customers, and to develop and deploy digital production and processes.
North America Agricultural Insurance (5 percent of 2018 Consolidated NPE)
Overview
The North America Agricultural Insurance segment comprises our U.S. and Canadian-based businesses that provide a variety of
coverages including crop insurance, primarily Multiple Peril Crop Insurance (MPCI) and crop-hail insurance through Rain and
Hail Insurance Service, Inc. (Rain and Hail) as well as farm and ranch and specialty P&C commercial insurance products and
services through our Chubb Agribusiness unit.
Products and Distribution
Rain and Hail provides comprehensive MPCI and crop-hail insurance coverages.
• MPCI is federally subsidized crop protection from numerous causes of loss, including drought, excessive moisture, freeze,
disease and more. The MPCI program is offered in conjunction with the U.S. Department of Agriculture. MPCI products
include revenue protection (defined as providing both commodity price and yield coverages), yield protection, margin
protection, prevented planting coverage and replant coverage. For additional information on our MPCI program, refer to
“Crop Insurance” under Item 7.
• Crop-Hail coverage provides crop protection from damage caused by hail and/or fire, with options in some markets for other
perils such as wind or theft. Coverage is provided on an acre-by-acre basis and is available in the U.S. and in some parts of
Canada. Crop-Hail can be used in conjunction with MPCI or other comprehensive coverages to offset the deductible and
provide protection up to the actual cash value of the crop.
Chubb Agribusiness comprises Commercial Agribusiness and Farm and Ranch Agribusiness.
• Commercial Agribusiness offers specialty P&C coverages for commercial companies that manufacture, process and
distribute agricultural products. Commercial products and services include property, general liability for premises/operations
and product liability, commercial automobile, workers' compensation, employment practices liability coverage, built-in
coverage for premises pollution, cyber and information security, and product withdrawal.
• Farm and Ranch Agribusiness offers an extensive line of coverages for farming operations from Hobby/Gentleman farms to
complex corporate farms and equine services including personal use, boarding, and training. Coverages include farm and
ranch structures, machinery and other equipment, automobile and other vehicle coverages, and livestock.
6
Competitive Environment
Rain and Hail primarily operates in a federally regulated program where all approved providers offer the same product forms and
rates through independent and/or captive agents. We seek a competitive advantage through our ability to provide superior
service to our customers, including the development of digital solutions. Chubb Agribusiness competes against both national
and regional competitors offering specialty P&C insurance coverages to companies that manufacture, process, and distribute
agricultural products.
Overseas General Insurance (29 percent of 2018 Consolidated NPE)
Overview
The Overseas General Insurance segment comprises Chubb International and Chubb Global Markets (CGM). CGM, our London-
based international specialty and excess and surplus lines business, includes Lloyd's of London (Lloyd's) Syndicate 2488, a
wholly-owned Chubb syndicate supported by funds at Lloyd’s provided by Chubb Corporate Members. Syndicate 2488 has an
underwriting capacity of £405 million for the Lloyd’s 2019 account year. The syndicate is managed by Chubb’s Lloyd’s
managing agency, Chubb Underwriting Agencies Limited.
Products and Distribution
Chubb International maintains a presence in every major insurance market in the world and is organized geographically along
product lines as follows: Europe, Asia Pacific, Eurasia and Africa, Far East, and Latin America. Products offered include P&C,
A&H, specialty coverages, and personal lines insurance products and services. Chubb International's P&C business is generally
written, on both a direct and assumed basis, through major international, regional, and local brokers and agents. Certain
European branded products are also offered via an eTraditional digital-commerce platform, Chubb Online, that allows brokers to
quote, bind, and issue specialty policies online, and Asia Pacific utilizes similar eTraditional platforms to quote, bind, and issue
policies. Property insurance products include traditional commercial fire coverage as well as energy industry-related, marine,
construction, and other technical coverages. Principal casualty products are commercial primary and excess casualty,
environmental, and general liability. A&H and other consumer lines products are distributed through brokers, agents, direct
marketing programs, including thousands of telemarketers, and sponsor relationships. The A&H operations primarily offer
personal accident and supplemental medical coverages including accidental death, business/holiday travel, specified disease,
disability, medical and hospital indemnity, and income protection. We are not in the primary healthcare business. With respect
to our supplemental medical and hospital indemnity products, we typically pay fixed amounts for claims and are therefore
largely insulated from the direct impact of rising healthcare costs. Chubb International specialty coverages include D&O,
professional indemnity, energy, aviation, political risk, and specialty personal lines products. Chubb International's personal lines
operations provide specialty products and services designed to meet the needs of specific target markets and include property
damage, automobile, homeowners, and personal liability.
CGM offers products through its parallel distribution network via two legal entities, Chubb European Group SE (CEG) and Chubb
Underwriting Agencies Limited, managing agent of Syndicate 2488. CGM uses the syndicate to underwrite P&C business on a
global basis through Lloyd's worldwide licenses. CGM uses CEG to underwrite similar classes of business through its network of
U.K. and European licenses, and in the U.S. where it is eligible to write excess and surplus lines business. Factors influencing
the decision to place business with the syndicate or CEG include licensing eligibilities, capitalization requirements, and client/
broker preference. All business underwritten by CGM is accessed through registered brokers. The main lines of business include
aviation, property, energy, professional lines, marine, financial lines, political risk, and A&H.
Competitive Environment
Chubb International's primary competitors include U.S.-based companies with global operations, as well as non-U.S. global
carriers and indigenous companies in regional and local markets. For the A&H lines of business, locally based competitors also
include financial institutions and bank owned insurance subsidiaries. Our international operations have the distinct advantage of
being part of one of the few international insurance groups with a global network of licensed companies able to write policies on
a locally admitted basis. The principal competitive factors that affect the international operations are underwriting expertise and
pricing, relative operating efficiency, product differentiation, producer relations, and the quality of policyholder services. A
competitive strength of our international operations is our global network and breadth of insurance programs, which assist
individuals and business organizations to meet their risk management objectives, while also having a significant presence in all
of the countries in which we operate, giving us the advantage of accessing local technical expertise and regulatory
environments, understanding local markets and culture, accomplishing a spread of risk, and offering a global network to service
multinational accounts.
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CGM is one of the preeminent international specialty insurers in London and is an established lead underwriter on a significant
portion of the risks it underwrites for all lines of business. This leadership position allows CGM to set the policy terms and
conditions of many of the policies written. All lines of business face competition, depending on the business class, from Lloyd's
syndicates, the London market, and other major international insurers and reinsurers. Competition for international risks is also
seen from domestic insurers in the country of origin of the insured. CGM differentiates itself from competitors through long
standing experience in its product lines, its multiple insurance entities (Syndicate 2488 and CEG), and the quality of its
underwriting and claims service.
Global Reinsurance (2 percent of 2018 Consolidated NPE)
Overview
The Global Reinsurance segment represents Chubb's reinsurance operations comprising Chubb Tempest Re Bermuda, Chubb
Tempest Re USA, Chubb Tempest Re International, and Chubb Tempest Re Canada. Global Reinsurance markets reinsurance
products worldwide under the Chubb Tempest Re brand name and provides solutions for small to mid-sized clients and
multinational ceding companies. Global Re offers a broad array of traditional and non-traditional (e.g., loss portfolio transfer)
property and casualty products.
Products and Distribution
Global Reinsurance services clients globally through its major units. Major international brokers submit business to one or more
of these units' underwriting teams who have built strong relationships with both key brokers and clients by providing a
responsive, client-focused approach to risk assessment and pricing.
Chubb Tempest Re Bermuda principally provides property catastrophe reinsurance globally to insurers of commercial and
personal property. Property catastrophe reinsurance is on an occurrence or aggregate basis and protects a ceding company
against an accumulation of losses covered by its issued insurance policies, arising from a common event or occurrence. Chubb
Tempest Re Bermuda underwrites reinsurance principally on an excess of loss basis, meaning that its exposure only arises after
the ceding company's accumulated losses have exceeded the attachment point of the reinsurance policy. Chubb Tempest Re
Bermuda also writes other types of reinsurance on a limited basis for selected clients. Examples include proportional property
where the reinsurer shares a proportional part of the premiums and losses of the ceding company, together with casualty
(catastrophe workers' compensation) and specialty lines (assumed retrocessional catastrophe business and terrorism). Chubb
Tempest Re Bermuda's business is produced through reinsurance intermediaries.
Chubb Tempest Re USA writes all lines of traditional and specialty P&C reinsurance, and surety and fidelity reinsurance for the
North American market, principally on a treaty basis, with a focus on writing property per risk and casualty reinsurance. Chubb
Tempest Re USA underwrites reinsurance on both a proportional and excess of loss basis. This unit's diversified portfolio is
produced through reinsurance intermediaries.
Chubb Tempest Re International provides traditional and specialty P&C reinsurance to insurance companies worldwide, with
emphasis on non-U.S. and Canadian risks. Chubb Tempest Re International writes all lines of traditional and specialty
reinsurance including property risk and property catastrophe, casualty, marine, aviation, and specialty through our London- and
Zurich-based offices. The London-based office of Chubb Tempest Re International focuses on the development of business
sourced through London market brokers. The Zurich-based office focuses on providing reinsurance to continental European
insurers via continental European brokers while also serving Asian and Latin American markets. The London- and Zurich-based
offices write a diverse book of international business using Syndicate 2488, CEG, and CISL. Chubb Tempest Re International
underwrites reinsurance on both a proportional and excess of loss basis.
Chubb Tempest Re Canada offers a full array of traditional and specialty P&C, and reinsurance to the Canadian market,
including casualty, property risk and property catastrophe, surety, and crop hail. Chubb Tempest Re Canada provides coverage
through its Canadian company platform and also offers clients access to Syndicate 2488. Chubb Tempest Re Canada
underwrites reinsurance on both a proportional and excess of loss basis.
Competitive Environment
The Global Reinsurance segment competes worldwide with major U.S. and non-U.S. reinsurers as well as reinsurance
departments of numerous multi-line insurance organizations. In addition, capital markets participants have developed
alternative capital sources intended to compete with traditional reinsurance. Additionally, government sponsored or backed
catastrophe funds can affect demand for reinsurance. Global Reinsurance is considered a lead reinsurer and is typically involved
in the negotiation and quotation of the terms and conditions of the majority of the contracts in which it participates. Global
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Reinsurance competes effectively in P&C markets worldwide because of its strong capital position, analytical capabilities and
quality customer service, the leading role it plays in setting the terms, pricing, and conditions in negotiating contracts, and its
customized approach to risk selection. The key competitors in our markets vary by geographic region and product line. An
advantage of our international platform is that we are able to change our mix of business in response to changes in competitive
conditions in the territories in which we operate. Our geographic reach is also sought by multinational ceding companies since
all of our offices, with the exception of Bermuda, provide local reinsurance license capabilities which benefit our clients in
dealing with country regulators.
Life Insurance (7 percent of 2018 Consolidated NPE)
Overview
The Life segment comprises Chubb's international life operations (Chubb Life), Chubb Tempest Life Re (Chubb Life Re), and the
North American supplemental A&H and life business of Combined Insurance.
Products and Distribution
Chubb Life provides individual life and group benefit insurance primarily in developing markets, including Hong Kong,
Indonesia, South Korea, Taiwan, Thailand, Vietnam, and Egypt; also throughout Latin America; selectively in Europe; and in
China through a non-consolidated joint venture insurance company. Chubb Life offers a broad portfolio of protection and savings
products including whole life, endowment plans, individual term life, group term life, medical and health, personal accident,
credit life, universal life, Group Employee benefits, unit linked contracts, and credit protection insurance for automobile,
motorcycle and home loans. The policies written by Chubb Life generally provide funds to beneficiaries of insureds after death
and/or protection and/or savings benefits while the contract owner is living. Chubb Life sells to consumers through a variety of
distribution channels including captive and independent agencies, bancassurance, worksite marketing, retailers, brokers,
telemarketing, mobilassurance, and direct to consumer marketing. We continue to expand Chubb Life with a focus on
opportunities in developing markets that we believe will result in strong and sustainable operating profits as well as a favorable
return on capital commitments over time. Our dedicated captive agency distribution channel, whereby agents sell Chubb Life
products exclusively, enables us to maintain direct contact with the individual consumer, promote quality sales practices, and
exercise greater control over the future of the business. We have developed a substantial sales force of agents principally located
in our Asia-Pacific countries. Chubb also maintains approximately 36 percent direct and indirect ownership interest in Huatai
Life Insurance Co., Ltd. (Huatai Life), which commenced operations in 2005 and has since grown to become one of the larger
life insurance foreign joint ventures in China. Huatai Life offers a broad portfolio of insurance products through a variety of
distribution channels including approximately 450 licensed sales locations in 19 Chinese provinces.
Chubb Life Re's core business is a Bermuda-based operation which provides reinsurance to primary life insurers, focusing on
guarantees included in certain variable annuity products and also on more traditional mortality reinsurance protection. Chubb
Life Re's U.S.-based traditional life reinsurance operation was discontinued for new business in January 2010. Since 2007,
Chubb Life Re has not quoted on new opportunities in the variable annuity reinsurance marketplace and our focus has been on
managing the current portfolio of risk, both in the aggregate and on a contract basis. This business is managed with a long-term
perspective and short-term earnings volatility is expected.
Combined Insurance distributes specialty supplemental A&H and life insurance products targeted to middle income consumers
and businesses in the U.S. and Canada. Combined Insurance's substantial North American sales force distributes a wide range
of supplemental accident and sickness insurance products, including personal accident, short-term disability, critical illness,
Medicare supplement products, and hospital confinement/recovery. Most of these products are primarily fixed-indemnity benefit
obligations and are not directly subject to escalating medical cost inflation.
Competitive Environment
Chubb Life's competition differs by location but generally includes multinational insurers, and in some locations, local insurers,
joint ventures, or state-owned insurers. Chubb's financial strength and reputation as an entrepreneurial organization with a
global presence gives Chubb Life a strong base from which to compete. While Chubb Life Re is not currently quoting on new
opportunities in the variable annuity reinsurance marketplace, we continue to monitor developments in this market. Combined
Insurance competes for A&H business in the U.S. against numerous A&H and life insurance companies across various industry
segments.
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Corporate
Corporate results primarily include results of all run-off asbestos and environmental (A&E) exposures, the results of our run-off
Brandywine business, the results of Westchester specialty operations for 1996 and prior years, certain other run-off exposures,
and income and expenses not attributable to reportable segments and the results of our non-insurance companies. The run-off
operations do not actively sell insurance products, but are responsible for the management of existing policies and settlement of
related claims.
Our exposure to A&E claims principally arises out of liabilities acquired when we purchased Westchester Specialty in 1998, CIGNA’s
P&C business in 1999, and Chubb Corp A&E claims in 2016. The A&E liabilities principally relate to claims arising from bodily-
injury claims related to asbestos products and remediation costs associated with hazardous waste sites.
Underwriting
Chubb is an underwriting company and we strive to emphasize quality of underwriting rather than volume of business or market
share. Our underwriting strategy is to manage risk by employing consistent, disciplined pricing and risk selection. This, coupled
with writing a number of less cyclical product lines, has helped us develop flexibility and stability of our business, and has
allowed us to maintain a profitable book of business throughout market cycles. Clearly defined underwriting authorities,
standards, and guidelines coupled with a strong underwriting audit function are in place in each of our local operations and
global profit centers. Global product boards ensure consistency of approach and the establishment of best practices throughout
the world. Our priority is to help ensure adherence to criteria for risk selection by maintaining high levels of experience and
expertise in our underwriting staff. In addition, we employ a business review structure that helps ensure control of risk quality
and appropriate use of policy limits and terms and conditions. Underwriting discipline is at the heart of our operating
philosophy.
Actuaries in each region work closely with the underwriting teams to provide additional expertise in the underwriting process.
We use internal and external data together with sophisticated analytical, catastrophe loss and risk modeling techniques to
ensure an appropriate understanding of risk, including diversification and correlation effects, across different product lines and
territories. We recognize that climate changes and weather patterns are integral to our underwriting process and we continually
adjust our process to address these changes. This is intended to help to ensure that losses are contained within our risk
tolerance and appetite for individual product lines, businesses, and Chubb as a whole. Our use of such tools and data also
reflects an understanding of their inherent limitations and uncertainties.
We also purchase protection from third parties, including, but not limited to, reinsurance as a tool to diversify risk and limit the
net loss potential of catastrophes and large or unusually hazardous risks. For additional information refer to "Risk Factors" under
Item 1A, “Reinsurance Protection”, below, “Catastrophe Management” and “Natural Catastrophe Property Reinsurance
Program”, under Item 7, and Note 4 to the Consolidated Financial Statements, under Item 8.
Reinsurance Protection
As part of our risk management strategy, we purchase reinsurance protection to mitigate our exposure to losses, including
certain catastrophes, to a level consistent with our risk appetite. Although reinsurance agreements contractually obligate our
reinsurers to reimburse us for an agreed-upon portion of our gross paid losses, reinsurance does not discharge our primary
liability to our insureds and, thus, we ultimately remain liable for the gross direct losses. In certain countries, reinsurer selection
is limited by local laws or regulations. In most countries there is more freedom of choice, and the counterparty is selected based
upon its financial strength, claims settlement record, management, line of business expertise, and its price for assuming the risk
transferred. In support of this process, we maintain a Chubb authorized reinsurer list that stratifies these authorized reinsurers
by classes of business and acceptable limits. This list is maintained by our Reinsurance Security Committee (RSC), a committee
comprising senior management personnel and a dedicated reinsurer security team. Changes to the list are authorized by the
RSC and recommended to the Chair of the Risk and Underwriting Committee. The reinsurers on the authorized list and potential
new markets are regularly reviewed and the list may be modified following these reviews. In addition to the authorized list, there
is a formal exception process that allows authorized reinsurance buyers to use reinsurers already on the authorized list for higher
limits or different lines of business, for example, or other reinsurers not on the authorized list if their use is supported by
compelling business reasons for a particular reinsurance program.
A separate policy and process exists for captive reinsurance companies. Generally, these reinsurance companies are established
by our clients or our clients have an interest in them. It is generally our policy to obtain collateral equal to the expected losses
that may be ceded to the captive. Where appropriate, exceptions to the collateral requirement are granted but only after senior
management review. Specific collateral guidelines and an exception process are in place for the North America Commercial P&C
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Insurance, North America Personal P&C Insurance, and Overseas General Insurance segments, all of which have credit
management units evaluating the captive's credit quality and that of their parent company. The credit management units,
working with actuaries, determine reasonable exposure estimates (collateral calculations), ensure receipt of collateral in an
acceptable form, and coordinate collateral adjustments as and when needed. Financial reviews and expected loss evaluations
are performed annually for active captive accounts and as needed for run-off exposures. In addition to collateral, parental
guarantees are often used to enhance the credit quality of the captive.
In general, we seek to place our reinsurance with highly rated companies with which we have a strong trading relationship. For
additional information refer to “Catastrophe Management” and “Natural Catastrophe Property Reinsurance Program” under Item
7, and Note 4 to the Consolidated Financial Statements, under Item 8.
Unpaid Losses and Loss Expenses
We establish reserves for unpaid losses and loss expenses, which are estimates of future payments on reported and unreported
claims for losses and related expenses, with respect to insured events that have occurred. These reserves are recorded in
Unpaid losses and loss expenses in the Consolidated balance sheets. The process of establishing loss and loss expense reserves
for P&C claims can be complex and is subject to considerable uncertainty as it requires the use of informed estimates and
judgments based on circumstances known at the date of accrual. These estimates and judgments are based on numerous
factors, and may be revised as additional experience and other data become available and are reviewed, as new or improved
methodologies are developed, or as laws change. Internal actuaries regularly analyze the levels of loss and loss expense
reserves, taking into consideration factors that may impact the ultimate settlement value of the unpaid losses and loss
expenses. These analyses could result in future changes in the estimates of loss and loss expense reserves or reinsurance
recoverables and any such changes would be reflected in our results of operations in the period in which the estimates are
changed. Losses and loss expenses are charged to income as incurred. The reserve for unpaid losses and loss expenses
represents the estimated ultimate losses and loss expenses less paid losses and loss expenses, and comprises case reserves and
incurred but not reported (IBNR) reserves. With the exception of certain structured settlements, for which the timing and
amount of future claim payments are reliably determinable, and certain reserves for unsettled claims that are discounted in
statutory filings, our loss reserves are not discounted for the time value of money. In connection with such structured
settlements and certain reserves for unsettled claims, we carried net discounted reserves of $73 million at December 31, 2018.
For each product line, management, after consultation with internal actuaries, develops a “best estimate” of the ultimate
settlement value of the unpaid losses and loss expenses that it believes provides a reasonable estimate of the required reserve.
We evaluate our estimates of reserves quarterly in light of developing information. While we are unable at this time to determine
whether additional reserves may be necessary in the future, we believe that our reserves for unpaid losses and loss expenses are
adequate at December 31, 2018. Future additions to reserves, if needed, could have a material adverse effect on our financial
condition, results of operations, and cash flows. For additional information refer to “Critical Accounting Estimates – Unpaid
losses and loss expenses”, under Item 7, and Note 6 to the Consolidated Financial Statements, under Item 8.
Investments
Our objective is to maximize investment income and total return while ensuring an appropriate level of liquidity, investment
quality, and diversification. As such, Chubb's investment portfolio is invested primarily in investment-grade fixed-income
securities as measured by the major rating agencies. We do not allow leverage in our investment portfolio.
The critical aspects of the investment process are controlled by Chubb Asset Management, an indirect wholly-owned subsidiary
of Chubb. These aspects include asset allocation, portfolio and guideline design, risk management, and oversight of external
asset managers. In this regard, Chubb Asset Management:
•
conducts formal asset allocation modeling for each of the Chubb subsidiaries, providing formal recommendations for the
portfolio's structure;
• establishes recommended investment guidelines that are appropriate to the prescribed asset allocation targets;
• provides the analysis, evaluation, and selection of our external investment advisors;
• establishes and develops investment-related analytics to enhance portfolio engineering and risk control;
• monitors and aggregates the correlated risk of the overall investment portfolio; and
• provides governance over the investment process for each of our operating companies to ensure consistency of approach
and adherence to investment guidelines.
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Under our guidance and direction, external asset managers conduct security and sector selection and transaction execution. Use
of multiple managers benefits Chubb in several ways – it provides us with operational and cost efficiencies, diversity of styles
and approaches, innovations in investment research and credit and risk management, all of which enhance the risk adjusted
returns of our portfolios.
Chubb Asset Management determines the investment portfolio's allowable, targeted asset allocation and ranges for each of the
segments. These asset allocation targets are derived from sophisticated asset and liability modeling that measures correlated
histories of returns and volatility of returns. Allowable investment classes are further refined through analysis of our operating
environment including expected volatility of cash flows, potential impact on our capital position, and regulatory and rating
agency considerations.
The Board has established a Risk & Finance Committee which helps execute the Board's supervisory responsibilities pertaining
to enterprise risk management including investment risk. Under the overall supervision of the Risk & Finance Committee,
Chubb's governance over investment management is rigorous and ongoing. Among its responsibilities, the Risk & Finance
Committee of the Board:
•
•
•
reviews and approves asset allocation targets and investment policy to ensure that it is consistent with our overall goals,
strategies, and objectives;
reviews and approves investment guidelines to ensure that appropriate levels of portfolio liquidity, credit quality,
diversification, and volatility are maintained; and
systematically reviews the portfolio's exposures including any potential violations of investment guidelines.
We have long-standing global credit limits for our entire portfolio across the organization and for individual obligors. Exposures
are aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our
Chief Financial Officer, our Chief Risk Officer, our Chief Investment Officer, and our Treasurer.
Within the guidelines and asset allocation parameters established by the Risk & Finance Committee, individual investment
committees of the segments determine tactical asset allocation. Additionally, these committees review all investment-related
activity that affects their operating company, including the selection of outside investment advisors, proposed asset allocation
changes, and the systematic review of investment guidelines.
For additional information regarding the investment portfolio, including breakdowns of the sector and maturity distributions,
refer to Note 2 to the Consolidated Financial Statements under Item 8.
Regulation
Our insurance and reinsurance subsidiaries conduct business globally, including in all 50 states of the United States and the
District of Columbia. Our business is subject to varying degrees of regulation and supervision in each of the jurisdictions in
which our insurance and reinsurance subsidiaries are domiciled and on a group basis. The laws and regulations of the
jurisdictions in which our insurance and reinsurance subsidiaries are domiciled require among other things that these
subsidiaries maintain minimum levels of statutory capital, surplus, and liquidity, meet solvency standards, and submit to
periodic examinations of their financial condition. The complex regulatory environments in which Chubb operates are subject to
change and are regularly monitored.
Group Supervision
In 2012, the Pennsylvania Insurance Department (Department), in consultation with other insurance regulatory bodies that
oversee Chubb's insurance activities, convened the first Chubb Supervisory College (College). Regulators from approximately ten
jurisdictions attended the College in Philadelphia, Pennsylvania, during which the supervisors reviewed information on
Chubb. The Department, in cooperation with the other supervisory college regulators, published a notice of its determination
that it is the appropriate group-wide supervisor for Chubb.
Since 2012, the College has convened bi-annually in-person, with the most recent in-person College held in Philadelphia in
September 2018. In July 2017, the College convened its first interim College teleconference and the next such interim College
teleconference is tentatively scheduled for July 2019. During these meetings, the College reviewed extensive information about
Chubb's businesses, without material adverse comment.
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The following is an overview of regulations for our operations in Switzerland, the U.S., Bermuda, and other international
locations.
Swiss Operations
The Swiss Financial Market Supervisory Authority (FINMA) has the discretion to supervise Chubb on a group-wide basis.
However, FINMA acknowledges the Department's assumption of group supervision over us.
In 2008, we formed Chubb Insurance (Switzerland) Limited which offers property and casualty insurance to Swiss companies,
A&H insurance for individuals of Swiss Corporations as well as reinsurance predominantly in Continental Europe. We have also
formed a reinsurance subsidiary named Chubb Reinsurance (Switzerland) Limited, which we operate as primarily a provider of
reinsurance to Chubb entities. Both companies are licensed and governed by FINMA.
U.S. Operations
Our U.S. insurance subsidiaries are subject to extensive regulation and supervision by the states in which they do business. The
laws of the various states establish departments of insurance with broad authority to regulate, among other things: the
standards of solvency that must be met and maintained, the licensing of insurers and their producers, approval of policy forms
and rates, the nature of and limitations on investments, restrictions on the size of the risks which may be insured under a single
policy, deposits of securities for the benefit of policyholders, requirements for the acceptability of reinsurers, periodic
examinations of the affairs of insurance companies, the form and content of reports of financial condition required to be filed,
and the adequacy of reserves for unearned premiums, losses, and other exposures.
Our U.S. insurance subsidiaries are required to file detailed annual and quarterly reports with state insurance regulators. In
addition, our U.S. insurance subsidiaries' operations and financial records are subject to examination at regular intervals by state
regulators.
All states have enacted legislation that regulates insurance holding companies. This legislation provides that each insurance
company in the insurance holding company system (system) is required to register with the insurance department of its state of
domicile and furnish information concerning the operations of companies within the system that may materially affect the
operations, management, or financial condition of the insurers within the system. We are required to file an annual enterprise
risk report with the Department, identifying the material risks within our system that could pose enterprise risk to the insurance
subsidiaries in the system. All transactions within a system must be fair and equitable. Notice to the insurance departments is
required prior to the consummation of transactions affecting the ownership or control of an insurer and of certain material
transactions between an insurer and an entity in its system. In addition, certain transactions may not be consummated without
the department's prior approval.
We are also required to file an annual report with the Department, reflecting our internal assessment of material risks associated
with our current business plan and the sufficiency of our capital resources to support those risks.
Statutory surplus is an important measure used by the regulators and rating agencies to assess our U.S. insurance subsidiaries'
ability to support business operations and provide dividend capacity. Our U.S. insurance subsidiaries are subject to various state
statutory and regulatory restrictions that limit the amount of dividends that may be paid without prior approval from regulatory
authorities. These restrictions differ by state, but are generally based on calculations incorporating statutory surplus, statutory
net income, and/or investment income.
The National Association of Insurance Commissioners (NAIC) has a risk-based capital requirement for P&C insurance
companies. This risk-based capital formula is used by many state regulatory authorities to identify insurance companies that
may be undercapitalized and which merit further regulatory attention. These requirements are designed to monitor capital
adequacy using a formula that prescribes a series of risk measurements to determine a minimum capital amount for an
insurance company, based on the profile of the individual company. The ratio of a company's actual policyholder surplus to its
minimum capital requirement will determine whether any state regulatory action is required. There are progressive risk-based
capital failure levels that trigger more stringent regulatory action. If an insurer's policyholders' surplus falls below the Mandatory
Control Level (70 percent of the Authorized Control Level, as defined by the NAIC), the relevant insurance commissioner is
required to place the insurer under regulatory control.
However, an insurance regulator may allow a P&C company operating below the Mandatory Control Level that is writing no
business and is running off its existing business to continue its run-off. Brandywine is running off its liabilities consistent with
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the terms of an order issued by the Insurance Commissioner of Pennsylvania. This includes periodic reporting obligations to the
Department.
Government intervention has also occurred in the insurance and reinsurance markets in relation to terrorism coverage in the
U.S. (and through industry initiatives in other countries). The U.S. Terrorism Risk Insurance Act (TRIA), which was enacted in
2002 to ensure the availability of insurance coverage for certain types of terrorist acts in the U.S., was extended in 2015 for six
years, through December 31, 2020, and applies to certain of our operations.
From time to time, Chubb and its subsidiaries and affiliates receive inquiries from state agencies and attorneys general, with
which we generally comply, seeking information concerning business practices, such as underwriting and non-traditional or loss
mitigation insurance products. Moreover, many recent factors, such as consequences of and reactions to industry and economic
conditions and focus on domestic issues, have contributed to the potential for change in the legal and regulatory framework
applicable to Chubb's U.S. operations and businesses. We cannot assure that changes in laws or investigative or enforcement
activities in the various states in the U.S. will not have a material adverse impact on our financial condition, results of
operations, or business practices.
We are subject to numerous U.S. federal and state laws governing the protection of personal and confidential information of our
clients or employees. These laws and regulations are increasing in complexity, and the requirements are extensive and detailed.
Several states, including New York and Connecticut, require us to certify our compliance with their data protection laws.
We are subject to the New York Department of Financial Services’ Cybersecurity Regulation (the NYDFS Cybersecurity
Regulation) which mandates detailed cybersecurity standards for all institutions, including insurance entities, authorized by the
NYDFS to operate in New York. Among the requirements are the maintenance of a cybersecurity program with governance
controls, risk-based minimum data security standards for technology systems, cyber breach preparedness and response
requirements, including reporting obligations, vendor oversight, training, and program record keeping and certification
obligations. Because our North America systems are integrated our companies domiciled in other states may also be impacted
by this requirement.
Additionally, on October 24, 2017, the NAIC adopted an Insurance Data Security Model Law, which require licensed insurance
entities to comply with detailed information security requirements. The NAIC model law is similar in many respects to the
NYDFS Cybersecurity Regulation.
Bermuda Operations
The Insurance Act 1978 of Bermuda and related regulations, as amended (the Insurance Act), regulates the insurance business
of our Bermuda domiciled (re)insurance subsidiaries (Bermuda domiciled subsidiaries) and provides that no person may carry
on any insurance business in or from within Bermuda unless registered as an insurer by the Bermuda Monetary Authority
(BMA). The Insurance Act imposes solvency and liquidity standards and auditing and reporting requirements on Bermuda
insurance companies and grants the BMA powers to supervise, investigate, and intervene in the affairs of insurance companies.
Bermuda domiciled subsidiaries must prepare and file with the BMA, audited annual statutory financial statements and audited
annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. (GAAP),
International Financial Reporting Standards (IFRS), or any such other generally accepted accounting principles as the BMA may
recognize. These audited financial statements are made public by the BMA. The Insurance Act prescribes rules for the
preparation and content of the statutory financial statements that require Bermuda domiciled subsidiaries to give detailed
information and analyses regarding premiums, claims, reinsurance, and investments. In addition, the Bermuda domiciled
subsidiaries are required to prepare and publish a Financial Condition Report (FCR). The FCR provides details of measures
governing the business operations, corporate governance framework, solvency and financial performance. The FCR must be filed
with the BMA and requires Bermuda insurance companies to make the FCR publicly available.
Effective January 1, 2016, Bermuda implemented a new solvency and risk management regime which has been deemed
equivalent to the European Union's (EU) Solvency II regime. Bermuda statutory reporting rules have been amended to introduce
an economic balance sheet (EBS) framework. The Bermuda domiciled subsidiaries submitted their first annual filings under the
EBS framework in April 2017.
Bermuda’s regulatory regime provides a risk-based capital model, termed the Bermuda Solvency Capital Requirement (BSCR),
as a tool to assist the BMA both in measuring risk and in determining appropriate levels of capitalization. The BSCR employs a
standard mathematical model that correlates the risk underwritten by Bermuda insurers to their capital. The BSCR framework
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applies a standard measurement format to the risk associated with an insurer's assets, liabilities, and premiums, including a
formula to take into account catastrophe risk exposure.
The BMA established risk-based regulatory capital adequacy and solvency margin requirements for Bermuda insurers that
mandate that a Bermuda domiciled subsidiary’s Enhanced Capital Requirement (ECR) be calculated by either (a) BSCR, or (b)
an internal capital model which the BMA has approved for use for this purpose. The Bermuda domiciled subsidiaries use the
BSCR in calculating their solvency requirements. The EBS framework is embedded as part of the BSCR and forms the basis of
our ECR.
In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation and in moving towards the
implementation of a risk based capital approach, the BMA has established a threshold capital level, (termed the Target Capital
Level (TCL)), set at 120 percent of ECR, that serves as an early warning tool for the BMA. Failure to maintain statutory capital
at least equal to the TCL would likely result in increased BMA regulatory oversight.
Under the Insurance Act, Chubb's Bermuda domiciled subsidiaries are prohibited from declaring or paying any dividends of
more than 25 percent of total statutory capital and surplus, as shown in its previous financial year unconsolidated statutory
balance sheet, unless at least seven days before payment of the dividends, it files with the BMA an affidavit that it will continue
to meet its required solvency margins. Furthermore, Bermuda domiciled subsidiaries may only declare and pay a dividend from
retained earnings and a dividend or distribution from contributed surplus if it has no reasonable grounds for believing that it is,
or would after the payment be, unable to pay its liabilities as they become due, or if the realizable value of its assets would be
less than the aggregate of its liabilities and its issued share capital and share premium accounts.
In addition, Chubb's Bermuda domiciled subsidiaries must obtain the BMA's prior approval before reducing total statutory
capital, as shown in its previous financial year statutory balance sheet, by 15 percent or more.
Other International Operations
The extent of insurance regulation varies significantly among the countries in which non-U.S. Chubb operations conduct
business. While each country imposes licensing, solvency, auditing, and financial reporting requirements, the type and extent of
the requirements differ substantially. For example:
•
•
in some countries, insurers are required to prepare and file monthly and/or quarterly financial reports, and in others, only
annual reports;
some regulators require intermediaries to be involved in the sale of insurance products, whereas other regulators permit
direct sales contact between the insurer and the customer;
•
the extent of restrictions imposed upon an insurer's use of local and offshore reinsurance vary;
• policy form filing and rate regulation vary by country;
•
•
the frequency of contact and periodic on-site examinations by insurance authorities differ by country; and
regulatory requirements relating to insurer dividend policies vary by country.
Significant variations can also be found in the size, structure, and resources of the local regulatory departments that oversee
insurance activities. Certain regulators prefer close relationships with all subject insurers and others operate a risk-based
approach.
Chubb operates in some countries through subsidiaries and in some countries through branches of subsidiaries. Local capital
requirements applicable to a subsidiary generally include its branches. Certain Chubb companies are jointly owned with local
companies to comply with legal requirements for local ownership. Other legal requirements include discretionary licensing
procedures, compulsory cessions of reinsurance, local retention of funds and records, data privacy and protection program
requirements, and foreign exchange controls. Chubb's international companies are also subject to multinational application of
certain U.S. laws.
There are various regulatory bodies and initiatives that impact Chubb in multiple international jurisdictions and the potential for
significant impact on Chubb could be heightened as a result of recent industry and economic developments.
On June 23, 2016, the United Kingdom (UK) voted in a national referendum to withdraw from the EU. In anticipation of the
UK leaving the EU, effective January 1, 2019, we have redomiciled our European headquarters to France. Paris is the principal
15
office for our Continental European operations. We have a significant investment there in both financial and human resources,
as well as a large portfolio of commercial and consumer insurance business throughout France. Following the anticipated
withdrawal of the UK from the EU, Chubb will continue to have a substantial presence in London in addition to its offices and
operations across the UK and EU.
The EU’s General Data Protection Regulation (GDPR) came into effect on May 25, 2018, and requires businesses operating in
the EU or foreign business offering goods and services to or monitoring the behavior of customers in the EU, to comply with
onerous accountability obligations and significantly enhanced conditions to processing personal data. For example, the GDPR
has more rigorous rules for obtaining consent on the use of personal data and more stringent guidelines to demonstrate
compliance. The GDPR also has specific requirements regarding the transfer of data out of the EU, including only transfers to
countries deemed to have adequate data protection laws.
The EU’s executive body, the European Commission, implemented new capital adequacy and risk management regulations for
the European insurance industry, known as Solvency II, which aims to establish a revised set of EU-wide capital requirements
and risk management standards that replaced the Solvency I requirements. The Solvency II requirements were effective January
1, 2016 for our European operations. Our capital management strategies, results of operations, and financial condition were not
materially affected by the Solvency II requirements.
Enterprise Risk Management
As an insurer, Chubb is in the business of profitably managing risk for its customers. Since risk management must permeate an
organization conducting a global insurance business, we have an established Enterprise Risk Management (ERM) framework
that is integrated into management of our businesses and is led by Chubb's senior management. As a result, ERM is a part of
the day-to-day management of Chubb and its operations.
Our global ERM framework is broadly multi-disciplinary and its objectives include:
• External Risks: identify, analyze, quantify, and where possible, mitigate significant external risks that could materially hamper
the financial condition of Chubb and/or the achievement of corporate business objectives over the next 36 months;
• Exposure Accumulations: identify and quantify the accumulation of exposure to individual counterparties, products or industry
sectors, particularly those that materially extend across or correlate between business units or divisions and/or the balance
sheet;
• Risk Modeling: develop and use various data-sets, analytical tools, metrics and processes (including economic capital models
and advanced analytics, including catastrophe models to quantify natural catastrophe risk for product pricing, risk management,
capital allocation and to simulate and estimate hurricane losses) that help business and corporate leaders make informed
underwriting, portfolio management and risk management decisions within a consistent risk/reward framework;
• Governance:
establish and coordinate risk guidelines that reflect the corporate appetite for risk;
monitor exposure accumulations relative to established guidelines; and
ensure effective internal risk management communication up to management and the Board, (including our Risk &
Finance Committee and our Nominating & Governance Committee), down to the various business units and legal
entities, and across the firm; and
• Disclosure: develop protocols and processes for risk-related disclosure internally as well as externally to rating agencies,
regulators, shareholders and analysts.
Chubb Group's Risk and Underwriting Committee (RUC) reports to and assists the Chief Executive Officer in the oversight and
review of the ERM framework which covers the processes and guidelines used to manage insurance risk, financial risk, strategic
risk, and operational risk. The RUC is chaired by Chubb Group’s Chief Risk Officer. The RUC meets at least monthly, and is
comprised of Chubb Group's most senior executives, in addition to the Chair, including the Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, Chief Investment Officer, Chief Claims Officer, General Counsel, President – North
America Commercial and Personal Insurance, President – North America Major Accounts and Specialty Insurance, President –
Overseas General Insurance, and Chief Underwriting Officer.
The RUC is assisted in its activities by Chubb's Enterprise Risk Unit (ERU) and Product Boards. The ERU is responsible for the
collation and analysis of risk insight in two key areas. First, external information that provides insight to the RUC on existing or
emerging risks that might significantly impact Chubb's key objectives and second, internal risk aggregations arising from Chubb's
business writings and other activities such as investments and operations. The ERU is independent of the operating units and
16
reports to our Chief Risk Officer. The Product Boards exist to provide oversight for products that we offer globally. A Product
Board currently exists for each of Chubb's major product areas. Each Product Board is responsible for ensuring consistency in
underwriting and pricing standards, identification of emerging issues, and guidelines for relevant accumulations.
Chubb's Chief Risk Officer also reports to the Board's Risk & Finance Committee, which helps execute the Board's supervisory
responsibilities pertaining to ERM. The role of the Risk & Finance Committee includes evaluation of the integrity and
effectiveness of our ERM procedures, systems, and information; governance on major policy decisions pertaining to risk
aggregation and minimization; and assessment of our major decisions and preparedness levels pertaining to perceived material
risks. The Audit Committee meets annually and on an as needed basis with the Risk & Finance Committee in order to exercise
its duties under New York Stock Exchange Rules.
Others within the ERM structure contribute toward accomplishing Chubb's ERM objectives, including regional management,
Corporate Underwriting, Internal Audit, Compliance, external consultants, and managers of our internal control processes and
procedures.
Tax Matters
Refer to “Risk Factors”, under Item 1A and Note 1 o) and Note 7 to the Consolidated Financial Statements, under Item 8.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name
Evan G. Greenberg
John W. Keogh
Philip V. Bancroft
John J. Lupica
Joseph F. Wayland
Sean Ringsted
Timothy A. Boroughs
Paul J. Krump
Juan C. Andrade
Age
64
54
59
53
61
56
69
59
53
Position
Chairman, President, Chief Executive Officer, and Director
Executive Vice Chairman and Chief Operating Officer
Executive Vice President and Chief Financial Officer
Vice Chairman; President, North America Major Accounts & Specialty Insurance
Executive Vice President and General Counsel
Executive Vice President, Chief Digital Officer, and Chief Risk Officer
Executive Vice President and Chief Investment Officer
Executive Vice President; President, North America Commercial and Personal Insurance
Executive Vice President; President, Overseas General Insurance
Evan G. Greenberg has been a director of Chubb Limited since August 2002. Mr. Greenberg was elected Chairman of the Board
of Directors in May 2007. Mr. Greenberg was a director of The Coca-Cola Company from February 2011 until his resignation in
October 2016. Mr. Greenberg was appointed to the position of President and Chief Executive Officer of Chubb Limited in May
2004, and in June 2003, was appointed President and Chief Operating Officer of Chubb Limited. Mr. Greenberg was appointed
to the position of Chief Executive Officer of Chubb Overseas General in April 2002. He joined Chubb as Vice Chairman, Chubb
Limited, and Chief Executive Officer of Chubb Tempest Re in November 2001. Prior to joining Chubb, Mr. Greenberg was most
recently President and Chief Operating Officer of American International Group (AIG), a position he held from 1997 until 2000.
John W. Keogh was appointed Executive Vice Chairman of Chubb Limited in November 2015. Mr. Keogh has served as Chief
Operating Officer of Chubb Limited since July 2011 and Vice Chairman of Chubb Limited and Chubb Group Holdings since
August 2010. Mr. Keogh joined Chubb as Chief Executive Officer of Overseas General Insurance in April 2006 and became
Chairman of Overseas General Insurance in August 2010. Prior to joining Chubb, Mr. Keogh served as Senior Vice President,
Domestic General Insurance of AIG, and President and Chief Executive Officer of National Union Fire Insurance Company, AIG's
member company that specializes in D&O and fiduciary liability coverages. Mr. Keogh joined AIG in 1986. He served in a
number of other senior positions there including as Executive Vice President of AIG's Domestic Brokerage Group and as
President and Chief Operating Officer of AIG's Lexington Insurance Company unit.
Philip V. Bancroft was appointed Chief Financial Officer of Chubb Limited in January 2002. For nearly 20 years, Mr. Bancroft
worked for PricewaterhouseCoopers LLP. Prior to joining Chubb, he served as partner-in-charge of the New York Regional
Insurance Practice. Mr. Bancroft had been a partner with PricewaterhouseCoopers LLP for ten years.
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John J. Lupica was appointed President, North America Major Accounts & Specialty Insurance in January 2016, Vice Chairman
of Chubb Limited and Chubb Group Holdings in November 2013 and Chairman, Insurance - North America, in July 2011. Mr.
Lupica had been Chief Operating Officer, Insurance - North America, since 2010 and President of ACE USA since 2006. He
also previously served as Division President of U.S. Professional Risk business and U.S. Regional Operations. Mr. Lupica joined
Chubb as Executive Vice President of Professional Risk in 2000. Prior to joining Chubb, he served as Senior Vice President for
Munich-American Risk Partners, Inc. He also held various management positions at AIG.
Joseph F. Wayland was appointed Executive Vice President of Chubb Limited in January 2016, General Counsel and Secretary
of Chubb Limited in July 2013. Mr. Wayland joined Chubb from the law firm of Simpson Thacher & Bartlett LLP, where he was
a partner since 1994. From 2010 to 2012, he served in the United States Department of Justice, first as Deputy Assistant
Attorney General of the Antitrust Division, and was later appointed as the Acting Assistant Attorney General in charge of that
division.
Sean Ringsted was appointed Executive Vice President and Chief Digital Officer in February 2017 and Chief Risk Officer in
November 2008. Mr. Ringsted previously served as Chief Actuary of Chubb Limited from November 2008 to January 2017. Mr.
Ringsted’s previous roles at Chubb also include Chief Actuary for Chubb Group from 2004 to 2008, Executive Vice President
and Chief Risk Officer for Chubb Tempest Re from 2002 to 2004, and Senior Vice President and Chief Actuary for Chubb
Tempest Re from 1998 to 2002. Prior to joining Chubb, Mr. Ringsted was a consultant at Tillinghast-Towers Perrin.
Timothy A. Boroughs was appointed Executive Vice President and Chief Investment Officer of Chubb Group in June 2000. Prior
to joining Chubb, Mr. Boroughs was Director of Fixed Income at Tudor Investment Corporation from 1997 to 2000, and
Managing Partner and Director of Global Leveraged Investment Activity at Fischer Francis Trees & Watts from 1976 to 1997.
Paul J. Krump was appointed Executive Vice President, Chubb Group and President North America Commercial and Personal
Insurance in January 2016. Prior to Chubb Limited’s January 2016 acquisition of The Chubb Corporation, Mr. Krump was Chief
Operating Officer of The Chubb Corporation, responsible for the company’s Commercial, Specialty, Personal and Accident &
Health insurance lines; Claims; Global Field Operations; Information Technology; Human Resources; Communications; and
External Affairs. Mr. Krump joined The Chubb Corporation in 1982 as a commercial underwriting trainee in the Minneapolis
office. He held numerous headquarters and field positions in the United States and Europe, including President of Personal
Lines and Claims and President of Commercial and Specialty Lines.
Juan C. Andrade was appointed Executive Vice President, Chubb Group and President, Overseas General Insurance in January
2016. Mr. Andrade joined Chubb in December 2010 to lead the global personal lines and small commercial property & casualty
insurance businesses. In January 2013, he became the Chief Operating Officer for Overseas General Insurance. Prior to joining
Chubb, Mr. Andrade was President and Chief Operating Officer of property & casualty operations for The Hartford Financial
Services Group. He joined The Hartford in 2006 as head of the property & casualty claims organization.
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ITEM 1A. Risk Factors
Factors that could have a material impact on our results of operations or financial condition are outlined below. Additional risks
not presently known to us or that we currently deem insignificant may also impair our business or results of operations as they
become known or as facts and circumstances change. Any of the risks described below could result in a material adverse effect
on our results of operations or financial condition.
Insurance
Our results of operations or financial condition could be adversely affected by the occurrence of natural and man-made
disasters.
We have substantial exposure to losses resulting from natural disasters, man-made catastrophes such as terrorism or cyber-
attack, and other catastrophic events, including pandemics. This could impact a variety of our businesses, including our
commercial and personal lines, and life and accident and health (A&H) products. Catastrophes can be caused by various
events, including hurricanes, typhoons, earthquakes, hailstorms, droughts, explosions, severe winter weather, fires, war, acts of
terrorism, nuclear accidents, political instability, and other natural or man-made disasters, including a global or other wide-
impact pandemic or a significant cyber-attack. The last several years saw a particularly significant set of catastrophes,
principally in the form of Hurricanes Harvey, Irma, Maria, Florence, and Michael; the global cyber-attacks known as WannaCry
and Petya; and significant California wildfires. The incidence and severity of catastrophes are inherently unpredictable and our
losses from catastrophes could be substantial. In addition, climate change and resulting changes in global temperatures,
weather patterns, and sea levels may both increase the frequency and severity of natural catastrophes and the resulting losses
in the future and impact our risk modeling assumptions. We cannot predict the impact that changing climate conditions, if any,
may have on our results of operations or our financial condition. Additionally, we cannot predict how legal, regulatory and/or
social responses to concerns around global climate change may impact our business. The occurrence of claims from
catastrophic events could result in substantial volatility in our results of operations or financial condition for any fiscal quarter or
year. The historical incidence for events such as earthquakes, pandemics and cyber-attacks is infrequent and may not be
representative of contemporary exposures and risks. As an example, increases in the values and concentrations of insured
property may increase the severity of these occurrences in the future. Although we attempt to manage our exposure to such
events through the use of underwriting controls, risk models, and the purchase of third-party reinsurance, catastrophic events
are inherently unpredictable and the actual nature of such events when they occur could be more frequent or severe than
contemplated in our pricing and risk management expectations. As a result, the occurrence of one or more catastrophic events
could have an adverse effect on our results of operations and financial condition.
If actual claims exceed our loss reserves, our financial results could be adversely affected.
Our results of operations and financial condition depend upon our ability to accurately assess the potential losses associated
with the risks that we insure and reinsure. We establish reserves for unpaid losses and loss expenses, which are estimates of
future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have
occurred at or prior to the balance sheet date. The process of establishing reserves can be highly complex and is subject to
considerable variability as it requires the use of informed estimates and judgments.
Actuarial staff in each of our segments regularly evaluates the levels of loss reserves. Any such evaluation could result in future
changes in estimates of losses or reinsurance recoverables and would be reflected in our results of operations in the period in
which the estimates are changed. Losses and loss expenses are charged to income as incurred. During the loss settlement
period, which can be many years in duration for some of our lines of business, additional facts regarding individual claims and
trends often will become known which may result in a change in overall reserves. In addition, application of statistical and
actuarial methods may require the adjustment of overall reserves upward or downward from time to time.
Included in our loss reserves are liabilities for latent claims such as asbestos and environmental (A&E), which are principally
related to claims arising from remediation costs associated with hazardous waste sites and bodily-injury claims related to
exposure to asbestos products and environmental hazards. At December 31, 2018, gross A&E liabilities represented
approximately 3.4 percent of our loss reserves. The estimation of these liabilities is subject to many complex variables
including: the current legal environment; specific settlements that may be used as precedents to settle future claims;
assumptions regarding trends with respect to claim severity and the frequency of higher severity claims; assumptions regarding
the ability to allocate liability among defendants (including bankruptcy trusts) and other insurers; the ability of a claimant to
bring a claim in a state in which it has no residency or exposure; the ability of a policyholder to claim the right to non-products
coverage; whether high-level excess policies have the potential to be accessed given the policyholder's claim trends and liability
situation; payments to unimpaired claimants; and the potential liability of peripheral defendants. Accordingly, the ultimate
19
settlement of losses, arising from either latent or non-latent causes, may be significantly greater or less than the loss and loss
expense reserves held at the balance sheet date. In particular the amount and timing of the settlement of our P&C liabilities are
uncertain and our actual payments could be higher than contemplated in our loss reserves owing to the impact of insurance,
judicial decisions, and/or social inflation. If our loss reserves are determined to be inadequate, we may be required to increase
loss reserves at the time of the determination and our net income and capital may be reduced.
The effects of emerging claim and coverage issues on our business are uncertain.
As industry practices and legislative, regulatory, judicial, social, financial, technological and other environmental conditions
change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our
business by either extending coverage beyond our underwriting intent or by increasing the frequency and severity of claims. In
some instances, these changes may not become apparent until after we have issued insurance or reinsurance contracts that are
affected by the changes. As a result, the full extent of liability under our insurance or reinsurance contracts may not be known
for many years after issuance.
The failure of any of the loss limitation methods we use could have an adverse effect on our results of operations and
financial condition.
We seek to manage our loss exposure by maintaining a disciplined underwriting process throughout our insurance operations.
We also look to limit our loss exposure by writing a number of our insurance and reinsurance contracts on an excess of loss
basis. Excess of loss insurance and reinsurance indemnifies the insured against losses in excess of a specified amount. In
addition, we limit program size for each client and purchase third-party reinsurance for our own account. In the case of our
assumed proportional reinsurance treaties, we seek per occurrence limitations or loss and loss expense ratio caps to limit the
impact of losses ceded by the client. In proportional reinsurance, the reinsurer shares a proportional part of the premiums and
losses of the reinsured. We also seek to limit our loss exposure by geographic diversification. Geographic zone limitations
involve significant underwriting judgments, including the determination of the area of the zones and the inclusion of a particular
policy within a particular zone's limits.
However, there are inherent limitations in all of these tactics and no assurance can be given against the possibility of an event
or series of events that could result in loss levels that could have an adverse effect on our financial condition or results of
operations. It is also possible that losses could manifest themselves in ways that we do not anticipate and that our risk
mitigation strategies are not designed to address. Additionally, various provisions of our policies, such as limitations or
exclusions from coverage or choice of forum negotiated to limit our risks, may not be enforceable in the manner we intend. As a
result, one or more natural catastrophes and/or terrorism or other events could result in claims that substantially exceed our
expectations, which could have an adverse effect on our results of operations and financial condition.
We may be unable to purchase reinsurance, and/or if we successfully purchase reinsurance, we are subject to the possibility
of non-payment.
We purchase protection from third parties including, but not limited to, reinsurance to protect against catastrophes and other
sources of volatility, to increase the amount of protection we can provide our clients, and as part of our overall risk management
strategy. Our reinsurance business also purchases retrocessional protection which allows a reinsurer to cede to another
company all or part of the reinsurance originally assumed by the reinsurer. A reinsurer's or retrocessionaire's insolvency or
inability or unwillingness to make timely payments under the terms of its reinsurance agreement with us could have an adverse
effect on us because we remain liable to the insured. From time to time, market conditions have limited, and in some cases
have prevented, insurers and reinsurers from obtaining the types and amounts of reinsurance or retrocessional reinsurance that
they consider adequate for their business needs.
There is no guarantee our desired amounts of reinsurance or retrocessional reinsurance will be available in the marketplace in
the future. In addition to capacity risk, the remaining capacity may not be on terms we deem appropriate or acceptable or with
companies with whom we want to do business. Finally, we face some degree of counterparty risk whenever we purchase
reinsurance or retrocessional reinsurance. Consequently, the insolvency of these counterparties, or the inability, or unwillingness
of any of our present or future reinsurers to make timely payments to us under the terms of our reinsurance or retrocessional
agreements could have an adverse effect on us. At December 31, 2018, we had $16.2 billion of reinsurance recoverables, net
of reserves for uncollectible recoverables.
Certain active Chubb companies are primarily liable for A&E and other exposures they have reinsured to our inactive run-off
company Century Indemnity Company (Century). At December 31, 2018, the aggregate reinsurance balances ceded by our
active subsidiaries to Century were approximately $1.5 billion. Should Century's loss reserves experience adverse development
in the future and should Century be placed into rehabilitation or liquidation, the reinsurance recoverables due from Century to
20
its affiliates would be payable only after the payment in full of third party expenses and liabilities, including administrative
expenses and direct policy liabilities. Thus, the intercompany reinsurance recoverables would be at risk to the extent of the
shortage of assets remaining to pay these recoverables. While we believe the intercompany reinsurance recoverables from
Century are not impaired at this time, we cannot assure that adverse development with respect to Century's loss reserves, if
manifested, will not result in Century's insolvency, which could result in our recognizing a loss to the extent of any uncollectible
reinsurance from Century. This could have an adverse effect on our results of operations and financial condition.
Our net income may be volatile because certain products sold by our Life Insurance business expose us to reserve and fair
value liability changes that are directly affected by market and other factors and assumptions.
Our pricing, establishment of reserves for future policy benefits and valuation of life insurance and annuity products, including
reinsurance programs, are based upon various assumptions, including but not limited to equity market changes, interest rates,
mortality rates, morbidity rates, and policyholder behavior. The process of establishing reserves for future policy benefits relies
on our ability to accurately estimate insured events that have not yet occurred but that are expected to occur in future periods.
Significant deviations in actual experience from assumptions used for pricing and for reserves for future policy benefits could
have an adverse effect on the profitability of our products and our business.
Under reinsurance programs covering variable annuity guarantees, we assumed the risk of guaranteed minimum death benefits
(GMDB) and guaranteed living benefits (GLB), principally guaranteed minimum income benefits (GMIB), associated with
variable annuity contracts. We ceased writing this business in 2007. Our net income is directly impacted by changes in the
reserves calculated in connection with the reinsurance of GMDB and GLB liabilities. In addition, our net income is directly
impacted by the change in the fair value of the GLB liability. Reported liabilities for both GMDB and GLB reinsurance are
determined using internal valuation models which require considerable judgment and are subject to significant uncertainty.
Refer to the “Critical Accounting Estimates – Guaranteed living benefits (GLB) derivatives” under Item 7 and “Quantitative and
Qualitative Disclosures about Market Risk – Reinsurance of GMDB and GLB guarantees” under Item 7A for additional
information on the assumptions used in this program. We view our variable annuity reinsurance business as having a similar
risk profile to that of catastrophe reinsurance, with the probability of long-term economic loss relatively small at the time of
pricing. Adverse changes in market factors and policyholder behavior will have an impact on both Life Insurance underwriting
income and consolidated net income.
Payment of obligations under surety bonds could have an adverse effect on our results of operations.
The surety business tends to be characterized by infrequent but potentially high severity losses. The majority of our surety
obligations are intended to be performance-based guarantees. When losses occur, they may be mitigated, at times, by recovery
rights to the customer’s assets, contract payments, and collateral and bankruptcy recoveries. We have substantial commercial
and construction surety exposure for current and prior customers. In that regard, we have exposures related to surety bonds
issued on behalf of companies that have experienced or may experience deterioration in creditworthiness. If the financial
condition of these companies were adversely affected by the economy or otherwise, we may experience an increase in filed
claims and may incur high severity losses, which could have an adverse effect on our results of operations.
Our exposure to counterparties in various industries, our reliance on brokers, and certain of our policies may subject us to
credit risk.
We have exposure to counterparties through reinsurance and in various industries, including banks, hedge funds and other
investment vehicles, and derivative transactions that expose us to credit risk in the event our counterparty fails to perform its
obligations. We also have exposure to financial institutions in the form of secured and unsecured debt instruments and equity
securities.
In accordance with industry practice, we generally pay amounts owed on claims to brokers who, in turn, remit these amounts to
the insured or ceding insurer. Although the law is unsettled and depends upon the facts and circumstances of the particular
case, in some jurisdictions, if a broker fails to make such a payment, we might remain liable to the insured or ceding insurer for
the deficiency. Conversely, in certain jurisdictions, if a broker does not remit premiums paid for these policies over to us, these
premiums might be considered to have been paid and the insured or ceding insurer will no longer be liable to us for those
amounts, whether or not we have actually received the premiums from the broker. Consequently, we assume a degree of credit
risk associated with a broker with whom we transact business. However, due to the unsettled and fact-specific nature of the
law, we are unable to quantify our exposure to this risk. To date, we have not experienced any material losses related to this
credit risk.
Under the terms of certain high-deductible policies which we offer, such as workers’ compensation and general liability, our
customers are responsible to reimburse us for an agreed-upon dollar amount per claim. In nearly all cases we are required
21
under such policies to pay covered claims first, and then seek reimbursement for amounts within the applicable deductible from
our customers. This obligation subjects us to credit risk from these customers. While we generally seek to mitigate this risk
through collateral agreements and maintain a provision for uncollectible accounts associated with this credit exposure, an
increased inability of customers to reimburse us in this context could have an adverse effect on our financial condition and
results of operations. In addition, a lack of credit available to our customers could impact our ability to collateralize this risk to
our satisfaction, which in turn, could reduce the amount of high-deductible policies we could offer.
Since we depend on a few distribution and bancassurance partners for a large portion of our revenues, loss of business
provided by any one of them could adversely affect us.
We market our insurance and reinsurance worldwide primarily through independent insurance agents, insurance and
reinsurance brokers, and bancassurance relationships. Accordingly, our business is dependent on the willingness of these agents
and brokers to recommend our products to their customers, who may also promote and distribute the products of our
competitors. Deterioration in relationships with our agent and broker distribution network or their increased promotion and
distribution of our competitors' products could adversely affect our ability to sell our products. Loss of all or a substantial portion
of the business provided by one or more of these agents and brokers could have an adverse effect on our business.
Financial
Our investment performance may affect our financial results and our ability to conduct business.
Our investment assets are invested by professional investment management firms under the direction of our management team
in accordance with investment guidelines approved by the Risk & Finance Committee of the Board of Directors. Although our
investment guidelines stress diversification of risks and conservation of principal and liquidity, our investments are subject to
market risks and risks inherent in individual securities. Interest rates are highly sensitive to many factors, including inflation,
monetary and fiscal policies, and domestic and international political conditions. Given the risk that London Interbank Offered
Rate (LIBOR) may no longer be available, we are monitoring industry efforts via our external investment managers to transition
away from LIBOR by the end of 2021. The volatility of our losses may force us to liquidate securities, which may cause us to
incur capital losses. Realized and unrealized losses in our investment portfolio would reduce our book value, and if significant,
can affect our ability to conduct business.
Volatility in interest rates could impact the performance of our investment portfolio which could have an adverse effect on our
investment income and operating results. Although we take measures to manage the risks of investing in a changing interest
rate environment, we may not be able to effectively mitigate interest rate sensitivity. Our mitigation efforts include maintaining a
high quality portfolio of primarily fixed income investments with a relatively short duration to reduce the effect of interest rate
changes on book value. A significant increase in interest rates would generally have an adverse effect on our book value. Our life
insurance investments typically focus on longer duration bonds to better match the obligations of this business. For the life
insurance business, policyholder behavior may be influenced by changing interest rate conditions and require a re-balancing of
duration to effectively manage our asset/liability position.
As stated, our fixed income portfolio is primarily invested in high quality, investment-grade securities. However, a smaller
portion of the portfolio, approximately 15 percent at December 31, 2018, is invested in below investment-grade securities.
These securities, which pay a higher rate of interest, also have a higher degree of credit or default risk and may also be less
liquid in times of economic weakness or market disruptions. While we have put in place procedures to monitor the credit risk
and liquidity of our invested assets, it is possible that, in periods of economic weakness (such as recession), we may experience
credit or default losses in our portfolio, which could adversely affect our results of operations and financial condition.
As a part of our ongoing analysis of our investment portfolio, we are required to assess whether the debt and equity securities
we hold for which we have recorded an unrealized loss have been “other-than-temporarily impaired” under GAAP, which implies
an inability to recover the full economic benefits of these securities. Refer to Note 2 to the Consolidated Financial Statements
for additional information. This analysis requires a high degree of judgment and requires us to make certain assessments about
the potential for recovery of the assets we hold. Declines in relevant stock and other financial markets, and other factors
impacting the value of our investments, could result in impairments and could adversely affect our net income and other
financial results.
We may require additional capital or financing sources in the future, which may not be available or may be available only on
unfavorable terms.
Our future capital and financing requirements depend on many factors, including our ability to write new business successfully
and to establish premium rates and reserves at levels sufficient to cover losses, as well as our investment performance and
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capital expenditure obligations, including with respect to acquisitions. We may need to raise additional funds through financings
or access funds through existing or new credit facilities or through short-term repurchase agreements. We also from time to time
seek to refinance debt or credit as amounts become due or commitments expire. Any equity or debt financing or refinancing, if
available at all, may be on terms that are not favorable to us. In the case of equity financings, dilution to our shareholders could
result, and in any case, such securities may have rights, preferences, and privileges that are senior to those of our Common
Shares. Our access to funds under existing credit facilities is dependent on the ability of the banks that are parties to the
facilities to meet their funding commitments. Under Swiss law we would be prohibited from selling shares in an equity financing
at a purchase price below our then-current par value. If we cannot obtain adequate capital or sources of credit on favorable
terms, or at all, we could be forced to use assets otherwise available for our business operations, and our business, results of
operations, and financial condition could be adversely affected.
We may be required to post additional collateral because of changes in our reinsurance liabilities to regulated insurance
companies, or because of regulatory changes that affect our companies.
If our reinsurance liabilities increase, including in our property & casualty and variable annuity reinsurance businesses, we may
be required to post additional collateral for insurance company clients. In addition, regulatory changes sometimes affect our
obligations to post collateral. The need to post this additional collateral, if significant enough, may require us to sell investments
at a loss in order to provide securities of suitable credit quality or otherwise secure adequate capital at an unattractive cost. This
could adversely impact our net income and liquidity and capital resources.
U.S. and global economic and financial industry events and their consequences could harm our business, our liquidity and
financial condition, and our stock price.
The consequences of adverse global or regional market and economic conditions may affect (among other aspects of our
business) the demand for and claims made under our products, the ability of customers, counterparties, and others to establish
or maintain their relationships with us, our ability to access and efficiently use internal and external capital resources, the
availability of reinsurance protection, the risks we assume under reinsurance programs covering variable annuity guarantees,
and our investment performance. The increasing impact of climate change could affect our cost of claims, loss ratios, and
financial results. Volatility in the U.S. and other securities markets may adversely affect our stock price.
A decline in our financial strength ratings could affect our standing among distribution partners and customers and cause our
premiums and earnings to decrease. A decline in our debt ratings could increase our borrowing costs and impact our ability
to access capital markets.
Ratings are an important factor in establishing the competitive position of insurance and reinsurance companies. The objective
of these rating systems is to provide an opinion of an insurer's financial strength and ability to meet ongoing obligations to its
policyholders. A ratings downgrade could result in a substantial loss of business as insureds, ceding companies, and brokers
move to other insurers and reinsurers with higher ratings. If one or more of our debt ratings were downgraded, we could also
incur higher borrowing costs, and our ability to access the capital markets could be impacted. Additionally, we could be
required to post collateral or be faced with the cancellation of policies and resulting premium in certain circumstances. We
cannot give any assurance regarding whether or to what extent any of the rating agencies might downgrade our ratings in the
future.
Our ability to pay dividends and/or to make payments on indebtedness may be constrained by our holding company
structure.
Chubb Limited is a holding company that owns shares of its operating insurance and reinsurance subsidiaries and does not
itself have any significant operations or liquid assets. Dividends and other permitted distributions from our insurance
subsidiaries are a primary source of funds to meet ongoing cash requirements, including any future debt service payments and
other expenses, and to pay dividends to our shareholders. Some of our insurance subsidiaries are subject to significant
regulatory restrictions limiting their ability to declare and pay dividends. The inability of our insurance subsidiaries to pay
dividends (or other intercompany amounts due, such as intercompany debt obligations) in an amount sufficient to enable us to
meet our cash requirements at the holding company level could have an adverse effect on our operations and our ability to pay
dividends to our shareholders and/or meet our debt service obligations.
Our operating results and shareholders' equity may be adversely affected by currency fluctuations.
Our reporting currency is the U.S. dollar. In general, we match assets and liabilities in local currencies. Where possible, capital
levels in local currencies are limited to satisfy minimum regulatory requirements and to support local insurance operations. The
principal currencies creating foreign exchange risk are the British pound sterling, the euro, the Mexican peso, the Brazilian real,
the Korean won, the Canadian dollar, the Japanese yen, the Thai baht, the Australian dollar, and the Hong Kong dollar. At
December 31, 2018, approximately 20.7 percent of our net assets were denominated in foreign currencies. We may experience
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losses resulting from fluctuations in the values of non-U.S. currencies, which could adversely impact our results of operations
and financial condition.
Operational
The regulatory and political regimes under which we operate, and their volatility, could have an adverse effect on our
business.
Our insurance and reinsurance subsidiaries conduct business globally. Our businesses in each jurisdiction are subject to varying
degrees of regulation and supervision. The laws and regulations of the jurisdictions in which our insurance and reinsurance
subsidiaries are domiciled require, among other things, maintenance of minimum levels of statutory capital, surplus, and
liquidity; various solvency standards; and periodic examinations of subsidiaries' financial condition. In some jurisdictions, laws
and regulations also restrict payments of dividends and reductions of capital. Applicable statutes, regulations, and policies may
also restrict the ability of these subsidiaries to write insurance and reinsurance policies, to make certain investments, and to
distribute funds. The purpose of insurance laws and regulations generally is to protect policyholders and ceding insurance
companies, not our shareholders. For example, some jurisdictions have enacted various consumer protection laws that make it
more burdensome for insurance companies to sell policies and interact with customers in personal lines businesses. Failure to
comply with such regulations can lead to significant penalties and reputational injury. Fines and penalties in the U.S. in
particular have been trending upwards.
The foreign and U.S. federal and state laws and regulations that are applicable to our operations are complex and may increase
the costs of regulatory compliance or subject our business to the possibility of regulatory actions or proceedings. Laws and
regulations not specifically related to the insurance industry include trade sanctions that relate to certain countries, anti-money
laundering laws, and anti-corruption laws such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010, the anti-
bribery provisions of the Swiss Penal Code and similar local laws prohibiting corrupt payments to governmental officials. The
insurance industry is also affected by political, judicial, and legal developments that may create new and expanded regulations
and theories of liability. The current economic and financial climates present additional uncertainties and risks relating to
increased regulation and the potential for increased involvement of the U.S. and other governments in the financial services
industry.
Regulators in countries where we have operations are working with the International Association of Insurance Supervisors (IAIS)
to consider changes to insurance company supervision, including with respect to group supervision and solvency requirements.
The IAIS has developed a Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame)
which is focused on the effective group-wide supervision of international active insurance groups (IAIGs), such as Chubb. As
part of ComFrame, the IAIS has announced plans to develop an international capital standard for insurance groups. The details
of ComFrame including this global capital standard and its applicability to Chubb are uncertain at this time. In addition, Chubb
businesses across the EU are subject to Solvency II, a capital and risk management regime and our Bermuda businesses are
subject to an equivalent of the EU's Solvency II regime. Also applicable to Chubb businesses are the requirements of the Swiss
Financial Market Supervisory Authority (FINMA) whose regulations include Swiss Solvency Tests. There are also Risk Based
Capital (RBC) requirements in the U.S. which are also subject to revision in response to global developments. While it is not
certain how or if these actions will impact Chubb, we do not currently expect that our capital management strategies, results of
operations and financial condition will be materially affected by these regulatory changes.
In the event or absence of changes in applicable laws and regulations in particular jurisdictions, we may from time to time face
challenges, or changes in approach to oversight of our business from insurance or other regulators, including challenges
resulting from requiring the use of information technology that cannot be quickly adjusted to address new regulatory
requirements.
We may not be able to comply fully with, or obtain appropriate exemptions from, applicable statutes and regulations and any
changes thereto, which could have an adverse effect on our business. Failure to comply with or obtain appropriate
authorizations and/or exemptions under any applicable laws and regulations could result in restrictions on our ability to do
business or undertake activities that are regulated in one or more of the jurisdictions in which we conduct business and could
subject us to fines and other sanctions.
Evolving privacy and data security regulations could adversely affect our business.
We are subject to numerous U.S. federal and state laws and non-U.S. regulations governing the protection of personal and
confidential information of our clients and employees, including in relation to medical records, credit card data and financial
information. These laws and regulations are increasing in complexity and number, change frequently and sometimes conflict.
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We are subject to the New York Department of Financial Services’ Cybersecurity Regulation (the NYDFS Cybersecurity
Regulation) which mandates detailed cybersecurity standards for all institutions, including insurance entities, authorized by the
NYDFS to operate in New York. Among the requirements are the maintenance of a cybersecurity program with governance
controls, risk-based minimum data security standards for technology systems, cyber breach preparedness and response
requirements, including reporting obligations, vendor oversight, training, and program record keeping and certification
obligations. The NYDFS Cybersecurity Regulation has increased our compliance costs and could increase the risk of
noncompliance and subject us to regulatory enforcement actions and penalties, as well as reputation risk.
Additionally, on October 24, 2017, the National Association of Insurance Commissioners (NAIC) adopted an Insurance Data
Security Model Law, which requires licensed insurance entities to comply with detailed information security requirements. The
NAIC model law is similar in many respects to the NYDFS Cybersecurity Regulation and has been adopted by a few states and
is under consideration by others. It is not yet known whether or not, and to what extent, states legislatures or insurance
regulators where we operate will enact the Insurance Data Security Model Law in whole or in part, or in a modified form. Such
enactments, especially if inconsistent between states or with existing laws and regulations could raise compliance costs or
increase the risk of noncompliance, with the attendant risk of being subject to regulatory enforcement actions and penalties, as
well as reputational harm. Any such events could potentially have an adverse impact on our business, financial condition or
results of operations.
We operate in a number of countries outside of the U.S. whose laws may in some cases be more stringent than the
requirements in the U.S. For example, European Union (EU) member countries have specific requirements relating to cross-
border transfers of personal information to certain jurisdictions, including to the U.S. In addition, some countries provide
stronger individual rights and have stricter consumer notice and/or consent requirements for the collection, use or sharing of
personal information and more stringent requirements relating to organizations’ privacy programs. Moreover, international
privacy and data security regulations may become more complex and have greater consequences.
The EU General Data Protection Regulation (the “GDPR”), which became effective on May 25, 2018, is a comprehensive
regulation applying across all EU member states. All of our business units (regardless of whether they are located in the EU)
may be subject to the GDPR when personal data is processed in relation to the offer of goods and services to individuals within
the EU. Our compliance with GDPR requires preparation, expenditures, and ongoing compliance efforts. Further, enforcement
priorities and interpretation of certain of the GDPR's provisions are still unclear. Under the GDPR there are penalties for
noncompliance which could result in a material fine for certain activities of up to 4 percent of a firm’s global annual revenue per
violation. Our failure to comply with GDPR and other countries’ privacy or data security-related laws, rules or regulations could
result in significant penalties imposed by regulators, which could have an adverse effect on our business, financial condition
and results of operations.
Significant other comprehensive privacy laws have been enacted by other countries, most notably the California Consumer
Privacy Act (CCPA) and Brazil’s Lei Geral de Protecao de Dados, which may affect our use of data and could affect our
operations and subject us to fines and actions for noncompliance. In the U.S., there are ongoing discussions regarding a
National Privacy Law. New laws similar to the GDPR are expected to be enacted in coming years in additional countries in
which we operate.
Political uncertainty in the United Kingdom and the European Union may lead to volatility and/or have an adverse effect on
our business, our liquidity and financial condition, and our stock price.
On June 23, 2016, the United Kingdom (U.K.) voted in a national referendum to withdraw from the European Union (EU). On
March 29, 2017, the U.K. government gave notice to the EU, under Article 50(2) of the Treaty on EU, of the U.K.’s intention to
withdraw from the EU.
The expected exit of the U.K. from the EU, or prolonged periods of uncertainty relating to such a possibility could result in
significant macroeconomic deterioration including, but not limited to, decreases in global stock exchange indices, increased
foreign exchange volatility (in particular a further weakening of the pound sterling and euro against other leading currencies),
decreased GDP in the U.K., and a downgrade of the U.K.’s sovereign credit rating. In addition, these events if sufficiently
extreme could push the U.K., Eurozone, and/or United States into an economic recession any of which, were they to occur,
would further destabilize the global financial markets and could have a material adverse effect on our business, financial
condition, and results of operations. We have significant operations in the U.K. and other EU member states. In anticipation of
the U.K. leaving the EU as expected in 2019, effective January 1, 2019, we have redomiciled our European headquarters to
France. Paris is the principal office for our Continental European operations. We have a significant investment there in both
financial and human resources, as well as a large portfolio of commercial and consumer insurance business throughout France.
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Following the withdrawal of the U.K. from the EU, Chubb will continue to have a substantial presence in London in addition to
its offices and operations across the U.K. and EU.
The rules governing the EU Single Market (which is made up of the 27 other EU member states and to some extent, Iceland,
Liechtenstein, and Norway (together, the European Economic Area or EEA)) require local risks to be underwritten by a local
authorized insurer, an EEA authorized insurer or a non-local insurer with the benefit of an EU “passport”. As such, U.K. insurers
(as well as EEA insurers operating as passported branches in the U.K., such as our French companies Chubb European Group
SE and ACE Europe Life SE), are currently able to underwrite risks from the U.K. into EEA member states via a “passport”. If
the withdrawal agreement in its current form is entered into, the U.K. will withdraw from the EU Single Market, in which case
our passporting rights would be lost. In addition, there can be no assurance that there will be any agreement between the U.K.
and the EU by the date on which the U.K. withdraws from the EU, by the end of any transitional period, or at all. In particular,
the terms of the U.K.'s exit from the EU and the framework for future discussions on the terms of the U.K.'s relationship with
the EU is subject to approval by the U.K. Parliament, which may not be given. As such, there is a possibility that the
withdrawal agreement will not be approved by the U.K. Parliament, and that the U.K. will withdraw from the EU without any
withdrawal agreement. In addition, any free trade agreement that is subsequently concluded between the U.K. and the EU may
not maintain the passporting rights of U.K. insurers nor deem relevant U.K. regulations to be equivalent to those of the EU. In
the event that, following the U.K.’s withdrawal from the EU, U.K. insurers are unable to access the EU Single Market via a
passporting arrangement, a regulatory equivalence regime or other similar arrangement, such insurers may not be able to
underwrite risks into EEA member states except through local branches incorporated in the EEA. Such branches might require
local authorization, regulatory and prudential supervision, and capital to be deposited. As an EEA authorized insurer, Chubb will
be able to continue to underwrite local risks across the EU Single Market. On July 24, 2018, the U.K. government legislated
the Temporary Permissions Regime which allows U.K. branches of EEA authorized insurers to continue underwriting U.K.
insurance business if the U.K. leaves the EU on March 29, 2019 without a withdrawal agreement, while the insurer seeks local
authorization from the U.K. regulator, which might require local capital to be deposited. We have commenced implementation
of plans to ensure that following the date of the U.K.'s exit from the EU, our French companies, Chubb European Group SE and
ACE Europe Life SE, will be able to underwrite risks across the EEA via a "passport", and the U.K. branches of these companies
will have the benefit of the U.K.'s Temporary Permissions Regime, allowing them to continue to carry on insurance business in
the U.K. for the period of up to three years following the date of the U.K.'s exit from the EU or until the relevant entity obtains
branch authorization from the Prudential Regulatory Authority. However, any change to the terms of the U.K.’s access to the EU
Single Market following the withdrawal of the U.K. from the EU could still have a material adverse effect on our business,
financial condition, and results of operations.
Chubb underwrites P&C business on a global basis through Lloyd's of London (Lloyd's). Effective January 1, 2019, Lloyd's
launched the Lloyd's Insurance Company which enables Lloyd's to continue to write insurance and reinsurance in EEA member
states through an alternative entity in its group located in Brussels, following the U.K.'s withdrawal from the EU. Lloyd's has
announced its intention to transfer all existing EEA business from the U.K. entity to the Lloyd's Insurance Company through a
regulatory process called a Part VII transfer.
Our worldwide operations, particularly in developing nations, expose us to global geopolitical developments that could have
an adverse effect on our business, liquidity, results of operations, and financial condition.
With operations in 54 countries and territories, we provide insurance and reinsurance products and services to a diverse group
of clients worldwide, including operations in various developing nations. Both current and future foreign operations could be
adversely affected by unfavorable geopolitical developments including law changes; tax changes; changes in trade policies;
changes to visa or immigration policies; regulatory restrictions; government leadership changes; political events and upheaval;
sociopolitical instability; social, political or economic instability resulting from climate change; and nationalization of our
operations without compensation. Adverse activity in any one country could negatively impact operations, increase our loss
exposure under certain of our insurance products, and could, otherwise, have an adverse effect on our business, liquidity,
results of operations, and financial condition depending on the magnitude of the events and our net financial exposure at that
time in that country.
A failure in our operational systems or infrastructure or those of third parties, including due to security breaches or cyber-
attacks, could disrupt business, damage our reputation, and cause losses.
Our operations rely on the secure processing, storage, and transmission of confidential and other information and assets,
including in our computer systems and networks and those of third-party service providers. Our business depends on effective
information security and systems and the integrity and timeliness of the data our information systems use to run our business.
Our ability to adequately price products and services, to establish reserves, to provide effective, efficient and secure service to
our customers, to value our investments and to timely and accurately report our financial results also depends significantly on
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the integrity and availability of the data we maintain, including that within our information systems, as well as data in and
assets held through third-party service providers and systems. In an effort to ensure the integrity of such data, we implement
new security measures and systems, including the use of confidential intellectual property, and improve or upgrade our existing
security measures and systems on a continuing basis. The instances of major cyber incidents have continued to expand in
recent years, as exemplified by the 2017 "Petya" and “WannaCry” ransomware attacks. Although we have implemented
administrative and technical controls and have taken protective actions to reduce the risk of cyber incidents and to protect our
information technology and assets, and although we additionally endeavor to modify such procedures as circumstances warrant
and negotiate agreements with third-party providers to protect our assets, such measures may be insufficient to prevent
unauthorized access, computer viruses, malware or other malicious code or cyber-attack, business compromise attacks,
catastrophic events, system failures and disruptions (including in relation to new security measures and systems), employee
errors or malfeasance, third party (including outsourced service providers) errors or malfeasance, loss of assets and other events
that could have security consequences (each, a Security Event). In some cases, such events may not be immediately detected.
As the breadth and complexity of our security infrastructure continues to grow, the potential risk of a Security Event increases.
Like other global companies, we have from time to time experienced Security Events, none of which had, individually or in the
aggregate, an adverse impact on our business, results of operations, or financial condition. If additional Security Events occur,
these events may jeopardize Chubb's or its clients' or counterparties' confidential and other information processed and stored
within Chubb, and transmitted through its computer systems and networks, or otherwise cause interruptions, delays, or
malfunctions in Chubb's, its clients', its counterparties', or third parties' operations, or result in data loss or loss of assets which
could result in significant losses, reputational damage or an adverse effect on our operations and critical business functions.
Chubb may be required to expend significant additional resources to modify our protective measures or to investigate and
remediate vulnerabilities or other exposures and to pursue recovery of lost data or assets and we may be subject to litigation
and financial losses that are either not insured against or not fully covered by insurance maintained.
The regulatory environment surrounding information security and privacy is increasingly demanding. We are subject to
numerous U.S. federal and state laws and regulations in jurisdictions outside the U.S. governing the protection of personal and
confidential information of our clients or employees, including in relation to medical records, credit card data and financial
information. These laws and regulations are increasing in complexity and number, change frequently and sometimes conflict.
Evolving cyber and data privacy laws and regulations and resulting changes to our business practices may affect our businesses
and revenue sources. If any person, including any of our employees or those with whom we share such information, negligently
disregards or intentionally breaches our established controls with respect to our client data, or otherwise mismanages or
misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or
criminal prosecution in one or more jurisdictions.
Despite the contingency plans and facilities we have in place and our efforts to observe the regulatory requirements surrounding
information security, our ability to conduct business may be adversely affected by a disruption of the infrastructure that supports
our business in the communities in which we are located, or of outsourced services or functions. This may include a disruption
involving electrical, communications, transportation, or other services used by Chubb. If a disruption occurs in one location and
Chubb employees in that location are unable to occupy our offices and conduct business or communicate with or travel to other
locations, our ability to service and interact with clients may suffer and we may not be able to successfully implement
contingency plans that depend on communication or travel.
We use analytical models to assist our decision making in key areas such as underwriting, claims, reserving, and catastrophe
risks but actual results could differ materially from the model outputs and related analyses.
We use various modeling techniques (e.g., scenarios, predictive, stochastic and/or forecasting) and data analytics to analyze
and estimate exposures, loss trends and other risks associated with our assets and liabilities. We use the modeled outputs and
related analyses to assist us in decision-making (e.g., underwriting, pricing, claims, reserving, reinsurance, and catastrophe
risk) and to maintain competitive advantage. The modeled outputs and related analyses are subject to various assumptions,
uncertainties, model errors and the inherent limitations of any statistical analysis, including the use of historical internal and
industry data. In addition, the modeled outputs and related analyses may from time to time contain inaccuracies, perhaps in
material respects, including as a result of inaccurate inputs or applications thereof. Climate change may make modeled
outcomes less certain or produce new, non-modeled risks. Consequently, actual results may differ materially from our modeled
results. If, based upon these models or other factors, we misprice our products or underestimate the frequency and/or severity of
loss events, or overestimate the risks we are exposed to, new business growth and retention of our existing business may be
adversely affected which could have an adverse effect on our results of operations and financial condition.
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We could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified
personnel.
Our success depends on our ability to retain the services of our existing key executives and to attract and retain additional
qualified personnel in the future. The loss of the services of any of our key executives or the inability to hire and retain other
highly qualified personnel in the future could adversely affect our ability to conduct or grow our business. This risk may be
particularly acute for us relative to some of our competitors because some of our senior executives work in countries where they
are not citizens and work permit and immigration issues could adversely affect the ability to retain or hire key persons. We do
not maintain key person life insurance policies with respect to our employees.
Employee error and misconduct may be difficult to detect and prevent and could adversely affect our business, results of
operations, and financial condition.
Losses may result from, among other things, fraud, errors, failure to document transactions properly, failure to obtain proper
internal authorization, failure to comply with underwriting or other internal guidelines, or failure to comply with regulatory
requirements. It is not always possible to deter or prevent employee misconduct and the precautions that we take to prevent
and detect this activity may not be effective in all cases. Resultant losses could adversely affect our business, results of
operations, and financial condition.
Strategic
The continually changing landscape, including competition, technology and products, existing and new market entrants could
reduce our margins and adversely impact our business and results of operations.
Insurance and reinsurance markets are highly competitive. We compete on an international and regional basis with major U.S.,
Bermuda, European, and other international insurers and reinsurers and with underwriting syndicates, some of which have
greater financial, technological, marketing, distribution and management resources than we do. In addition, capital market
participants have created alternative products that are intended to compete with reinsurance products. We also compete with
new companies and existing companies that move into the insurance and reinsurance markets. If competition, or technological
or other changes to the insurance markets in which we operate, limits our ability to retain existing business or write new
business at adequate rates or on appropriate terms, our business and results of operations could be materially and adversely
affected. Increased competition could also result in fewer submissions, lower premium rates, and less favorable policy terms
and conditions, which could reduce our profit margins and adversely impact our net income and shareholders' equity.
Recent technological advancements in the insurance industry and information technology industry present new and fast-
evolving competitive risks as participants seek to increase transaction speeds, lower costs and create new opportunities.
Advancements in technology are occurring in underwriting, claims, distribution and operations at a pace that may quicken,
including as companies increase use of data analytics and technology as part of their business strategy. We will be at a
competitive disadvantage if, over time, our competitors are more effective than us in their utilization of technology and evolving
data analytics. If we do not anticipate or keep pace with these technological and other changes impacting the insurance
industry, it could also limit our ability to compete in desired markets.
Insurance and reinsurance markets are historically cyclical, and we expect to experience periods with excess underwriting
capacity and unfavorable premium rates.
The insurance and reinsurance markets have historically been cyclical, characterized by periods of intense price competition due
to excessive underwriting capacity as well as periods when shortages of capacity permitted favorable premium levels. An
increase in premium levels is often offset by an increasing supply of insurance and reinsurance capacity, either by capital
provided by new entrants or by the commitment of additional capital by existing insurers or reinsurers, which may cause prices
to decrease. Any of these factors could lead to a significant reduction in premium rates, less favorable policy terms, and fewer
submissions for our underwriting services. In addition to these considerations, changes in the frequency and severity of losses
suffered by insureds and insurers may affect the cycles of the insurance and reinsurance markets significantly, as could periods
of economic weakness (such as recession).
The integration of acquired companies may not be as successful as we anticipate.
Acquisitions involve numerous operational, strategic, financial, accounting, legal, tax, and other risks; potential liabilities
associated with the acquired businesses; and uncertainties related to design, operation and integration of acquired businesses’
internal controls over financial reporting. Difficulties in integrating an acquired company, along with its personnel, may result in
the acquired company performing differently than we expected, in operational challenges or in our failure to realize anticipated
expense-related efficiencies. Our existing businesses could also be negatively impacted by acquisitions. In addition, goodwill
and intangible assets recorded in connection with insurance company acquisitions may be impaired if premium growth,
underwriting profitability, agency retention and policy persistency, among other factors, differ from expectations.
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There is also the potential that proposed acquisitions that have been publicly announced will not be consummated, even if a
definitive agreement has been signed by the parties. If an agreement is terminated before closing, the result would be that our
proposed acquisition would not occur, which could, among other things, expose us to damages or liability and adversely impact
our stock price and future operations.
We may be subject to U.S. tax and Bermuda tax which may have an adverse effect on our results of operations and
shareholder investment.
Chubb Limited and our non-U.S. subsidiaries operate in a manner so that none of these companies should be subject to U.S.
tax (other than U.S. excise tax on insurance and reinsurance premium income attributable to insuring or reinsuring U.S. risks
and U.S. withholding tax on some types of U.S. source investment income), because none of these companies should be
treated as engaged in a trade or business within the U.S. However, because there is considerable uncertainty as to the activities
that constitute being engaged in a trade or business within the U.S., we cannot be certain that the Internal Revenue Service
(IRS) will not contend successfully that Chubb Limited or its non-U.S. subsidiaries are engaged in a trade or business in the
U.S. If Chubb Limited or any of its non-U.S. subsidiaries were considered to be engaged in a trade or business in the U.S., such
entity could be subject to U.S. corporate income and branch profits taxes on the portion of its earnings effectively connected to
such U.S. business, in which case our results of operations and our shareholders' investments could be adversely affected.
The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, as amended, has
given Chubb Limited and its Bermuda insurance subsidiaries a written assurance that if any legislation is enacted in Bermuda
that would impose tax computed on profits or income, or computed on any capital asset, gain, or appreciation, or any tax in the
nature of estate duty or inheritance tax, then the imposition of any such tax would not be applicable to those companies or any
of their respective operations, shares, debentures, or other obligations until March 31, 2035, except insofar as such tax would
apply to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned or leased by us in
Bermuda. We cannot be certain that we will not be subject to any Bermuda tax after March 31, 2035.
We could be adversely affected by certain features of the 2017 U.S. tax reform legislation.
New tax legislation known as the Tax Cuts and Jobs Act (2017 Tax Act) became law in the U.S. on December 22, 2017. In
addition to reducing the U.S. corporate income tax rate from 35 percent to 21 percent, it fundamentally changed many
elements of the pre-2017 Tax Act U.S. tax law and introduced several new concepts to tax multinational corporations such as
us. Among the most notable new rules are the Base Erosion and Anti-Abuse Tax (commonly called BEAT), which may apply as
a result of payments by U.S. taxpayers to non-U.S. affiliates, and the Global Intangible Low Taxed Income (GILTI) addition to
Subpart F income, which for insurance groups potentially expands U.S. taxation on the earnings of foreign subsidiaries. The
2017 Tax Act also includes a one-time reduced-rate transition tax in 2017 on previously untaxed post-1986 earnings of foreign
subsidiaries of U.S. corporations. The 2017 Tax Act, which is generally effective for 2018, is a complex law with many
significant new provisions. During 2018, the IRS/Treasury issued notices and proposed regulations to assist taxpayers in
understanding and implementing the new provisions. There may be changes between this guidance and final regulations to be
issued in 2019. Thus, there are many uncertainties relating to its ultimate application and effects on our company.
The Organization for Economic Cooperation and Development (OECD) and the European Union (EU) are considering
measures that might encourage countries to increase our taxes.
A number of multilateral organizations, including the EU and the OECD have, in recent years, expressed concern about some
countries not participating in adequate tax information exchange arrangements and have threatened those that do not agree to
cooperate with punitive sanctions by member countries. It is as yet unclear what all of these sanctions might be, which
countries might adopt them, and when or if they might be imposed. We cannot assure, however, that the Tax Information
Exchange Agreements (TIEAs) that have been or will be entered into by Switzerland and Bermuda will be sufficient to preclude
all of the sanctions described above, which, if ultimately adopted, could adversely affect us or our shareholders.
The OECD has published an action plan to address base erosion and profit shifting (BEPS) impacting its member countries and
other jurisdictions. It is possible that jurisdictions in which we do business could react to the BEPS initiative or their own
concerns by enacting tax legislation that could adversely affect us or our shareholders.
Shareholders
There are provisions in our charter documents that may reduce the voting rights and diminish the value of our Common
Shares.
Our Articles of Association generally provide that shareholders have one vote for each Common Share held by them and are
entitled to vote at all meetings of shareholders. However, the voting rights exercisable by a shareholder may be limited so that
29
certain persons or groups are not deemed to hold 10 percent or more of the voting power conferred by our Common Shares.
Moreover, these provisions could have the effect of reducing the voting power of some shareholders who would not otherwise be
subject to the limitation by virtue of their direct share ownership. Our Board of Directors may refuse to register holders of shares
as shareholders with voting rights based on certain grounds, including if the holder would, directly or indirectly, formally,
constructively or beneficially own (as described in Articles 8 and 14 of our Articles of Association) or otherwise control voting
rights with respect to 10 percent or more of the registered share capital recorded in the commercial register. In addition, the
Board of Directors shall reject entry of holders of registered shares as shareholders with voting rights in the share register or
shall decide on their deregistration when the acquirer or shareholder upon request does not expressly state that she/he has
acquired or holds the shares in her/his own name and for her/his account.
Applicable laws may make it difficult to effect a change of control of our company.
Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from the insurance
commissioner of the state where the domestic insurer is domiciled. Prior to granting approval of an application to acquire
control of a domestic insurer, the state insurance commissioner will consider such factors as the financial strength of the
applicant, the integrity and management of the applicant's Board of Directors and executive officers, the acquirer's plans for the
future operations of the domestic insurer, and any anti-competitive results that may arise from the consummation of the
acquisition of control. Generally, state statutes provide that control over a domestic insurer is presumed to exist if any person,
directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10 percent or more of the
voting securities of the domestic insurer. Because a person acquiring 10 percent or more of our Common Shares would
indirectly control the same percentage of the stock of our U.S. insurance subsidiaries, the insurance change of control laws of
various U.S. jurisdictions would likely apply to such a transaction. Laws of other jurisdictions in which one or more of our
existing subsidiaries are, or a future subsidiary may be, organized or domiciled may contain similar restrictions on the
acquisition of control of Chubb.
While our Articles of Association limit the voting power of any shareholder to less than 10 percent, we cannot assure that the
applicable regulatory body would agree that a shareholder who owned 10 percent or more of our Common Shares did not,
because of the limitation on the voting power of such shares, control the applicable insurance subsidiary.
These laws may discourage potential acquisition proposals and may delay, deter, or prevent a change of control of Chubb,
including transactions that some or all of our shareholders might consider to be desirable.
Shareholder voting requirements under Swiss law may limit our flexibility with respect to certain aspects of capital
management.
Swiss law allows our shareholders to authorize share capital which can be issued by the Board of Directors without shareholder
approval but this authorization must be renewed by the shareholders every two years. Swiss law also does not provide as much
flexibility in the various terms that can attach to different classes of stock as permitted in other jurisdictions. Swiss law also
reserves for approval by shareholders many corporate actions over which the Board of Directors had authority prior to our re-
domestication to Switzerland. For example, dividends must be approved by shareholders. While we do not believe that Swiss
law requirements relating to our capital management will have an adverse effect on Chubb, we cannot assure that situations
will not arise where such flexibility would have provided substantial benefits to our shareholders.
Chubb Limited is a Swiss company; it may be difficult to enforce judgments against it or its directors and executive officers.
Chubb Limited is incorporated pursuant to the laws of Switzerland. In addition, certain of our directors and officers reside
outside the U.S. and all or a substantial portion of our assets and the assets of such persons are located in jurisdictions outside
the U.S. As such, it may be difficult or impossible to effect service of process within the U.S. upon those persons or to recover
against us or them on judgments of U.S. courts, including judgments predicated upon civil liability provisions of the U.S. federal
securities laws.
Chubb has been advised by its Swiss counsel that there is doubt as to whether the courts in Switzerland would enforce:
•
judgments of U.S. courts based upon the civil liability provisions of the U.S. federal securities laws obtained in actions
against it or its directors and officers, who reside outside the U.S.; or
• original actions brought in Switzerland against these persons or Chubb predicated solely upon U.S. federal securities laws.
Chubb has also been advised by its Swiss counsel that there is no treaty in effect between the U.S. and Switzerland providing
for this enforcement and there are grounds upon which Swiss courts may not enforce judgments of U.S. courts. Some remedies
available under the laws of U.S. jurisdictions, including some remedies available under the U.S. federal securities laws, would
not be allowed in Swiss courts as contrary to that nation's public policy.
30
Shareholders may be subject to Swiss withholding taxes on the payment of dividends.
Our dividends are generally subject to a Swiss withholding tax at a rate of 35 percent; however, payment of a dividend in the
form of a par value reduction or qualifying capital contribution reserves reduction is not subject to Swiss withholding tax. We
have previously obtained shareholder approval for dividends to be paid in such form. We currently intend to recommend to
shareholders that they annually approve the payment of dividends in such form but we cannot assure that our shareholders will
continue to approve a reduction in such form each year or that we will be able to meet the other legal requirements for a
reduction in par value, or that Swiss withholding tax rules will not be changed in the future. We estimate we would be able to
pay dividends in such form, and thus exempt from Swiss withholding tax until 2028–2033. This range may vary depending
upon changes in annual dividends, special dividends, certain share repurchases, fluctuations in U.S. dollar/Swiss franc
exchange rates, changes in par value or qualifying capital contribution reserves or changes or new interpretations to Swiss
corporate or tax law or regulations.
Under certain circumstances, U.S. shareholders may be subject to adverse U.S. federal income tax consequences.
Under certain circumstances, a U.S. person who owns or is deemed to own 10 percent or more of the voting power or value of
a foreign corporation that is a “controlled foreign corporation” (CFC) (a foreign corporation in which 10 percent U.S.
shareholders own or are deemed to own more than 50 percent of the voting power or value of the stock of a foreign corporation
or more than 25 percent of certain foreign insurance corporations) for any period during a taxable year must include in gross
income for U.S. federal income tax purposes such "10 percent U.S. Shareholder's" pro rata share of the CFC's
"subpart F income". We believe that because of the dispersion of our share ownership it is unlikely that any U.S. person who
acquires shares of Chubb Limited directly or indirectly through one or more foreign entities should be required to include any
subpart F income in income under the CFC rules of U.S. tax law.
Separately, any U.S. persons who hold shares may be subject to U.S. federal income taxation at ordinary income tax rates on
their proportionate share of our Related Person Insurance Income (RPII). If the RPII of any of our non-U.S. insurance
subsidiaries (each a "Non-U.S. Insurance Subsidiary") were to equal or exceed 20 percent of that company's gross insurance
income in any taxable year and direct or indirect insureds (and persons related to those insureds) own directly or indirectly
through foreign entities 20 percent or more of the voting power or value of Chubb Limited, then a U.S. person who owns any
shares of Chubb Limited (directly or indirectly through foreign entities) on the last day of the taxable year would be required to
include in his or her income for U.S. federal income tax purposes such person's pro rata share of such company's RPII for the
entire taxable year. In addition, any RPII that is includible in the income of a U.S. tax-exempt organization may be treated as
unrelated business taxable income. We believe that the gross RPII of each Non-U.S. Insurance Subsidiary did not in prior years
of operation and is not expected in the foreseeable future to equal or exceed 20 percent of each such company's gross insurance
income. Likewise, we do not expect the direct or indirect insureds of each Non-U.S. Insurance Subsidiary (and persons related
to such insureds) to directly or indirectly own 20 percent or more of either the voting power or value of our shares. However, we
cannot be certain that this will be the case because some of the factors which determine the extent of RPII may be beyond our
control. If these thresholds are met or exceeded, any U.S. person’s investment in Chubb Limited could be adversely affected.
A U.S. tax-exempt organization may recognize unrelated business taxable income if a portion of our insurance income is
allocated to the organization. This generally would be the case if either we are a CFC and the tax-exempt shareholder is a 10
percent U.S. shareholder or there is RPII, certain exceptions do not apply, and the tax-exempt organization, directly or indirectly
through foreign entities, owns any shares of Chubb Limited. Although we do not believe that any U.S. tax-exempt organization
should be allocated such insurance income, we cannot be certain that this will be the case. Potential U.S. tax-exempt investors
are advised to consult their tax advisors.
U.S. persons who hold shares will be subject to adverse tax consequences if we are considered to be a Passive Foreign
Investment Company (PFIC) for U.S. federal income tax purposes.
If Chubb Limited is considered a PFIC for U.S. federal income tax purposes, a U.S. person who holds Chubb Limited shares will
be subject to adverse U.S. federal income tax consequences in which case their investment could be adversely affected. In
addition, if Chubb Limited were considered a PFIC, upon the death of any U.S. individual owning shares, such individual's heirs
or estate would not be entitled to a "step-up" in the basis of the shares which might otherwise be available under U.S. federal
income tax laws. We believe that we are not, have not been, and currently do not expect to become, a PFIC for U.S. federal
income tax purposes. We cannot assure, however, that we will not be deemed a PFIC by the IRS. Recently enacted U.S. federal
tax law and proposed regulations previously issued by the IRS contain objective and subjective standards regarding the
application of the PFIC provisions to an insurance company. Final regulations or pronouncements interpreting or clarifying these
rules may be forthcoming. We cannot predict what impact, if any, such guidance would have on an investor that is subject to
U.S. federal income taxation.
31
Changes in tax law could adversely affect an investment in us and our securities.
The 2017 Tax Act contained significant changes to the taxation of multinational corporations. As the U.S. Treasury department
continues to develop implementing regulations and guidance, the full impact of the Act is uncertain. The 2017 Tax Act, future
tax law changes, administrative guidance, or U.S. court decisions regarding tax law could have an adverse impact on us or our
investors.
Similarly, jurisdictions outside the U.S. in which we do business could enact tax legislation in the future that could have an
adverse impact on us or our investors. For example, Switzerland is currently revising its corporate tax laws and pursuing the
implementation of corporate tax reform measures. The first effort was rejected by a public vote; however a revised corporate tax
reform measure is scheduled for a public vote on May 19, 2019. The potential impact on us of Swiss tax reform will depend on
the specific provisions adopted.
ITEM 1B. Unresolved Staff Comments
There are currently no unresolved SEC staff comments regarding our periodic or current reports.
ITEM 2. Properties
We maintain office facilities around the world including in North America, Europe (including our principal executive offices in
Switzerland), Bermuda, Latin America, Asia Pacific, and the Far East. Most of our office facilities are leased, although we own
major facilities in Hamilton, Bermuda, and in the U.S., including in Philadelphia, Pennsylvania; Wilmington, Delaware;
Whitehouse Station, New Jersey; and Simsbury, Connecticut. Management considers its office facilities suitable and adequate
for the current level of operations.
ITEM 3. Legal Proceedings
The information required with respect to Item 3 is included in Note 9 h) to the Consolidated Financial Statements, which is
hereby incorporated herein by reference.
ITEM 4. Mine Safety Disclosures
Item not applicable.
32
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities
Our Common Shares have been listed on the New York Stock Exchange since March 25, 1993, with a current par value of CHF
24.15 per share. The trading symbol for our Common Shares is "CB."
We have paid dividends each quarter since we became a public company in 1993. Our annual dividends are paid by way of a
distribution from capital contribution reserves (Additional paid-in capital) through the transfer of dividends from Additional paid-
in capital to Retained earnings (free reserves) as approved by our shareholders in 2018 and 2017.
Chubb Limited is a holding company whose principal sources of income are investment income and dividends from its operating
subsidiaries. The ability of the operating subsidiaries to pay dividends to us and our ability to pay dividends to our shareholders
are each subject to legal and regulatory restrictions. The recommendation and payment of future dividends will be based on the
determination of the Board of Directors (Board) and will be dependent upon shareholder approval, profits and financial
requirements of Chubb and other factors, including legal restrictions on the payment of dividends and other such factors as the
Board deems relevant. Refer to Part I, Item 1A and Part II, Item 7 for additional information.
The number of record holders of Common Shares as of February 14, 2019 was 7,440. This is not the actual number of
beneficial owners of Chubb's Common Shares since most of our shareholders hold their shares through a stockbroker, bank or
other nominee rather than directly in their own names.
Refer to Part III, Item 12 for information relating to compensation plans under which equity securities are authorized for
issuance.
Issuer's Repurchases of Equity Securities for the Three Months Ended December 31, 2018
Period
October 1 through October 31
November 1 through November 30
December 1 through December 31
Total
Total Number of
Shares Purchased(1)
Average Price
Paid per Share
853,823
681,561
1,106,982
2,642,366
$
$
$
$
125.70
129.75
127.71
127.59
Approximate Dollar
Value of Shares that
May Yet be
Purchased Under
Publicly Announced
Plans(3)
190 million
$
$
$
102 million
1.48 billion (4)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans(2)
850,000
675,000
968,873
2,493,873
(1)
(2)
(3)
(4)
This represents open market share repurchases and the surrender to Chubb of Common Shares to satisfy tax withholding obligations in connection with the vesting of
restricted stock issued to employees and the exercising of options by employees.
The aggregate value of shares purchased in the three months ended December 31, 2018 as part of the publicly announced plans was $318 million.
Refer to Note 10 to the Consolidated Financial Statements for more information on the Chubb Limited securities repurchase authorizations. In December 2017, our Board
authorized the repurchase of up to $1.0 billion of Chubb’s Common Shares from January 1, 2018 through December 31, 2018. In December 2018, our Board authorized
the repurchase of up to $1.5 billion of Chubb’s Common Shares from December 1, 2018 through December 31, 2019. This authorization replaced the previous
authorization made by the Board that was fully utilized. For the period January 1, 2019 through February 27, 2019, we repurchased 1,328,754 Common Shares for a
total of $174 million in a series of open market transactions. As of February 27, 2019, $1.30 billion in share repurchase authorization remained through December 31,
2019.
The $1.0 billion December 2017 Board authorization remained effective through December 31, 2018, and was fully utilized before the $1.5 billion December 1, 2018 to
December 31, 2019 authorization began being utilized.
33
Performance Graph
Set forth below is a line graph comparing the dollar change in the cumulative total shareholder return on Chubb's Common
Shares from December 31, 2013, through December 31, 2018, as compared to the cumulative total return of the Standard &
Poor's 500 Stock Index and the cumulative total return of the Standard & Poor's Property-Casualty Insurance Index. The
cumulative total shareholder return is a concept used to compare the performance of a company's stock over time and is the
ratio of the stock price change plus the cumulative amount of dividends over the specified time period (assuming dividend
reinvestment), to the stock price at the beginning of the time period. The chart depicts the value on December 31, 2014,
2015, 2016, 2017, and 2018, of a $100 investment made on December 31, 2013, with all dividends reinvested.
Chubb Limited
S&P 500 Index
S&P 500 P&C Index
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
$100
$100
$100
$114
$114
$116
$119
$115
$127
$138
$129
$147
$156
$157
$180
$141
$150
$171
34
ITEM 6. Selected Financial Data
On January 14, 2016, we completed the acquisition of the Chubb Corporation (Chubb Corp). The results of operations of
Chubb Corp are included in our results from the acquisition date forward (i.e., after January 14, 2016 and only in the 2016,
2017, and 2018 columns) within the table below.
(in millions, except per share data and ratios)
2018
2017
2016
2015
2014
Operations data:
Net premiums earned – excluding Life Insurance segment
$ 27,846
$ 26,933
$ 26,694
$ 15,266
$ 15,464
Net premiums earned – Life Insurance segment
Total net premiums earned
Net investment income
Losses and loss expenses
Policy benefits
Policy acquisition costs and administrative expenses
Net income
Weighted-average shares outstanding – diluted
Diluted earnings per share
Balance sheet data (at end of period):
Total investments
Total assets
Net unpaid losses and loss expenses
Net future policy benefits
Long-term debt
Trust preferred securities
Total liabilities
Shareholders' equity
Book value per share
Selected data:
Loss and loss expense ratio (1)
Underwriting and administrative expense ratio (2)
Combined ratio (3)
Cash dividends per share (4)
2,218
30,064
3,305
18,067
590
8,798
3,962
467
2,101
29,034
3,125
18,454
676
8,614
3,861
471
2,055
28,749
2,865
16,052
588
8,985
4,135
466
1,947
17,213
2,194
9,484
543
5,211
2,834
329
$
8.49
$
8.19
$
8.87
$
8.62
$
1,962
17,426
2,252
9,649
517
5,320
2,853
339
8.42
$ 100,968
$ 102,444
$ 99,094
$ 66,251
$ 62,904
167,771
167,022
159,786
102,306
48,271
5,304
12,087
308
49,165
5,137
11,556
308
47,832
4,854
12,610
308
117,459
115,850
111,511
50,312
51,172
48,275
26,562
4,620
9,389
307
73,171
29,135
98,223
27,008
4,537
3,334
307
68,636
29,587
$ 109.56
$ 110.32
$ 103.60
$
89.77
$
90.02
62.1%
28.5%
90.6%
65.8%
28.9%
94.7%
57.7%
30.6%
88.3%
58.1%
29.2%
87.3%
58.7%
29.4%
88.1%
$
2.90
$
2.82
$
2.74
$
2.66
$
2.70
(1)
(2)
(3)
(4)
The Loss and loss expense ratio is calculated by dividing losses and loss expenses, excluding the Life Insurance segment, by Net premiums earned – excluding Life
Insurance segment. Losses and loss expenses for the Life Insurance segment were $766 million, $739 million, $663 million, $601 million, and $589 million for the years
ended December 31, 2018, 2017, 2016, 2015, and 2014, respectively.
The Underwriting and administrative expense ratio is calculated by dividing the policy acquisition costs and administrative expenses, excluding the Life Insurance segment,
by Net premiums earned – excluding Life Insurance segment. Policy acquisition costs and administrative expenses for the Life Insurance segment were $867 million, $833
million, $816 million, $767 million, and $763 million for the years ended December 31, 2018, 2017, 2016, 2015, and 2014, respectively.
The combined ratio is the sum of Loss and loss expense ratio and the Underwriting and administrative expense ratio.
Cash dividends per share in 2014 include a $0.12 per share increase related to the fourth quarter 2013, approved by our shareholders on January 10, 2014.
35
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of our results of operations, financial condition, and liquidity and capital resources as of and for
the year ended December 31, 2018. This discussion should be read in conjunction with the consolidated financial
statements and related Notes, under Item 8 of this Form 10-K.
All comparisons in this discussion are to the corresponding prior year unless otherwise indicated. All dollar amounts are
rounded. However, percent changes and ratios are calculated using whole dollars. Accordingly, calculations using rounded
dollars may differ.
Page
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39
40
51
58
77
77
78
79
79
83
84
84
85
86
87
89
91
92
93
MD&A Index
Forward-Looking Statements
Overview
Financial Highlights
Critical Accounting Estimates
Consolidated Operating Results
Segment Operating Results
Net Investment Income
Net Realized and Unrealized Gains (Losses)
Amortization of Purchased Intangibles and Other Amortization
Interest Expense
Investments
Asbestos and Environmental (A&E)
Catastrophe Management
Natural Catastrophe Property Reinsurance Program
Political Risk and Credit Insurance
Crop Insurance
Liquidity
Capital Resources
Contractual Obligations and Commitments
Credit Facilities
Ratings
36
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Any written or
oral statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect
to future events and financial performance. These forward-looking statements are subject to certain risks, uncertainties, and
other factors that could, should potential events occur, cause actual results to differ materially from such statements. These
risks, uncertainties, and other factors, which are described in more detail under Part I, Item 1A, under Risk Factors, starting on
page 19 and elsewhere herein and in other documents we file with the U.S. Securities and Exchange Commission (SEC),
include but are not limited to:
•
losses arising out of natural or man-made catastrophes such as hurricanes, typhoons, earthquakes, floods, climate change
(including effects on weather patterns; greenhouse gases; sea, land and air temperatures; sea levels; and rain and snow),
nuclear accidents, or terrorism which could be affected by:
•
•
•
•
•
the number of insureds and ceding companies affected;
the amount and timing of losses actually incurred and reported by insureds;
the impact of these losses on our reinsurers and the amount and timing of reinsurance recoverable actually received;
the cost of building materials and labor to reconstruct properties or to perform environmental remediation following a
catastrophic event; and
complex coverage and regulatory issues such as whether losses occurred from storm surge or flooding and related
lawsuits;
• actions that rating agencies may take from time to time, such as financial strength or credit ratings downgrades or placing
these ratings on credit watch negative or the equivalent;
•
the ability to collect reinsurance recoverable, credit developments of reinsurers, and any delays with respect thereto and
changes in the cost, quality, or availability of reinsurance;
• actual loss experience from insured or reinsured events and the timing of claim payments;
•
•
the uncertainties of the loss-reserving and claims-settlement processes, including the difficulties associated with assessing
environmental damage and asbestos-related latent injuries, the impact of aggregate-policy-coverage limits, the impact of
bankruptcy protection sought by various asbestos producers and other related businesses, and the timing of loss payments;
changes to our assessment as to whether it is more likely than not that we will be required to sell, or have the intent to sell,
available for sale fixed maturity investments before their anticipated recovery;
•
infection rates and severity of pandemics and their effects on our business operations and claims activity;
• developments in global financial markets, including changes in interest rates, stock markets, and other financial markets,
increased government involvement or intervention in the financial services industry, the cost and availability of financing,
and foreign currency exchange rate fluctuations (which we refer to in this report as foreign exchange and foreign currency
exchange), which could affect our statement of operations, investment portfolio, financial condition, and financing plans;
• general economic and business conditions resulting from volatility in the stock and credit markets and the depth and
duration of potential recession;
• global political conditions, the occurrence of any terrorist attacks, including any nuclear, radiological, biological, or chemical
events, or the outbreak and effects of war, and possible business disruption or economic contraction that may result from
such events;
•
the potential impact of the United Kingdom’s vote to withdraw from the European Union, including political, regulatory,
social, and economic uncertainty and market and exchange rate volatility;
•
judicial decisions and rulings, new theories of liability, legal tactics, and settlement terms;
37
•
the effects of public company bankruptcies and/or accounting restatements, as well as disclosures by and investigations of
public companies relating to possible accounting irregularities, and other corporate governance issues, including the effects
of such events on:
•
•
•
the capital markets;
the markets for directors and officers (D&O) and errors and omissions (E&O) insurance; and
claims and litigation arising out of such disclosures or practices by other companies;
• uncertainties relating to governmental, legislative and regulatory policies, developments, actions, investigations, and
treaties, which, among other things, could subject us to insurance regulation or taxation in additional jurisdictions or affect
our current operations;
•
•
•
the effects of data privacy or cyber laws or regulation on our current or future business;
the actual amount of new and renewal business, market acceptance of our products, and risks associated with the
introduction of new products and services and entering new markets, including regulatory constraints on exit strategies;
the competitive environment in which we operate, including trends in pricing or in policy terms and conditions, which may
differ from our projections and changes in market conditions that could render our business strategies ineffective or
obsolete;
• acquisitions made by us performing differently than expected, our failure to realize anticipated expense-related efficiencies
or growth from acquisitions, the impact of acquisitions on our pre-existing organization, or announced acquisitions not
closing;
•
•
•
•
•
risks associated with being a Swiss corporation, including reduced flexibility with respect to certain aspects of capital
management and the potential for additional regulatory burdens;
the potential impact from government-mandated insurance coverage for acts of terrorism;
the availability of borrowings and letters of credit under our credit facilities;
the adequacy of collateral supporting funded high deductible programs;
changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers;
• material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;
•
•
•
•
•
•
the effects of investigations into market practices in the property and casualty (P&C) industry;
changing rates of inflation and other economic conditions, for example, recession;
the amount of dividends received from subsidiaries;
loss of the services of any of our executive officers without suitable replacements being recruited in a reasonable time
frame;
the ability of our technology resources, including information systems and security, to perform as anticipated such as with
respect to preventing material information technology failures or third-party infiltrations or hacking resulting in
consequences adverse to Chubb or its customers or partners;
the ability of our company to increase use of data analytics and technology as part of our business strategy and adapt to
new technologies; and
• management’s response to these factors and actual events (including, but not limited to, those described above).
The words “believe,” “anticipate,” “estimate,” “project,” “should,” “plan,” “expect,” “intend,” “hope,” “feel,” “foresee,” “will
likely result,” or “will continue,” and variations thereof and similar expressions, identify forward-looking statements. You are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We
undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information,
future events or otherwise.
38
Overview
We operate through six business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance,
North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. For more
information on our segments refer to “Segment Information” under Item 1.
We have grown our business through increased premium volume, expansion of product offerings and geographic reach, and
acquisitions of other companies. On January 14, 2016, we acquired The Chubb Corporation (Chubb Corp) which impacted all
segments excluding North America Agricultural Insurance. The consolidated financial statements include results of acquired
businesses from the acquisition dates.
Our product and geographic diversification differentiates us from the vast majority of our competitors and has been a source of
stability during periods of industry volatility. Our long-term business strategy focuses on sustained growth in book value
achieved through a combination of underwriting and investment income. By doing so, we provide value to our clients and
shareholders through use of our substantial capital base in the insurance and reinsurance markets.
We are organized along a profit center structure by line of business and territory that does not necessarily correspond to
corporate legal entities. Profit centers can access various legal entities subject to licensing and other regulatory rules. Profit
centers are expected to generate underwriting income and appropriate risk-adjusted returns. Our corporate structure has
facilitated the development of management talent by giving each profit center's senior management team the necessary
autonomy within underwriting authorities to make operating decisions and create products and coverages needed by its target
customer base. We are focused on delivering underwriting profit by only writing policies which we believe adequately
compensate us for the risk we accept.
Our insurance and reinsurance operations generate gross revenues from two principal sources: premiums and investment
income. Cash flow is generated from premiums collected and investment income received less paid losses and loss expenses,
policy acquisition costs, and administrative expenses. Invested assets are substantially held in liquid, investment grade fixed
income securities of relatively short duration. Claims payments in any short-term period are highly unpredictable due to the
random nature of loss events and the timing of claims awards or settlements. The value of investments held to pay future
claims is subject to market forces such as the level of interest rates, stock market volatility, and credit events such as corporate
defaults. The actual cost of claims is also volatile based on loss trends, inflation rates, court awards, and catastrophes. We
believe that our cash balance, our highly liquid investments, credit facilities, and reinsurance protection provide sufficient
liquidity to meet unforeseen claim demands that might occur in the year ahead. Refer to “Liquidity” and “Capital Resources” for
additional information.
Financial Highlights for the Year Ended December 31, 2018
• Net income was $3,962 million compared with $3,861 million in 2017, which included a tax benefit of $25 million and
$450 million, respectively, related to the 2017 U.S. Tax Cuts and Jobs Act.
• Total company and P&C net premiums written were $30.6 billion and $28.3 billion, respectively, up 4.6 percent and 4.4
percent, respectively.
• P&C combined ratio was 90.6 percent compared with 94.7 percent in 2017. P&C current accident year combined ratio
excluding catastrophe losses was 88.0 percent compared with 87.6 percent in 2017, reflecting high loss activity in our
North America property lines and elevated homeowners loss activity.
• Total pre-tax and after-tax catastrophe losses, including reinstatement premiums, were $1,626 million (5.9 percentage
points of the combined ratio) and $1,354 million, respectively, compared with $2,746 million (10.2 percentage points of
the combined ratio) and $2,171 million, respectively, in 2017.
• Total pre-tax and after-tax favorable prior period development were $896 million (3.3 percentage points of the combined
ratio) and $706 million, respectively, compared with $829 million (3.1 percentage points of the combined ratio) and
$634 million, respectively, in 2017.
• Operating cash flow was $5,480 million compared with $4,503 million in 2017. Refer to the Liquidity section for
additional information on our cash flows.
• Net investment income was $3,305 million compared with $3,125 million in 2017.
• Share repurchases totaled $1,021 million, or approximately 7.7 million shares for the year.
39
Outlook
We completed 2018 with net income per share of $8.49, up 3.7 percent from 2017, and strong net premiums written of
$30.6 billion, up 4.6 percent. We are optimistic about the year ahead. We have good momentum as we execute on business
initiatives across the globe and take advantage of an improving pricing and underwriting environment.
There are a number of factors that impact the variability in investment income, including interest rates and private equity
distributions. Nevertheless, we expect our quarterly net investment income in 2019 to be in the range of $825 million to
$835 million, including the expected amortization of the fair value adjustment on acquired invested assets, at current
exchange rates, of approximately $55 million per quarter. Excluding the amortization of the fair value adjustment on acquired
invested assets, we expect quarterly adjusted net investment income in 2019 to be in the range of $880 million to $890
million. The estimate of amortization expense of the fair value adjustment on acquired invested assets could vary materially
based on current market conditions, bond calls, overall duration of the acquired investment portfolio, and foreign exchange.
Critical Accounting Estimates
Our consolidated financial statements include amounts that, either by their nature or due to requirements of generally accepted
accounting principles in the U.S. (GAAP), are determined using best estimates and assumptions. While we believe that the
amounts included in our consolidated financial statements reflect our best judgment, actual amounts could ultimately materially
differ from those currently presented. We believe the items that require the most subjective and complex estimates are:
• unpaid loss and loss expense reserves, including long-tail asbestos and environmental (A&E) reserves;
•
•
•
•
•
•
•
•
future policy benefits reserves;
the valuation of value of business acquired (VOBA) and amortization of deferred policy acquisition costs and VOBA;
the assessment of risk transfer for certain structured insurance and reinsurance contracts;
reinsurance recoverable, including a provision for uncollectible reinsurance;
the valuation of our investment portfolio and assessment of other-than-temporary impairments (OTTI);
the valuation of deferred income taxes;
the valuation of derivative instruments related to guaranteed living benefits (GLB); and
the assessment of goodwill for impairment.
We believe our accounting policies for these items are of critical importance to our consolidated financial statements. The
following discussion provides more information regarding the estimates and assumptions required to arrive at these amounts
and should be read in conjunction with the sections entitled: Prior Period Development, Asbestos and Environmental (A&E),
Reinsurance Recoverable on Ceded Reinsurance, Investments, Net Realized and Unrealized Gains (Losses), and Other Income
and Expense Items.
Unpaid losses and loss expenses
As an insurance and reinsurance company, we are required by applicable laws and regulations and GAAP to establish loss and
loss expense reserves for the estimated unpaid portion of the ultimate liability for losses and loss expenses under the terms of
our policies and agreements with our insured and reinsured customers. At December 31, 2018, our gross unpaid loss and loss
expense reserves were $63.0 billion and our net unpaid loss and loss expense reserves were $48.3 billion. With the exception
of certain structured settlements, for which the timing and amount of future claim payments are reliably determinable, and
certain reserves for unsettled claims that are discounted in statutory filings, our loss reserves are not discounted for the time
value of money. In connection with such structured settlements and certain reserves for unsettled claims, we carried net
discounted reserves of $73 million and $77 million at December 31, 2018 and 2017, respectively.
40
The following table presents a roll-forward of our unpaid losses and loss expenses:
(in millions of U.S. dollars)
Balance, beginning of year
Losses and loss expenses incurred
Losses and loss expenses paid
Other (including foreign exchange translation)
Balance, end of year
(1)
Net of provision for uncollectible reinsurance.
December 31, 2018
December 31, 2017
Gross
Losses
Reinsurance
Recoverable (1) Net Losses
Gross
Losses
Reinsurance
Recoverable (1)
Net
Losses
$
63,179 $
14,014 $ 49,165 $
60,540 $
12,708 $ 47,832
23,645
(23,079)
(785)
5,578
18,067
23,933
5,479
18,454
(4,739)
(18,340)
(21,812)
(4,364)
(17,448)
(164)
(621)
518
191
327
$
62,960 $
14,689 $ 48,271 $
63,179 $
14,014 $ 49,165
The estimate of the liabilities includes provisions for claims that have been reported but are unpaid at the balance sheet date
(case reserves) and for obligations on claims that have been incurred but not reported (IBNR) at the balance sheet date. IBNR
may also include provisions to account for the possibility that reported claims may settle for amounts that differ from the
established case reserves. Loss reserves also include an estimate of expenses associated with processing and settling unpaid
claims (loss expenses). Our loss reserves comprise approximately 80 percent casualty-related business, which typically
encompasses long-tail risks, and other risks where a high degree of judgment is required.
The process of establishing loss reserves for property and casualty claims can be complex and is subject to considerable
uncertainty as it requires the use of informed estimates and judgments based on circumstances underlying the insured loss
known at the date of accrual. For example, the reserves established for high excess casualty claims, asbestos and
environmental claims, claims from major catastrophic events, or for our various product lines each require different assumptions
and judgments to be made. Necessary judgments are based on numerous factors and may be revised as additional experience
and other data become available and are reviewed, as new or improved methods are developed, or as laws change. Hence,
ultimate loss payments may differ from the estimate of the ultimate liabilities made at the balance sheet date. Changes to our
previous estimates of prior period loss reserves impact the reported calendar year underwriting results, adversely if our
estimates increase and favorably if our estimates decrease. The potential for variation in loss reserve estimates is impacted by
numerous factors. Reserve estimates for casualty lines are particularly uncertain given the lengthy reporting patterns and
corresponding need for IBNR.
Case reserves for those claims reported by insureds or ceding companies to us prior to the balance sheet date and where we
have sufficient information are determined by our claims personnel as appropriate based on the circumstances of the claim(s),
standard claim handling practices, and professional judgment. Furthermore, for our Brandywine run-off operations and our
assumed reinsurance operation, Global Reinsurance, we may adjust the case reserves as notified by the ceding company if the
judgment of our respective claims department differs from that of the cedant.
With respect to IBNR reserves and those claims that have been incurred but not reported prior to the balance sheet date, there
is, by definition, limited actual information to form the case reserve estimate and reliance is placed upon historical loss
experience and actuarial methods to estimate the ultimate loss obligations and the corresponding amount of IBNR. IBNR
reserve estimates are generally calculated by first projecting the ultimate amount of losses for a product line and subtracting
paid losses and case reserves for reported claims. The judgments involved in projecting the ultimate losses may pertain to the
use and interpretation of various standard actuarial reserving methods that place reliance on the extrapolation of actual
historical data, loss development patterns, industry data, and other benchmarks as appropriate. The estimate of the required
IBNR reserve also requires judgment by actuaries and management to reflect the impact of more contemporary and subjective
factors, both qualitative and quantitative. Among some of these factors that might be considered are changes in business mix or
volume, changes in ceded reinsurance structures, changes in claims handling practices, reported and projected loss trends,
inflation, the legal environment, and the terms and conditions of the contracts sold to our insured parties.
Determining management's best estimate
Our recorded reserves represent management's best estimate of the provision for unpaid claims as of the balance sheet date,
and establishing them involves a process that includes collaboration with various relevant parties in the company. For
information on our reserving process, refer to Note 6 to the Consolidated Financial Statements.
41
Sensitivity to underlying assumptions
While we believe that our reserve for unpaid losses and loss expenses at December 31, 2018, is adequate, new
information or emerging trends that differ from our assumptions may lead to future development of losses and loss
expenses that is significantly greater or less than the recorded reserve, which could have a material effect on future
operating results. As noted previously, our best estimate of required loss reserves for most portfolios is judgmentally
selected for each origin year after considering the results from a number of reserving methods and is not a purely
mechanical process. Therefore, it is difficult to convey, in a simple and quantitative manner, the impact that a change to a
single assumption will have on our best estimate. In the examples below, we attempt to give an indication of the potential
impact by isolating a single change for a specific reserving method that would be pertinent in establishing the best
estimate for the product line described. We consider each of the following sensitivity analyses to represent a reasonably
likely deviation in the underlying assumption.
North America Commercial P&C Insurance
Given the long reporting and paid development patterns for workers' compensation business, the development factors used to
project actual current losses to ultimate losses for our current exposure require considerable judgment that could be material to
consolidated loss and loss expense reserves. Specifically, adjusting ground up ultimate losses by a one percent change in the
tail factor (i.e., 1.04 changed to either 1.05 or 1.03) would cause a change of approximately $790 million, either positive or
negative, for the projected net loss and loss expense reserves. This represents an impact of about 8.6 percent relative to
recorded net loss and loss expense reserves of approximately $9.2 billion.
The reserve portfolio for our Chubb Bermuda operations contains exposure to predominantly high excess liability coverage on
an occurrence-first-reported basis (typically with attachment points in excess of $325 million and gross limits of up to $150
million) and D&O and other professional liability coverage on a claims-made basis (typically with attachment points in excess
of $125 million and gross limits of up to $75 million). Due to the layer of exposure covered, the expected frequency for this
book is very low. As a result of the low frequency/high severity nature of the book, a small difference in the actual vs. expected
claim frequency, either positive or negative, could result in a material change to the projected ultimate loss if such change in
claim frequency was related to a policy where close to maximum limits were deployed.
North America Personal P&C Insurance
Due to the relatively short-tailed nature of many of the coverages involved (e.g., homeowners property damage), most of the
incurred losses in Personal Lines are resolved within a few years of occurrence. As shown in our loss triangle disclosure, the
vast majority (over 95 percent) of Personal Lines net ultimate losses and allocated loss adjustment expenses are typically paid
within five years of the accident date and over 80 percent within two years. Even though there are significant reserves
associated with some liability exposures such as personal excess/umbrella liability, our incurred loss triangle also shows a
roughly consistent pattern of only relatively minor movements in incurred estimates over time by accident year especially after
twenty four months of maturity. While the liability exposures are subject to additional uncertainties from more protracted
resolution times, the main drivers of volatility in the Personal Lines business are relatively short-term in nature and relate to
things like natural catastrophes, non-catastrophe weather events, man-made risks, and individual large loss volatility from other
fortuitous claim events.
North America Agricultural Insurance
Approximately 74 percent of the reserves for this segment are from the crop related lines, which all have short payout
patterns, with the majority of the liabilities expected to be resolved in the ensuing twelve months. Claim reserves for our
Multiple Peril Crop Insurance (MPCI) product are set on a case-by-case basis and our aggregate exposure is subject to state
level risk sharing formulae as well as third-party reinsurance. The majority of the development risk arises out of the accuracy
of case reserve estimates and the time needed for final crop conditions to be assessed. We do not view our Agriculture
reserves as substantially influenced by the general assumptions and risks underlying more typical P&C reserve estimates.
42
Overseas General Insurance
Certain long-tail lines, such as casualty and professional lines, are particularly susceptible to changes in loss trend and claim
inflation. Heightened perceptions of tort and settlement awards around the world can increase the demand for these products
as well as contributing to the uncertainty in the reserving estimates. Our reserving methods rely on loss development patterns
estimated from historical data and while we attempt to adjust such factors for known changes in the current tort environment,
it is possible that such factors may not entirely reflect all recent trends in tort environments. For example, when applying the
reported loss development method, the lengthening of our selected loss development patterns by six months would increase
reserve estimates on long-tail casualty and professional lines for accident years 2016 and prior by approximately $490
million. This represents an impact of 14.2 percent relative to recorded net loss and loss expense reserves of approximately
$3.5 billion.
Global Reinsurance
Typically, there is inherent uncertainty around the length of paid and reported development patterns, especially for certain
casualty lines such as excess workers' compensation or general liability, which may take decades to fully develop. This
uncertainty is accentuated by the need to supplement client development patterns with industry development patterns due to
the sometimes low statistical credibility of the data. The underlying source and selection of the final development patterns can
thus have a significant impact on the selected ultimate net losses and loss expenses. For example, a 20 percent shortening or
lengthening of the development patterns used for U.S. long-tail lines would cause the loss reserve estimate derived by the
reported Bornhuetter-Ferguson method for these lines to change by approximately $380 million. This represents an impact of
51 percent relative to recorded net loss and loss expense reserves of approximately $750 million.
Assumed reinsurance
At December 31, 2018, net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $1.6 billion,
consisting of $807 million of case reserves and $807 million of IBNR. In comparison, at December 31, 2017, net unpaid
losses and loss expenses for the Global Reinsurance segment aggregated to $1.7 billion, consisting of $843 million of case
reserves and $870 million of IBNR.
For our catastrophe business, we principally estimate unpaid losses and loss expenses on an event basis by considering various
sources of information, including specific loss estimates reported by our cedants, ceding company and overall industry loss
estimates reported by our brokers, and our internal data regarding reinsured exposures related to the geographical location of
the event. Our internal data analysis enables us to establish catastrophe reserves for known events with more certainty at an
earlier date than would be the case if we solely relied on reports from third parties to determine carried reserves.
For our casualty reinsurance business, we generally rely on ceding companies to report claims and then use that data as a key
input to estimate unpaid losses and loss expenses. Due to the reliance on claims information reported by ceding companies, as
well as other factors, the estimation of unpaid losses and loss expenses for assumed reinsurance includes certain risks and
uncertainties that are unique relative to our direct insurance business. These include, but are not necessarily limited to, the
following:
• The reported claims information could be inaccurate;
• Typically, a lag exists between the reporting of a loss event to a ceding company and its reporting to us as a reinsurance
claim. The use of a broker to transmit financial information from a ceding company to us increases the reporting lag.
Because most of our reinsurance business is produced by brokers, ceding companies generally first submit claim and other
financial information to brokers, who then report the proportionate share of such information to each reinsurer of a
particular treaty. The reporting lag generally results in a longer period of time between the date a claim is incurred and the
date a claim is reported compared with direct insurance operations. Therefore, the risk of delayed recognition of loss
reserve development is higher for assumed reinsurance than for direct insurance lines; and
• The historical claims data for a particular reinsurance contract can be limited relative to our insurance business in that
there may be less historical information available. Further, for certain coverages or products, such as excess of loss
contracts, there may be relatively few expected claims in a particular year so the actual number of claims may be
susceptible to significant variability. In such cases, the actuary often relies on industry data from several recognized
sources.
We mitigate the above risks in several ways. In addition to routine analytical reviews of ceding company reports to ensure
reported claims information appears reasonable, we perform regular underwriting and claims audits of certain ceding companies
to ensure reported claims information is accurate, complete, and timely. As appropriate, audit findings are used to adjust claims
43
in the reserving process. We also use our knowledge of the historical development of losses from individual ceding companies to
adjust the level of adequacy we believe exists in the reported ceded losses.
On occasion, there will be differences between our carried loss reserves and unearned premium reserves and the amount of loss
reserves and unearned premium reserves reported by the ceding companies. This is due to the fact that we receive consistent
and timely information from ceding companies only with respect to case reserves. For IBNR, we use historical experience and
other statistical information, depending on the type of business, to estimate the ultimate loss. We estimate our unearned
premium reserve by applying estimated earning patterns to net premiums written for each treaty based upon that treaty's
coverage basis (i.e., risks attaching or losses occurring). At December 31, 2018, the case reserves reported to us by our ceding
companies were $795 million, compared with the $807 million we recorded. Our policy is to post additional case reserves in
addition to the amounts reported by our cedants when our evaluation of the ultimate value of a reported claim is different than
the evaluation of that claim by our cedant.
Within Corporate, we also have exposure to certain liability reinsurance lines that have been in run-off since 1994. Unpaid
losses and loss expenses relating to this run-off reinsurance business resides within the Brandywine Division of Corporate. Most
of the remaining unpaid loss and loss expense reserves for the run-off reinsurance business relate to A&E claims. Refer to the
“Asbestos and Environmental (A&E)” section for additional information.
Asbestos and environmental reserves
Included in our liabilities for losses and loss expenses are amounts for A&E (A&E liabilities). The A&E liabilities principally relate
to claims arising from bodily-injury claims related to asbestos products and remediation costs associated with hazardous waste
sites. The estimation of our A&E liabilities is particularly sensitive to future changes in the legal, social, and economic
environment. We have not assumed any such future changes in setting the value of our A&E liabilities, which include provisions
for both reported and IBNR claims.
There are many complex variables that we consider when estimating the reserves for our inventory of asbestos accounts and
these variables may directly impact the predicted outcome. We believe the most significant variables relating to our A&E
liabilities include the current legal environment; specific settlements that may be used as precedents to settle future claims;
assumptions regarding trends with respect to claim severity and the frequency of higher severity claims; assumptions regarding
the ability to allocate liability among defendants (including bankruptcy trusts) and other insurers; the ability of a claimant to
bring a claim in a state in which they have no residency or exposure; the ability of a policyholder to claim the right to
unaggregated coverage; whether high-level excess policies have the potential to be accessed given the policyholder's claim
trends and liability situation; payments to unimpaired claimants; and, the potential liability of peripheral defendants. Based on
the policies, the facts, the law, and a careful analysis of the impact that these factors will likely have on any given account, we
estimate the potential liability for indemnity, policyholder defense costs, and coverage litigation expense.
The results in asbestos cases announced by other carriers or defendants may well have little or no relevance to us because
coverage exposures are highly dependent upon the specific facts of individual coverage and resolution status of disputes among
carriers, policyholders, and claimants.
For additional information refer to the “Asbestos and Environmental (A&E)” section and to Note 6 to the Consolidated Financial
Statements.
Future policy benefits reserves
We issue contracts in our Overseas General Insurance and Life Insurance segments that are classified as long-duration. These
contracts generally include accident and supplemental health products, term and whole life products, endowment products, and
annuities. In accordance with GAAP, we establish reserves for contracts determined to be long-duration based on approved
actuarial methods that include assumptions related to expenses, mortality, morbidity, persistency, and investment yields with a
factor for adverse deviation. These assumptions are “locked in” at the inception of the contract, meaning we use our original
assumptions throughout the life of the policy and do not subsequently modify them unless we deem the reserves to be
inadequate. The future policy benefits reserves balance is regularly evaluated for a premium deficiency. If experience is less
favorable than assumptions, additional liabilities may be required, resulting in a charge to policyholder benefits and claims.
Valuation of value of business acquired (VOBA), and amortization of deferred policy acquisition costs and VOBA
As part of the acquisition of businesses that sell long-duration contracts, such as life products, we established an intangible
asset related to VOBA, which represented the fair value of the future profits of the in-force contracts. The valuation of VOBA at
the time of acquisition is derived from similar assumptions to those used to establish the associated future policy benefits
44
reserves. The most significant input in this calculation is the discount rate used to arrive at the present value of the net cash
flows. We amortize deferred policy acquisition costs associated with long-duration contracts and VOBA (collectively policy
acquisition costs) over the estimated life of the contracts, generally in proportion to premium revenue recognized based upon
the same assumptions used in estimating the liability for future policy benefits. For non-traditional long-duration contracts, we
amortize policy acquisition costs over the expected life of the contracts in proportion to estimates of expected gross profits. The
estimated life is established at the inception of the contracts or upon acquisition and is based on current persistency
assumptions. Policy acquisition costs, which consist of commissions, premium taxes, and certain underwriting costs related
directly to the successful acquisition of a new or renewal insurance contract, are reviewed to determine if they are recoverable
from future income, including investment income. Unrecoverable costs are expensed in the period identified.
Risk transfer
In the ordinary course of business, we both purchase (or cede) and sell (or assume) reinsurance protection. We discontinued the
purchase of all finite risk reinsurance contracts, as a matter of policy, in 2002. For both ceded and assumed reinsurance, risk
transfer requirements must be met in order to use reinsurance accounting, principally resulting in the recognition of cash flows
under the contract as premiums and losses. If risk transfer requirements are not met, a contract is to be accounted for as a
deposit, typically resulting in the recognition of cash flows under the contract through a deposit asset or liability and not as
revenue or expense. To meet risk transfer requirements, a reinsurance contract must include both insurance risk, consisting of
underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity. We also apply similar risk
transfer requirements to determine whether certain commercial insurance contracts should be accounted for as insurance or a
deposit. Contracts that include fixed premium (i.e., premium not subject to adjustment based on loss experience under the
contract) for fixed coverage generally transfer risk and do not require judgment.
Reinsurance and insurance contracts that include both significant risk sharing provisions, such as adjustments to premiums or
loss coverage based on loss experience, and relatively low policy limits, as evidenced by a high proportion of maximum
premium assessments to loss limits, can require considerable judgment to determine whether or not risk transfer requirements
are met. For such contracts, often referred to as finite or structured products, we require that risk transfer be specifically
assessed for each contract by developing expected cash flow analyses at contract inception. To support risk transfer, the cash
flow analyses must demonstrate that a significant loss is reasonably possible, such as a scenario in which the ratio of the net
present value of losses divided by the net present value of premiums equals or exceeds 110 percent. For purposes of cash flow
analyses, we generally use a risk-free rate of return consistent with the expected average duration of loss payments. In
addition, to support insurance risk, we must prove the reinsurer's risk of loss varies with that of the reinsured and/or support
various scenarios under which the assuming entity can recognize a significant loss.
To ensure risk transfer requirements are routinely assessed, qualitative and quantitative risk transfer analyses and memoranda
supporting risk transfer are developed by underwriters for all structured products. We have established protocols for structured
products that include criteria triggering an accounting review of the contract prior to quoting. If any criterion is triggered, a
contract must be reviewed by a committee established by each of our segments with reporting oversight, including peer review,
from our global Structured Transaction Review Committee.
With respect to ceded reinsurance, we entered into a few multi-year excess of loss retrospectively-rated contracts, principally in
2002. These contracts primarily provided severity protection for specific product divisions. Because traditional one-year
reinsurance coverage had become relatively costly, these contracts were generally entered into in order to secure a more cost-
effective reinsurance program. All of these contracts transferred risk and were accounted for as reinsurance. In addition, we
maintain a few aggregate excess of loss reinsurance contracts that were principally entered into prior to 2003, such as the
National Indemnity Company (NICO) contracts referred to in the section entitled, “Asbestos and Environmental (A&E)”. We have
not purchased any other retroactive ceded reinsurance contracts since 1999.
With respect to assumed reinsurance and insurance contracts, products giving rise to judgments regarding risk transfer were
primarily sold by our financial solutions business. Although we have significantly curtailed writing financial solutions business,
several contracts remain in-force and principally include multi-year retrospectively-rated contracts and loss portfolio transfers.
Because transfer of insurance risk is generally a primary client motivation for purchasing these products, relatively few
insurance and reinsurance contracts have historically been written for which we concluded that risk transfer criteria had not
been met. For certain insurance contracts that have been reported as deposits, the insured desired to self-insure a risk but was
required, legally or otherwise, to purchase insurance so that claimants would be protected by a licensed insurance company in
the event of non-payment from the insured.
45
Reinsurance recoverable
Reinsurance recoverable includes balances due to us from reinsurance companies for paid and unpaid losses and loss expenses
and is presented net of a provision for uncollectible reinsurance. The provision for uncollectible reinsurance is determined based
upon a review of the financial condition of the reinsurers and other factors. Ceded reinsurance contracts do not relieve our
primary obligation to our policyholders. Consequently, an exposure exists with respect to reinsurance recoverable to the extent
that any reinsurer is unable or unwilling to meet its obligations or disputes the liabilities assumed under the reinsurance
contracts. We determine the reinsurance recoverable on unpaid losses and loss expenses using actuarial estimates as well as a
determination of our ability to cede unpaid losses and loss expenses under existing reinsurance contracts.
The recognition of a reinsurance recoverable asset requires two key judgments. The first judgment involves our estimation based
on the amount of gross reserves and the percentage of that amount which may be ceded to reinsurers. Ceded IBNR, which is a
major component of the reinsurance recoverable on unpaid losses and loss expenses, is generally developed as part of our loss
reserving process and, consequently, its estimation is subject to similar risks and uncertainties as the estimation of gross IBNR
(refer to “Critical Accounting Estimates – Unpaid losses and loss expenses”). The second judgment involves our estimate of the
amount of the reinsurance recoverable balance that we may ultimately be unable to recover from reinsurers due to insolvency,
contractual dispute, or for other reasons. Estimated uncollectible amounts are reflected in a provision that reduces the
reinsurance recoverable asset and, in turn, shareholders' equity. Changes in the provision for uncollectible reinsurance are
reflected in net income.
Although the obligation of individual reinsurers to pay their reinsurance obligations is based on specific contract provisions, the
collectability of such amounts requires estimation by management. The majority of the recoverable balance will not be due for
collection until sometime in the future, and the duration of our recoverables may be longer than the duration of our direct
exposures. Over this period of time, economic conditions and operational performance of a particular reinsurer may impact their
ability to meet these obligations and while they may continue to acknowledge their contractual obligation to do so, they may not
have the financial resources or willingness to fully meet their obligation to us.
To estimate the provision for uncollectible reinsurance, the reinsurance recoverable must first be determined for each reinsurer.
This determination is based on a process rather than an estimate, although an element of judgment must be applied. As part of
the process, ceded IBNR is allocated to reinsurance contracts because ceded IBNR is not generally calculated on a contract by
contract basis. The allocations are generally based on premiums ceded under reinsurance contracts, adjusted for actual loss
experience and historical relationships between gross and ceded losses. If actual premium and loss experience vary materially
from historical experience, the allocation of reinsurance recoverable by reinsurer will be reviewed and may change. While such
change is unlikely to result in a large percentage change in the provision for uncollectible reinsurance, it could, nevertheless,
have a material effect on our net income in the period recorded.
Generally, we use a default analysis to estimate uncollectible reinsurance. The primary components of the default analysis are
reinsurance recoverable balances by reinsurer, net of collateral, and default factors used to estimate the probability that the
reinsurer may be unable to meet its future obligations in full. The definition of collateral for this purpose requires some
judgment and is generally limited to assets held in a Chubb-only beneficiary trust, letters of credit, and liabilities held by us
with the same legal entity for which we believe there is a right of offset. We do not currently include multi-beneficiary trusts.
However, we have several reinsurers that have established multi-beneficiary trusts for which certain of our companies are
beneficiaries. The determination of the default factor is principally based on the financial strength rating of the reinsurer and a
corresponding default factor applicable to the financial strength rating. Default factors require considerable judgment and are
determined using the current financial strength rating, or rating equivalent, of each reinsurer as well as other key considerations
and assumptions. Significant considerations and assumptions include, but are not necessarily limited to, the following:
• For reinsurers that maintain a financial strength rating from a major rating agency, and for which recoverable balances are
considered representative of the larger population (i.e., default probabilities are consistent with similarly rated reinsurers
and payment durations conform to averages), the judgment exercised by management to determine the provision for
uncollectible reinsurance of each reinsurer is typically limited because the financial rating is based on a published source
and the default factor we apply is based on a historical default factor of a major rating agency applicable to the particular
rating class. Default factors applied for financial ratings of AAA, AA, A, BBB, BB, B, and CCC, are 0.8 percent, 1.2
percent, 1.7 percent, 4.9 percent, 19.6 percent, 34.0 percent, and 62.2 percent, respectively. Because our model is
predicated on the historical default factors of a major rating agency, we do not generally consider alternative factors.
However, when a recoverable is expected to be paid in a brief period of time by a highly-rated reinsurer, such as certain
property catastrophe claims, a default factor may not be applied;
46
• For balances recoverable from reinsurers that are both unrated by a major rating agency and for which management is
unable to determine a credible rating equivalent based on a parent or affiliated company, we may determine a rating
equivalent based on our analysis of the reinsurer that considers an assessment of the creditworthiness of the particular
entity, industry benchmarks, or other factors as considered appropriate. We then apply the applicable default factor for that
rating class. For balances recoverable from unrated reinsurers for which our ceded reserve is below a certain threshold, we
generally apply a default factor of 34.0 percent;
• For balances recoverable from reinsurers that are either insolvent or under regulatory supervision, we establish a default
factor and resulting provision for uncollectible reinsurance based on specific facts and circumstances surrounding each
company. Upon initial notification of an insolvency, we generally recognize expense for a substantial portion of all balances
outstanding, net of collateral, through a combination of write-offs of recoverable balances and increases to the provision for
uncollectible reinsurance. When regulatory action is taken on a reinsurer, we generally recognize a default factor by
estimating an expected recovery on all balances outstanding, net of collateral. When sufficient credible information
becomes available, we adjust the provision for uncollectible reinsurance by establishing a default factor pursuant to
information received; and
• For captives and other recoverables, management determines the provision for uncollectible reinsurance based on the
specific facts and circumstances.
The following table summarizes reinsurance recoverables and the provision for uncollectible reinsurance for each type of
recoverable balance at December 31, 2018:
(in millions of U.S. dollars)
Type
Reinsurers with credit ratings
Reinsurers not rated
Reinsurers under supervision and insolvent reinsurers
Captives
Other - structured settlements and pools
Total
Gross Reinsurance
Recoverables on
Losses and Loss
Expenses
Recoverables
(net of Usable
Collateral)
Provision for
Uncollectible
Reinsurance (1)
$
$
12,185 $
10,597 $
314
87
2,590
1,140
178
84
383
1,132
16,316 $
12,374 $
164
64
37
16
42
323
(1) The provision for uncollectible reinsurance is based on a default analysis applied to gross reinsurance recoverables, net of approximately $3.9 billion of collateral at
December 31, 2018.
At December 31, 2018, the use of different assumptions within our approach could have a material effect on the provision for
uncollectible reinsurance. To the extent the creditworthiness of our reinsurers were to deteriorate due to an adverse event
affecting the reinsurance industry, such as a large number of major catastrophes, actual uncollectible amounts could be
significantly greater than our provision for uncollectible reinsurance. Such an event could have a material adverse effect on our
financial condition, results of operations, and our liquidity. Given the various considerations used to estimate our uncollectible
provision, we cannot precisely quantify the effect a specific industry event may have on the provision for uncollectible
reinsurance. However, based on the composition (particularly the average credit quality) of the reinsurance recoverable balance
at December 31, 2018, we estimate that a ratings downgrade of one notch for all rated reinsurers (e.g., from A to A- or A- to
BBB+) could increase our provision for uncollectible reinsurance by approximately $68 million or approximately 0.4 percent of
the gross reinsurance recoverable balance, assuming no other changes relevant to the calculation. While a ratings downgrade
would result in an increase in our provision for uncollectible reinsurance and a charge to earnings in that period, a downgrade in
and of itself does not imply that we will be unable to collect all of the ceded reinsurance recoverable from the reinsurers in
question. Refer to Note 4 to the Consolidated Financial Statements for additional information.
Fair value measurements
Accounting guidance defines fair value as the price to sell an asset or transfer a liability (an exit price) in an orderly transaction
between market participants and establishes a three-level valuation hierarchy based on the reliability of the inputs. The fair
value hierarchy gives the highest priority to quoted prices in active markets (Level 1 inputs) and the lowest priority to
unobservable data (Level 3 inputs). Level 2 includes inputs, other than quoted prices within Level 1, that are observable for
assets or liabilities either directly or indirectly. Refer to Note 3 and Note 12 to the Consolidated Financial Statements for
information on our fair value measurements.
47
Other-than-temporary impairments (OTTI)
Each quarter, we review securities in an unrealized loss position (impaired securities), including fixed maturities and securities
lending collateral to identify impaired securities to be specifically evaluated for a potential OTTI. Because our investment
portfolio is the largest component of consolidated assets, OTTI could be material to our financial condition and results of
operations. Refer to Note 2 c) to the Consolidated Financial Statements for a description of the OTTI process.
Deferred income taxes
At December 31, 2018, our net deferred tax liability was $304 million. Our deferred tax assets and liabilities primarily result
from temporary differences between the amounts recorded in our consolidated financial statements and the tax basis of our
assets and liabilities. We determine deferred tax assets and liabilities separately for each tax-paying component (an individual
entity or group of entities that is consolidated for tax purposes) in each tax jurisdiction. The realization of deferred tax assets
depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the
applicable tax jurisdiction. There may be changes in tax laws in a number of countries where we transact business that impact
our deferred tax assets and liabilities.
At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred tax assets
when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized. The determination of the
need for a valuation allowance is based on all available information including projections of future taxable income, principally
derived from business plans and where appropriate available tax planning strategies. Projections of future taxable income
incorporate assumptions of future business and operations that are apt to differ from actual experience. If our assumptions and
estimates that resulted in our forecast of future taxable income prove to be incorrect, an additional valuation allowance could
become necessary, which could have a material adverse effect on our financial condition, results of operations, and liquidity. At
December 31, 2018, the valuation allowance of $79 million reflects management's assessment that it is more likely than not
that a portion of the deferred tax assets will not be realized due to the inability of certain foreign subsidiaries to generate
sufficient taxable income.
Assumed reinsurance programs involving minimum benefit guarantees under variable annuity contracts
Chubb reinsures various death and living benefit guarantees associated with variable annuities issued primarily in the United
States. We ceased writing this business in 2007. Guarantees which are payable on death are referred to as guaranteed
minimum death benefits (GMDB). Guarantees on living benefits (GLB) consist mainly of guaranteed minimum income benefits
(GMIB). For further description of this product and related accounting treatment, refer to Note 1 j) to the Consolidated Financial
Statements.
Guaranteed living benefits (GLB) derivatives
Our GLB reinsurance is classified as a derivative for accounting purposes and therefore carried at fair value. We believe that the
most meaningful presentation of these GLB derivatives is as follows:
• Estimates of the average modeled value of future cash outflows is recorded as incurred losses (i.e., benefit reserves). Cash
inflows or revenue are reported as net premiums earned and changes in the benefit reserves are reflected as Policy benefits
expense in the Consolidated statements of operations, which is included in underwriting income.
• The incremental difference between the fair value of GLB reinsurance contracts and benefit reserves is reflected in Accounts
payable, accrued expenses, and other liabilities in the Consolidated balance sheets and related changes in fair value are
reflected in Net realized gains (losses) in the Consolidated statements of operations.
Determination of GLB fair value
The fair value of GLB reinsurance is estimated using an internal valuation model, which includes current market information
and estimates of policyholder behavior from the perspective of a theoretical market participant that would assume these
liabilities. All of our treaties contain claim limits, which are factored into the valuation model. The fair value depends on a
number of factors, including interest rates, equity markets, credit risk, current account value, market volatility, expected
annuitization rates and other policyholder behavior, and changes in policyholder mortality. The model and related assumptions
are regularly re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to
policyholder behavior and availability of more timely market information. Due to the inherent uncertainties of the assumptions
used in the valuation models to determine the fair value of these derivative products, actual experience may differ materially
from the estimates reflected in our Consolidated Financial Statements.
We intend to hold these derivative contracts to maturity (i.e., the expiration of the underlying liabilities through lapse,
annuitization, death, or expiration of the reinsurance contract). To partially offset the risk of changes in the fair value of GLB
48
reinsurance contracts, we invest in derivative hedge instruments. At maturity, the cumulative realized gains and losses
(excluding cumulative hedge gains or losses) from fair value changes of GLB reinsurance contracts will net to zero because, over
time, the insurance liability will be increased or decreased to equal our obligation.
Determination of GLB and Guaranteed minimum death benefits (GMDB) benefit reserves
Management established benefit reserves based on a long-term benefit ratio (or loss ratio) calculated using assumptions
reflecting management’s best estimate of the future short-term and long-term performance of the variable annuity line of
business. Despite the long-term nature of the risk, the benefit ratio calculation is impacted by short-term market movements
that may be judged by management to be transient. Management regularly examines both qualitative and quantitative analysis,
including a review of the differential between the benefit ratio used at the most recent valuation date and the benefit ratio
calculated on subsequent dates. Management regularly evaluates its estimates and uses judgment to determine the extent to
which assumptions underlying the benefit ratio calculation should be adjusted. For the year ended December 31, 2018,
management determined that no change to the benefit ratio was warranted.
For further information on the estimates and assumptions used in determining the fair value of GLB reinsurance, refer to Note 3
to the Consolidated Financial Statements. For a sensitivity discussion of the effect of changes in interest rates, equity indices,
and other assumptions on the fair value of GLBs, and the estimated resulting impact on our net income, refer to Item 7A.
Risk Management
We employ a strategy to manage the financial market and policyholder behavior risks embedded in the reinsurance of variable
annuity (VA) guarantees. Risk management begins with underwriting a prospective client and guarantee design, with particular
focus on protecting our position from policyholder options that, because of anti-selective behavior, could adversely impact our
obligation.
A second layer of risk management is the structure of the reinsurance contracts. All VA guarantee reinsurance contracts include
some form of annual or aggregate claim limit(s) primarily designed to reduce our exposure to severe equity market and/or
interest rate declines (which would cause an increase in expected claims).
A third layer of risk management is the hedging strategy which looks to mitigate both long-term economic loss over time as well
as dampen income statement volatility. We owned financial market instruments as part of the hedging strategy with a fair value
asset (liability) of $23 million and $(21) million at December 31, 2018 and 2017, respectively. The instruments are
substantially collateralized on a daily basis.
We also limit the aggregate amount of variable annuity reinsurance guarantee risk we are willing to assume. The last
substantive transactions were quoted in late 2007. The aggregate number of policyholders is currently decreasing through
policyholder withdrawals, annuitizations, and deaths at a rate of 5 percent to 15 percent per annum.
Note that GLB claims cannot occur for any reinsured policy until it has reached the end of its “waiting period”. As shown in the
table below, 90 percent of the policies we reinsure reached the end of their “waiting periods” in 2018 and prior.
Year of first payment eligibility
2018 and prior
2019
2020
2021
2022
2023 and after
Total
Percent of living benefit
account values
90%
3%
1%
2%
—%
4%
100%
49
The following table presents the historical cash flows under these policies for the periods indicated. The amounts represent
accrued past premium received and claims paid, split by benefit type.
(in millions of U.S. dollars)
GMDB
GLB
2018
Total
GMDB
GLB
2017
Total
GMDB
GLB
Premium received
Less paid claims
Net cash received
$
$
47 $
96 $
143 $
49 $
110 $
159 $
55 $
118 $
32
49
81
31
54
85
42
39
15 $
47 $
62 $
18 $
56 $
74 $
13 $
79 $
2016
Total
173
81
92
Collateral
Chubb holds collateral on behalf of most of its clients in the form of qualified assets in trust or letters of credit, typically in an
amount sufficient for the client to obtain statutory reserve credit for the reinsurance. The timing of the calculation and amount
of the collateral varies by client according to the particulars of the reinsurance treaty and the statutory reserve guidelines of the
client's domicile.
Goodwill impairment assessment
Goodwill, which represents the excess of acquisition cost over the estimated fair value of net assets acquired, was $15.3 billion
and $15.5 billion at December 31, 2018 and 2017, respectively. Goodwill is assigned to applicable reporting units of acquired
entities at the time of acquisition. Our reporting units are the same as our reportable segments. For goodwill balances by
reporting units, refer to Note 5 to the Consolidated Financial Statements.
Goodwill is not amortized but is subject to a periodic evaluation for impairment at least annually, or earlier if there are any
indications of possible impairment. Impairment is tested at the reporting unit level. The impairment evaluation first uses a
qualitative assessment to determine whether it is more likely than not (i.e., more than a 50 percent probability) that the fair
value of a reporting unit is greater than its carrying amount. If a reporting unit fails this qualitative assessment, a single
quantitative analysis is used to measure and record the amount of the impairment.
In assessing the fair value of a reporting unit, we make assumptions and estimates about the profitability attributable to our
reporting units, including:
short-term and long-term growth rates; and
•
• estimated cost of equity and changes in long-term risk-free interest rates.
If our assumptions and estimates made in assessing the fair value of acquired entities change, we could be required to write-
down the carrying value of goodwill which could be material to our results of operations in the period the charge is taken. Based
on our impairment testing for 2018, we determined no impairment was required and none of our reporting units was at risk for
impairment.
50
Consolidated Operating Results – Years Ended December 31, 2018, 2017, and 2016
(in millions of U.S. dollars, except for percentages)
2018
2017
2016
2018 vs.
2017
% Change
2017 vs.
2016
Net premiums written (1)
Net premiums earned (1)
Net investment income
Net realized gains (losses)
Total revenues
Losses and loss expenses
Policy benefits
Policy acquisition costs
Administrative expenses
Interest expense
Other (income) expense
Amortization of purchased intangibles
Chubb integration expenses
Total expenses
Income before income tax
Income tax expense (benefit)
Net income
NM – not meaningful
$
30,579 $
29,244 $
28,145
30,064
3,305
(652)
32,717
18,067
590
5,912
2,886
641
(434)
339
59
28,060
4,657
695
29,034
3,125
28,749
2,865
84
(145)
32,243
18,454
676
5,781
2,833
607
(400)
260
310
28,521
3,722
(139)
31,469
16,052
588
5,904
3,081
605
(222)
19
492
26,519
4,950
815
$
3,962 $
3,861 $
4,135
4.6 %
3.5 %
5.8 %
NM
1.5 %
(2.1)%
(12.7)%
2.3 %
1.9 %
5.6 %
8.5 %
30.4 %
(81.0)%
(1.6)%
25.1 %
NM
2.6 %
3.9 %
1.0 %
9.1 %
NM
2.5 %
15.0 %
15.0 %
(2.1)%
(8.0)%
0.3 %
80.2 %
NM
(37.0)%
7.5 %
(24.8)%
NM
(6.6)%
(1)
On a constant-dollar basis for the years ended December 31, 2018 and 2017, net premiums written increased $1.2 billion, or 4.1 percent, and $1.1 billion, or 3.9
percent, respectively, and net premiums earned increased $912 million, or 3.1 percent, and $232 million, or 0.8 percent, respectively. Amounts are calculated by
translating prior period results using the same local currency rates as the comparable current period.
Net Premiums Written
2018 vs. 2017
Net premiums written reflect the premiums we retain after purchasing reinsurance protection. Consolidated net premiums
written increased $1.3 billion in 2018, or $1.2 billion (4.1 percent) on a constant-dollar basis, reflecting growth across most
segments.
• Net premiums written in our North America Commercial P&C Insurance segment increased $466 million, or 3.9 percent in
2018 reflecting positive rate increases, new business written, and strong renewals across a number of lines. Retail casualty
and risk management, A&H, retail property, and continued growth in our small commercial business represented $339
million of the $466 million increase. In addition, the year-over-year increase in large structured transactions was $195
million. This growth was partially offset by merger-related underwriting actions of $123 million and premium reductions
from planned portfolio management in our retail and wholesale brokerage financial lines ($62 million).
• Net premiums written in our North America Personal P&C Insurance segment increased $141 million, or 3.1 percent for
2018, primarily due to strong retention and new business growth in homeowners and complementary products such as
automobiles and valuables. In addition, the non-renewal of a quota share treaty in the second quarter of 2017 covering the
acquired Fireman's Fund homeowners and automobile businesses added $47 million of additional net premiums written in
2018. These increases were partially offset by the addition of California to the homeowners quota share reinsurance treaty,
effective October 1, 2018 ($47 million), which included a non-recurring unearned premium reserves (UPR) transfer of $32
million.
• Net premiums written in our North America Agricultural Insurance segment increased $61 million, or 4.0 percent in 2018,
primarily due to growth in our MPCI business and growth in our Chubb Agribusiness. The growth in MPCI premium was
driven by policy count growth and the year-over-year impact of the premium sharing formulas under the U.S. government.
Under the MPCI profit and loss calculation, we cede additional premiums to the government during profitable years. In the
prior year, the program was more profitable which resulted in higher cessions compared to 2018. The increase was
partially offset by lower volatility factors, which are a component of the policy pricing that measures the likelihood the
commodity price will fluctuate over the crop year and reduces the premium we charge.
51
• Net premiums written in our Overseas General Insurance segment increased $552 million in 2018, or $448 million (5.3
percent) on a constant-dollar basis, reflecting growth across most regions and lines of business. P&C lines growth ($235
million) was across all regions, principally in small commercial property and general casualty lines reflecting new business,
and in middle market driven by new business and rate increases. Personal lines growth ($134 million) was principally in
our automobile line in Mexico driven by new business, as well as in our specialty lines in Asia. A&H lines growth ($79
million) was principally in Asia driven by new business.
• Net premiums written in our Global Reinsurance segment decreased $14 million in 2018, or $22 million (3.3 percent) on
a constant-dollar basis, primarily due to higher reinstatement premiums collected in the prior year principally relating to the
2017 natural catastrophes ($15 million year-over-year decrease) and lower renewals, which is reflective of competitive
market conditions primarily in catastrophe and catastrophe exposed lines of business, partially offset by new business
written in the casualty line of business.
• Net premiums written in our Life Insurance segment increased $129 million in 2018, or $123 million (5.7 percent) on a
constant-dollar basis, primarily due to growth in our North American Combined Insurance supplemental A&H program
business ($73 million), and Asian and Latin American international life operations ($58 million), partially offset by our life
reinsurance business ($8 million), which continues to decline as no new life reinsurance business is being written.
2017 vs. 2016
We discuss financial measures on a "comparative basis" for 2016 throughout the Management's Discussion and Analysis
section, which exclude the impact of the unearned premium reserves intangible amortization and the elimination of the
historical policy acquisition costs as a result of purchase accounting related to the Chubb Corp acquisition. The combined
company (combined legacy ACE and legacy Chubb) results for the year ended December 31, 2016 are inclusive of the first 14
days of January 2016 (the Chubb Corp acquisition was completed on January 14, 2016). We believe these measures provide
visibility into our results, allow for comparability to our historical results and are consistent with how management evaluates
results. A reconciliation of "comparative basis" results as defined above is provided under the Non-GAAP Reconciliation section
starting on page 73.
Consolidated net premiums written increased $1.1 billion in 2017, reflecting growth across most segments. The increase is also
due to the timing of the Chubb Corp acquisition in the prior year, which excluded approximately $855 million of production
generated prior to the Chubb Corp acquisition close on January 14, 2016 (14-day stub period). On a comparative basis, which
includes the 14-day stub period, net premiums written increased $244 million. This increase in premiums was partially offset
by merger-related actions of $582 million. Merger-related actions include the cancellation of certain portfolios or lines of
business that do not meet our underwriting standards and the purchase of additional reinsurance due to the acquisition of
Chubb Corp.
• Net premiums written in our North America Commercial P&C Insurance segment increased $279 million in 2017. On a
comparative basis, which includes the 14-day stub period ($519 million), net premiums written decreased $240 million
driven by merger-related actions ($278 million). Excluding these items, net premiums written increased $38 million (0.3
percent) as growth, primarily in our risk management and casualty business was offset by declines in property and select
components of our financial lines businesses due to competitive market conditions.
• Net premiums written in our North America Personal P&C Insurance segment increased $380 million in 2017. On a
comparative basis, which includes the 14-day stub period ($100 million), net premiums written increased $280 million
reflecting both growth across most lines as well as the non-renewal of a quota share treaty in 2017 covering the acquired
Fireman's Fund homeowners and automobile businesses ($189 million). In addition, the prior year included a non-recurring
unearned premium reserves (UPR) transfer ($128 million) related to the July 1, 2016 purchase of reinsurance for our
homeowners and large limit valuable articles business written in the northeast United States which decreased net
premiums written in the prior year. This reinsurance impacted 2017 growth ($126 million) as we had a full year of
coverage in 2017 but only a partial year of coverage in 2016.
• Net premiums written in our North America Agricultural Insurance segment increased $188 million in 2017, primarily due
to an increase in MPCI production and growth in our Agriculture P&C products. The increase in MPCI premium was driven
in part by higher policy count and the year-over-year impact of our update to the MPCI margin estimate which resulted in a
smaller cession to the U.S. government in 2016. Under the government's crop insurance profit and loss calculation
formulas, we retained more premiums in 2017 as losses were higher compared to 2016.
• Net premiums written in our Overseas General Insurance segment increased $226 million in 2017, or $229 million (2.8
percent) on a constant-dollar basis. Excluding the favorable impact of the 14-day stub period ($215 million), unfavorable
impact of merger-related accounting policy adjustments in 2016 to align the timing of premium recognition ($126 million)
52
and merger-related actions ($131 million), net premiums written increased $271 million on a constant-dollar basis, driven
by growth in personal lines business, primarily from new automobile business written in Latin America, as well as growth
across most property and casualty (P&C) lines, primarily in Asia and Latin America.
• Net premiums written in our Global Reinsurance segment increased $9 million in 2017, or $14 million (2.2 percent) on a
constant-dollar basis, primarily due to a $30 million increase in catastrophe reinstatement premiums and the favorable
impact of the 14-day stub period ($20 million). These increases were negatively impacted by merger-related actions of $10
million, declining rates and increasing competition.
• Net premiums written in our Life Insurance segment increased $17 million in 2017, or $8 million (0.3 percent) on a
constant-dollar basis, due to growth in our Asian international life operations and Combined Insurance supplemental A&H
program business. This growth was partially offset by planned declines in our Latin American operations, reflecting merger-
related actions of $37 million, and in our life reinsurance business, which continues to decline as no new business is
currently being written.
Net Premiums Written By Line of Business
(in millions of U.S. dollars, except for percentages)
2018
2017
2016
Commercial casualty
Workers' compensation
Professional liability
Surety
Commercial multiple peril (2)
Property and other short-tail lines
Total Commercial P&C (3)
Agriculture
Personal automobile - North America
Personal automobile - International
Personal homeowners
Personal other
Total Personal lines
Total Property and Casualty lines
Global A&H lines (4)
Reinsurance lines
Life
Total consolidated
$
5,156 $
4,721 $
4,462 $
2,150
3,527
635
911
4,007
16,386
2,067
3,547
627
879
3,819
15,660
2,006
3,574
584
815
3,835
15,276
C$ (1)
2017
4,749
2,067
3,571
619
879
3,850
15,735
1,577
1,516
1,328
1,516
831
864
3,391
1,508
6,594
775
788
3,302
1,441
6,306
698
674
3,053
1,399
5,824
777
786
3,304
1,455
6,322
24,557
23,482
22,428
23,573
4,277
671
1,074
4,056
685
1,021
3,970
676
1,071
4,078
693
1,025
$
30,579 $
29,244 $
28,145 $
29,369
% Change
C$ (1) 2018
vs. 2017
8.6 %
4.0 %
(1.2)%
2.7 %
3.8 %
4.1 %
4.1 %
4.0 %
7.0 %
9.9 %
2.6 %
3.7 %
4.3 %
4.2 %
4.9 %
(3.3)%
4.9 %
4.1 %
(1)
(2)
(3)
(4)
On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.
Commercial multiple peril represents retail package business (property and general liability).
2017 and 2016 included a reclassification between Commercial casualty, Professional liability, and Property and other short-tail lines to better align reporting with the
current year presentation. There is no impact to total Commercial P&C.
For purposes of this schedule only, A&H results from our Combined North America and International businesses, normally included in the Life Insurance and Overseas
General Insurance segments, respectively, as well as the A&H results of our North America Commercial P&C segment, are included in the Global A&H line item above.
The increase in net premiums written in 2018 reflects growth across most lines of business from positive rate increases, new
business and strong renewals, partially offset by planned merger-related underwriting actions related to the Chubb Corp
acquisition of $138 million. The year-over-year increase in large structured transactions written contributed $195 million to the
increase in commercial casualty business in 2018. The increase in commercial casualty was partially offset by planned merger-
related underwriting actions. On a constant dollar basis, professional liability was adversely impacted by planned portfolio
management. The growth in workers' compensation was partially offset by planned merger-related underwriting actions. Growth
in Surety lines was due to new business in North America and Latin America. Property and other short-tail lines grew
internationally due to new business and strong renewals. Our personal lines net premiums written increased due to new
53
business in our automobile line in Mexico, new business growth in homeowners and complementary products, and the non-
renewal of a quota share treaty in 2017, partially offset by the addition of California to the homeowners quota share treaty
effective October 1, 2018. For additional information on net premiums written, refer to the segment results discussions.
Net Premiums Earned
2018 vs. 2017
Net premiums earned for short-duration contracts, typically P&C contracts, generally reflect the portion of net premiums written
that were recorded as revenues for the period as the exposure periods expire. Net premiums earned for long-duration contracts,
typically traditional life contracts, generally are recognized as earned when due from policyholders. Net premiums earned
increased $1.0 billion, or $912 million on a constant-dollar basis in 2018, primarily due to the same factors driving the
increase in net premiums written as described above. Net premiums earned were favorably impacted by the year-over-year
increase in large structured transactions ($163 million), a number of which were earned immediately when written. These
retroactive transactions will not impact premiums earned in 2019 as they were fully earned in 2018.
2017 vs. 2016
Net premiums earned increased $285 million, or $232 million on a constant-dollar basis in 2017, primarily due to the same
factors driving the increase in net premiums written as described above.
Approximately $391 million of premiums earned in the 14-day stub period were excluded from 2016. On a comparative
constant-dollar basis, which includes the 14-day stub period, net premiums earned decreased $159 million as growth was
more than offset by merger-related actions.
P&C Combined Ratio
In evaluating our segments excluding Life Insurance, we use the P&C combined ratio, the loss and loss expense ratio, the policy
acquisition cost ratio, and the administrative expense ratio. We calculate these ratios by dividing the respective expense
amounts by net premiums earned. We do not calculate these ratios for the Life Insurance segment as we do not use these
measures to monitor or manage that segment. The P&C combined ratio is determined by adding the loss and loss expense ratio,
the policy acquisition cost ratio, and the administrative expense ratio. A P&C combined ratio under 100 percent indicates
underwriting income, and a combined ratio exceeding 100 percent indicates underwriting loss.
Loss and loss expense ratio
Policy acquisition cost ratio
Administrative expense ratio
P&C Combined ratio
2018
62.1%
19.2%
9.3%
90.6%
2017
65.8%
19.5%
9.4%
94.7%
2016
57.7%
20.2%
10.4%
88.3%
2018 vs. 2017
The loss and loss expense ratio decreased 3.7 percentage points in 2018 principally due to the following:
• Lower catastrophe losses (4.3 percentage points);
•
Integration-related claims handling expense savings ($64 million or 0.2 percentage points);
• Partially offset by increased frequency and severity of homeowners losses in our North America Personal P&C Insurance
segment, primarily non-catastrophe water related events and large fire losses which are trending above our expectations
(0.5 percentage points), and higher non-catastrophe large losses in our North America Commercial P&C Insurance segment
(0.1 percentage points).
Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs directly related to the successful
acquisition of a new or renewal insurance contract. Our policy acquisition cost ratio decreased 0.3 percentage points in 2018
principally due to increased cessions under certain reinsurance agreements that resulted in higher ceded acquisition costs
benefits than in the prior year.
Our administrative expense ratio remained relatively flat in 2018 where merit and inflation costs were offset by cost savings
initiatives.
54
2017 vs. 2016
The loss and loss expense ratio increased 8.1 percentage points in 2017 due to the following:
• Higher catastrophe losses and lower favorable PPD (together 7.3 percentage points);
• Higher non-catastrophe large losses in property lines and mix of business in our Major Accounts division in our North
America Commercial P&C Insurance segment, driven by growth in casualty lines which have a higher loss ratio and declines
in property lines which have a lower loss ratio (0.4 percentage points);
• Higher non-catastrophe large losses in our North America Personal P&C Insurance segment (0.2 percentage point);
• An updated allocation that more appropriately classified certain claims-related expenses as loss adjustment expenses
(previously reported as administrative expenses). This updated allocation increased loss adjustment expenses (0.4
percentage points), with an offsetting decrease to administrative expenses;
• Partially offset by integration-related claims handling expense savings realized of $128 million (0.5 percentage points).
Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs directly related to the successful
acquisition of a new or renewal insurance contract. Our policy acquisition cost ratio decreased 0.7 percentage points in 2017,
compared to the prior year period, which included a net unfavorable impact of purchase accounting adjustments related to the
Chubb Corp acquisition (0.7 percentage points). The decrease was also due to integration-related expense savings realized (0.2
percentage points),which was offset by a change in the mix of business, principally in our Overseas General Insurance segment,
and the non-renewal of the Fireman's Fund quota share treaty.
Our administrative expense ratio decreased 1.0 percentage point in 2017, primarily due to integration-related expense savings
realized as a result of the Chubb Corp acquisition of $262 million (1.0 percentage point), lower employee benefit-related
expenses (0.7 percentage points), and the updated loss expenses and administrative expenses allocation as noted above (0.4
percentage points), partially offset by the impact of merit-based salary increases, inflation, and increased spending to support
growth.
Catastrophe Losses and Prior Period Development
(in millions of U.S dollars)
Catastrophe losses excluding reinstatement premiums, pre-tax
Favorable prior period development net of related adjustments, pre-tax
2018
2017
$
$
1,622 $
2,753 $
896 $
829 $
2016
1,067
1,135
We generally define catastrophe loss events consistent with the definition of the Property Claims Service (PCS) for events in the
U.S. and Canada. PCS defines a catastrophe as an event that causes damage of $25 million or more in insured property losses
and affects a significant number of insureds. For events outside of the U.S. and Canada, we generally use a similar definition.
55
The following table presents catastrophe losses and reinstatement premiums (RIPs) collected (expensed) in 2018:
North
America
Commercial
P&C
Insurance
North
America
Personal
P&C
Insurance
North
America
Agricultural
Insurance
Overseas
General
Insurance
Global
Reinsurance
Total
excluding
RIPs
RIPs
collected
(expensed)
Total
including
RIPs
Catastrophe Loss Charge by Event
$
187 $
16 $
6 $
6 $
85 $
300 $
15 $
285
162
43
51
109
4
7
—
16
157
117
61
29
120
65
—
46
7
—
1
7
—
—
—
—
—
—
1
15
1
1
182
—
6
5
58
14
—
—
31
6
332
165
172
174
125
73
213
68
$
$
579 $
611 $
21 $
206 $
205 $
1,622
—
(26)
—
—
579 $
637 $
21 $
206 $
22
183
—
—
(23)
1
—
—
2
1
(4)
332
165
195
173
125
73
211
67
$
$
1,626
272
1,354
(in millions of U.S. dollars)
Net losses
Hurricane Michael
U.S. flooding, hail, tornadoes,
and wind events (1)
Northeast winter storms
California wildfires
Hurricane Florence
California mudslides
Colorado rain and hail storm
International weather-related
events
Other
Total
RIPs collected (expensed)
Total before income tax
Income tax benefit
Total after income tax
(1)
This grouping comprised of 34 separate events, principally impacting the southern and northeastern regions of the U.S.
The following table presents catastrophe losses and reinstatement premiums (RIPs) collected (expensed) in 2017:
North
America
Commercial
P&C
Insurance
North
America
Personal
P&C
Insurance
North
America
Agricultural
Insurance
Overseas
General
Insurance
Global
Reinsurance
Total
excluding
RIPs
RIPs
collected
(expensed)
Total
including
RIPs
Catastrophe Loss Charge by Event
$
61 $
151 $
— $
2 $
42 $
256 $
(21) $
23
391
464
50
—
231
134
175
206
—
—
205
—
1
2
—
—
15
—
40
79
89
25
96
—
48
159
55
—
9
157
655
910
194
25
556
$
1,220 $
871 $
18 $
331 $
313 $
2,753
(4)
(22)
—
(4)
$
1,224 $
893 $
18 $
335 $
37
276
—
5
30
(7)
—
—
7
277
157
650
880
201
25
556
$
$
2,746
575
2,171
(in millions of U.S. dollars)
Net losses
N. California wildfires
S. California wildfires
Hurricane Harvey
Hurricane Irma
Hurricane Maria
Mexico Earthquakes
Other
Total
RIPs collected (expensed)
Total before income tax
Income tax benefit
Total after income tax
The above tables represent catastrophe loss estimates for events that occurred in the related calendar year only. Changes in
catastrophe loss estimates in the current calendar year that relate to loss events that occurred in previous calendar years are
considered prior period development and are excluded from the table above.
56
Prior period development (PPD) arises from changes to loss estimates recognized in the current year that relate to loss events
that occurred in previous calendar years and excludes the effect of losses from the development of earned premium from
previous accident years.
Net favorable prior period development for the year ended 2018 was $896 million, which included favorable reinsurance
settlements of $205 million related to legacy run-off exposures, $197 million favorable development related to the 2017
catastrophe events, and favorable development of $110 million in our crop insurance business. There were $216 million of
adverse development related to legacy run-off exposures, principally asbestos and environmental liabilities. The remaining
favorable development of $600 million comprised 82 percent long-tail lines, principally for the 2014 and prior accident years,
and 18 percent short-tail lines.
Net favorable prior period development for the year ended 2017 was $829 million, which included favorable development of
$119 million in our crop insurance business. There was $239 million of adverse development related to legacy run-off
exposures, principally asbestos and environmental liabilities, and $41 million driven by a change in the discount rate in the
U.K. (Ogden rate). The remaining favorable development of $990 million comprised 71 percent long-tail lines, principally for
the 2013 and prior accident years, and 29 percent short-tail lines.
Refer to the Prior Period Development section in Note 6 to the Consolidated Financial Statements for additional information.
Current Accident Year (CAY) Loss Ratio Excluding Catastrophe Losses
For these measures, the numerator includes losses and loss expenses adjusted to exclude CATs and PPD. In addition, the
denominator is adjusted to exclude net premiums earned adjustments on PPD and reinstatement premiums on CATs and PPD.
Reinstatement premiums are additional premiums paid on certain reinsurance agreements in order to reinstate coverage that
had been exhausted by catastrophe loss occurrences. The reinstatement premium amount is typically a pro rata portion of the
original ceded premium paid based on how much of the reinsurance limit had been exhausted.
Loss and loss expense ratio
Catastrophe losses and related adjustments
Prior period development net of related adjustments
CAY loss ratio excluding catastrophe losses
2018
62.1 %
(5.8)%
3.3 %
59.6 %
2017
65.8 %
(10.2)%
3.2 %
58.8 %
2016
57.7 %
(4.0)%
4.3 %
58.0 %
2018 vs. 2017
The CAY loss ratio excluding catastrophe losses increased 0.8 percentage points in 2018 principally due to the following:
•
Increased frequency and severity of homeowners losses in our North America Personal P&C Insurance segment, primarily
non-catastrophe water related events and large fire losses (0.6 percentage points);
• Higher non-catastrophe large losses in our North America Commercial P&C Insurance segment (0.2 percentage points);
• Partially offset by integration-related claims handling expense savings realized ($64 million or 0.2 percentage points).
2017 vs. 2016
The CAY loss ratio excluding catastrophe losses increased 0.8 percentage points in 2017, primarily due to the following:
• Higher non-catastrophe large losses in property lines and mix of business in our Major Accounts division in our North
America Commercial P&C Insurance segment, driven by growth in casualty lines which have a higher loss ratio and declines
in property lines which have a lower loss ratio (0.4 percentage points);
• Higher non-catastrophe large losses in our North America Personal P&C Insurance segment (0.2 percentage points);
• An updated allocation that more appropriately classified certain claims-related expenses as loss adjustment expenses
(previously reported as administrative expenses). This updated allocation increased loss adjustment expenses (0.4
percentage points), with an offsetting decrease to administrative expenses;
• Partially offset by integration-related claims handling expense savings realized of $128 million (0.5 percentage points).
57
CAY P&C Combined Ratio excluding Catastrophe Losses
CAY Loss and loss expense ratio ex CATs
CAY Policy acquisition cost ratio ex CATs
CAY Administrative expense ratio ex CATs
CAY P&C combined ratio ex CATs
2018
59.6%
19.2%
9.2%
88.0%
2017
58.8%
19.4%
9.4%
87.6%
2016
58.1%
20.2%
10.7%
89.0%
P&C Combined Ratio with an Expected Level of CATs and CAY P&C Combined Ratio with an Expected Level of CATs
These measures include the level of CATs that we view as typical for that period. Refer to the Non-GAAP Reconciliation section
for the definition and determination of “expected level of CATs.” We believe that these measures are meaningful and provide a
better indication of our underwriting performance as the portion of CATs intended to be covered by the premiums over time is
retained in the calculation. These measures more appropriately align the numerator with an expected level of CATs to the
denominator which includes the net premiums earned on policies with exposures to that business.
The CAY P&C combined ratio with an expected level of CATs measure is further adjusted to exclude the impact of prior period
development. We believe it is useful to exclude PPD as these unexpected loss developments on historical reserves are not
indicative of our underlying performance.
P&C Combined Ratio
CATs above an expected level
P&C combined ratio with an expected level of CATs
Prior period development net of related adjustments
CAY P&C Combined ratio with an expected level of CATs
2018
90.6 %
(2.5)%
88.1 %
3.3 %
91.4 %
2017
94.7 %
(6.8)%
87.9 %
3.1 %
91.0 %
2016
88.7 %
(0.1)%
88.6 %
4.3 %
92.9 %
Policy benefits
Policy benefits represent losses on contracts classified as long-duration and generally include accident and supplemental health
products, term and whole life products, endowment products, and annuities. Refer to the Life segment operating results section
for further discussion.
Policy benefits were $590 million, $676 million and $588 million in 2018, 2017 and 2016, respectively, which included
separate account liabilities (gains) losses of $(38) million, $97 million and $11 million, respectively. The offsetting movements
of these liabilities are recorded in Other (income) expense on the Consolidated statements of operations. Excluding the separate
account gains and losses, Policy benefits were $628 million in 2018, compared with $579 million and $577 million in 2017
and 2016, respectively.
Refer to the respective sections that follow for a discussion of Net investment income, Interest expense, Other (income) expense,
Net realized gains and losses, Amortization of purchased intangibles, and Income tax expense.
Segment Operating Results – Years Ended December 31, 2018, 2017, and 2016
We operate through six business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance,
North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. In addition, the
results of our run-off Brandywine business, including all run-off asbestos and environmental (A&E) exposures, and the results of
Westchester specialty operations for 1996 and prior years are presented within Corporate.
58
North America Commercial P&C Insurance
The North America Commercial P&C Insurance segment comprises operations that provide property and casualty (P&C)
insurance and services to large, middle market, and small commercial businesses in the U.S., Canada, and Bermuda. This
segment includes our North America Major Accounts and Specialty Insurance division (principally large corporate accounts and
wholesale business), and the North America Commercial Insurance division (principally middle market and small commercial
accounts).
(in millions of U.S. dollars, except for percentages)
2018
2017
2016
Net premiums written
Net premiums earned
Losses and loss expenses
Policy acquisition costs
Administrative expenses
Underwriting income
Net investment income
Other (income) expense
Segment income
Loss and loss expense ratio
Policy acquisition cost ratio
Administrative expense ratio
Combined ratio
NM – not meaningful
$ 12,485
$ 12,019
$ 11,740
12,402
12,191
12,217
8,000
1,829
966
1,607
2,033
(25)
8,287
1,873
981
1,050
1,961
1
7,439
2,023
1,125
1,630
1,860
(2)
2018 vs.
2017
3.9 %
1.7 %
(3.5)%
(2.3)%
(1.5)%
53.0 %
3.7 %
NM
% Change
2017 vs.
2016
2.4 %
(0.2)%
11.4 %
(7.4)%
(12.8)%
(35.6)%
5.4 %
NM
$
3,665
$
3,010
$
3,492
21.8 %
(13.8)%
64.5%
14.7%
7.8%
87.0%
68.0%
15.4%
8.0%
91.4%
60.9% (3.5)
16.6% (0.7)
9.2% (0.2)
86.7% (4.4)
pts
pts
pts
pts
7.1
(1.2)
(1.2)
4.7
pts
pts
pts
pts
Premiums
2018 vs. 2017
Net premiums written increased $466 million, or 3.9 percent in 2018 reflecting positive rate increases, new business written,
and strong renewals across a number of lines. Retail casualty and risk management, A&H, retail property, and continued growth
in our small commercial business represented $339 million of the $466 million increase. In addition, the year-over-year
increase in large structured transactions was $195 million. This growth was partially offset by merger-related underwriting
actions of $123 million and premium reductions from planned portfolio management in our retail and wholesale brokerage
financial lines ($62 million).
Net premiums earned increased $211 million, or 1.7 percent in 2018 principally reflecting the net premiums written increases
described above and the year-over-year increase in large structured transactions ($163 million), a number of which were earned
immediately when written as they were retroactive covers.
2017 vs. 2016
Net premiums written increased $279 million in 2017 due to the timing of the Chubb Corp acquisition in 2016. Approximately
$519 million of production was generated prior to the acquisition close on January 14, 2016 (14-day stub period). On a
comparative basis, which includes the 14-day stub period, net premiums written, excluding merger-related actions of $278
million, increased $38 million, or 0.3 percent, as growth, primarily in our risk management and casualty business was offset by
declines in property and select components of our financial lines businesses due to competitive market conditions.
Net premiums earned decreased $26 million in 2017. On a comparative basis, which includes the 14-day stub period ($208
million), net premiums earned decreased $234 million driven primarily by merger-related actions.
Combined Ratio
2018 vs. 2017
The loss and loss expense ratio decreased 3.5 percentage points in 2018, primarily due to lower catastrophe losses and
integration-related claims handling expense savings realized, partially offset by lower favorable prior period development, higher
non-catastrophe losses (0.4 percentage points), and a less favorable adjustment to our claims handling reserve in the current
year relative to 2017.
59
The policy acquisition cost ratio decreased 0.7 percentage points in 2018, due to increased cessions under certain reinsurance
agreements that resulted in higher ceded acquisition costs benefits than in the prior year.
The administrative expense ratio decreased 0.2 percentage points in 2018, primarily due to integration-related expense savings
realized, higher net profit from our third party claims administration business, ESIS, and the net favorable impact of one-time
expense accrual releases.
2017 vs. 2016
The loss and loss expense ratio increased 7.1 percentage points in 2017, primarily due to higher catastrophe losses, partially
offset by lower favorable prior period development. Additionally, the increase was related to mix of business in our Major
Accounts division, driven by growth in casualty lines which have a higher loss ratio and declines in property lines which have a
lower loss ratio, as well as an updated allocation that more appropriately classified certain claims-related expenses as loss
adjustment expenses (previously reported as administrative expenses). This updated allocation increased loss adjustment
expenses (0.6 percentage points for 2017) with an offsetting decrease to administrative expenses. This increase was partially
offset by integration-related expense savings realized of $68 million (0.5 percentage points).
The policy acquisition cost ratio decreased 1.2 percentage points in 2017, compared to 2016 which included the net
unfavorable impact of initial year purchase accounting adjustments related to the Chubb Corp acquisition (1.1 percentage
points). Excluding this item, the policy acquisition cost ratio decreased 0.1 percentage points primarily due to integration-
related expense savings realized of $21 million.
The administrative expense ratio decreased 1.2 percentage points in 2017 primarily reflecting integration-related expense
savings realized of $78 million (0.7 percentage points), lower employee benefit-related expenses of $107 million (0.9
percentage points), and the updated loss expenses and administrative expenses allocation as noted above (0.6 percentage
points for 2017), partially offset by the impact of merit-based salary increases, inflation, and increased spending to support
growth.
Catastrophe Losses and Prior Period Development
(in millions of U.S. dollars)
Catastrophe losses excluding reinstatement premiums, pre-tax
Favorable prior period development net of related adjustments, pre-tax
2018
579 $
610 $
2017
1,220 $
746 $
2016
448
778
$
$
Catastrophe losses were primarily from the following events (refer to the table on page 56):
• 2018: Hurricanes Florence and Michael, and severe weather-related events in the U.S., including California wildfires
• 2017: Hurricanes Harvey, Irma and Maria and severe weather-related events in the U.S., including California wildfires
• 2016: severe weather-related events in the U.S., including Hurricane Matthew, and a wildfire in Canada
CAY Loss Ratio Excluding Catastrophe Losses
Loss and loss expense ratio
Catastrophe losses and related adjustments
Prior period development net of related adjustments
CAY loss ratio excluding catastrophe losses
2018
64.5 %
(4.7)%
5.1 %
64.9 %
2017
68.0 %
(10.0)%
6.3 %
64.3 %
2016
60.9 %
(3.7)%
6.5 %
63.7 %
2018 vs. 2017
The CAY loss ratio excluding catastrophe losses increased 0.6 percentage points for 2018, due to higher year-over-year large
loss activity and a less favorable adjustment to our claims handling reserve in the current year relative to 2017, partially offset
by integration-related claims handling expense savings realized.
2017 vs. 2016
The CAY loss ratio excluding catastrophe losses increased 0.6 percentage points for 2017, primarily due to mix of business in
our Major Accounts division, driven by growth in casualty lines which have a higher loss ratio and declines in property lines
which have a lower loss ratio, as well as an updated allocation that more appropriately classified certain claims-related
60
expenses as loss adjustment expenses (previously reported as administrative expenses). This updated allocation increased loss
adjustment expenses (0.6 percentage points for 2017) with an offsetting decrease to administrative expenses. This increase
was partially offset by integration-related expense savings realized of $68 million (0.5 percentage points).
North America Personal P&C Insurance
The North America Personal P&C Insurance segment comprises operations that provide high net worth personal lines products,
including homeowners and complementary products such as valuable articles, excess liability, automobile, and recreational
marine insurance and services in the U.S. and Canada.
(in millions of U.S. dollars, except for percentages)
2018
2017
2016
Net premiums written
Net premiums earned
Losses and loss expenses
Policy acquisition costs
Administrative expenses
Underwriting income (loss)
Net investment income
Other (income) expense
Amortization of purchased intangibles
Segment income
Loss and loss expense ratio
Policy acquisition cost ratio
Administrative expense ratio
Combined ratio
NM – not meaningful
$
4,674
$
4,533
$
4,153
4,593
3,229
4,399
3,265
4,319
2,558
939
269
156
236
1
13
899
264
(29)
226
4
16
966
363
432
207
6
19
$
378
$
177
$
614
2018 vs.
2017
3.1 %
4.4 %
(1.1)%
4.4 %
1.9 %
NM
4.4 %
(75.0)%
(18.8)%
113.6 %
% Change
2017 vs.
2016
9.1 %
1.9 %
27.6 %
(6.9)%
(27.3)%
NM
9.2 %
(33.3)%
(15.8)%
(71.2)%
70.3%
20.4%
5.9%
96.6%
74.2%
20.4%
6.1%
59.2% (3.9)
pts
15.0
22.4%
— pts
8.4% (0.2)
(2.0)
(2.3)
10.7
pts
pts
pts
pts
pts
pts
100.7%
90.0% (4.1)
Premiums
2018 vs. 2017
Net premiums written increased $141 million, or 3.1 percent for 2018, primarily due to strong retention and new business
growth in homeowners and complementary products such as automobiles and valuables. In addition, the non-renewal of a
quota share treaty in the second quarter of 2017 covering the acquired Fireman's Fund homeowners and automobile businesses
added $47 million of additional net premiums written in 2018. These increases were partially offset by the addition of
California to the homeowners quota share reinsurance treaty, effective October 1, 2018 ($47 million), which included a non-
recurring unearned premium reserves (UPR) transfer of $32 million.
Net premiums earned increased $194 million, or 4.4 percent for 2018, primarily due to the factors described above.
2017 vs. 2016
Net premiums written increased $380 million in 2017. On a comparative basis, which includes the 14-day stub period ($100
million), net premiums written increased $280 million reflecting both growth across most lines as well as the non-renewal of a
quota share treaty in 2017 covering the acquired Fireman's Fund homeowners and automobile businesses ($189 million). In
addition, the prior year included a non-recurring unearned premium reserves (UPR) transfer ($128 million) related to the July 1,
2016 purchase of reinsurance for our homeowners and large limit valuable articles business written in the northeast United
States which decreased net premiums written in the prior year. This reinsurance impacted 2017 growth ($126 million) as we
had a full year of coverage in 2017 but only a partial year of coverage in 2016.
Net premiums earned increased $80 million, primarily due to the factors described above.
Combined Ratio
2018 vs. 2017
The loss and loss expense ratio decreased 3.9 percentage points in 2018, primarily due to lower catastrophe losses (6.5
percentage points), lower unfavorable prior period development (0.6 percentage points), and integration-related claims handling
61
expense savings realized. These decreases were offset by increased frequency and severity of homeowners losses primarily non-
catastrophe water related events and large fire losses which are trending above our expectations (3.3 percentage points).
The policy acquisition cost ratio remained flat in 2018. The administrative expense ratio decreased 0.2 percentage points in
2018, primarily due to integration-related expense savings realized that exceeded normal merit and inflation.
2017 vs. 2016
The loss and loss expense ratio increased 15.0 percentage points in 2017, primarily due to higher catastrophe (12.6
percentage points) and non-catastrophe large losses (1.2 percentage points), as well as an updated allocation that more
appropriately classified certain claims-related expenses as loss adjustment expenses (previously reported as administrative
expenses). This updated allocation increased loss adjustment expenses (0.5 percentage points), with an offsetting decrease to
administrative expenses. This increase was partially offset by integration-related claims handling expense savings realized of
$22 million (0.5 percentage points).
The policy acquisition cost ratio decreased 2.0 percentage points in 2017 compared to the prior year which included the net
unfavorable impact from purchase accounting adjustments (1.9 percentage points) related to the Chubb Corp acquisition.
Excluding this adjustment, the policy acquisition cost ratio remained flat as the increase related to the non-renewal of the
Fireman's Fund quota share treaty which had a higher ceded acquisition cost ratio was offset by integration-related expense
savings realized of $7 million (0.2 percentage points).
The administrative expense ratio decreased 2.3 percentage points in 2017, due to integration-related expense savings realized
of $29 million (0.7 percentage points), lower employee benefit-related expenses of $42 million (0.9 percentage points), and the
updated loss expenses and administrative expenses allocation as noted above (0.5 percentage points).
Catastrophe Losses and Prior Period Development
(in millions of U.S. dollars)
Catastrophe losses excluding reinstatement premiums, pre-tax
Unfavorable prior period development net of related adjustments, pre-tax
2018
2017
$
$
611 $
(41) $
871 $
(69) $
2016
326
(27)
Catastrophe losses were primarily from the following events (refer to the table on page 56):
• 2018: Colorado rain and hailstorms, Hurricanes Florence and Michael, California mudslides, and other severe weather-
related events in the U.S. including California wildfires
• 2017: Hurricanes Harvey and Irma and severe weather-related events in the U.S., including California wildfires
• 2016: severe weather-related events in the U.S., including Hurricane Matthew
CAY Loss Ratio Excluding Catastrophe Losses
Loss and loss expense ratio
Catastrophe losses and related adjustments
Prior period development net of related adjustments
CAY loss ratio excluding catastrophe losses
2018
70.3 %
(13.6)%
(0.9)%
55.8 %
2017
74.2 %
(20.1)%
(1.5)%
52.6 %
2016
59.2 %
(7.5)%
(0.7)%
51.0 %
2018 vs. 2017
The CAY loss ratio excluding catastrophe losses increased 3.2 percentage points in 2018, due to increased frequency and
severity of homeowners losses primarily non-catastrophe water related events and large fire losses.
2017 vs. 2016
The CAY loss ratio excluding catastrophe losses increased 1.6 percentage points in 2017 primarily due to higher non-
catastrophe large losses (1.2 percentage points), as well as an updated allocation that more appropriately classified certain
claims-related expenses as loss adjustment expenses (previously reported as administrative expenses). This updated allocation
increased loss adjustment expenses (0.5 percentage points), with an offsetting decrease to administrative expenses. This
increase was partially offset by integration-related claims handling expense savings realized of $22 million (0.5 percentage
points).
62
North America Agricultural Insurance
The North America Agricultural Insurance segment comprises our North American based businesses that provide a variety of
coverages in the U.S. and Canada including crop insurance, primarily Multiple Peril Crop Insurance (MPCI) and crop-hail
through Rain and Hail Insurance Service, Inc. (Rain and Hail) as well as farm and ranch and specialty P&C commercial
insurance products and services through our Chubb Agribusiness unit.
(in millions of U.S. dollars, except for percentages)
2018
2017
2016
Net premiums written
Net premiums earned
Losses and loss expenses (1)
Policy acquisition costs
Administrative expenses
Underwriting income
Net investment income
Other (income) expense
Amortization of purchased intangibles
Segment income
Loss and loss expense ratio
Policy acquisition cost ratio
Administrative expense ratio
Combined ratio
(1)
$ 1,577
$ 1,516
$ 1,328
1,569
1,114
1,508
1,043
1,316
898
79
(9)
385
28
2
28
81
(8)
392
25
2
29
83
(6)
341
20
1
29
$
383
$
386
$
331
2018 vs.
2017
4.0 %
4.1 %
6.8 %
(2.5)%
12.5 %
(1.8)%
12.0 %
% Change
2017 vs.
2016
14.2 %
14.6 %
16.1 %
(2.4)%
33.3 %
15.0 %
25.0 %
—
100.0 %
(3.4)%
(0.8)%
—
16.6 %
71.0 %
5.0 %
(0.5)%
75.5 %
69.2 %
5.4 %
(0.6)%
74.0 %
68.3 %
1.8
6.3 % (0.4)
(0.5)%
74.1 %
0.1
1.5
pts
pts
pts
pts
0.9
(0.9)
(0.1)
(0.1)
pts
pts
pts
pts
Gains (losses) on crop derivatives were $(3) million, $(7) million, and $(5) million in 2018, 2017, and 2016, respectively. These gains (losses) are included in Net realized
gains (losses) in our Consolidated statements of operations but are reclassified to Losses and loss expenses for purposes of presenting North America Agricultural Insurance
underwriting income.
Premiums
2018 vs. 2017
Net premiums written increased $61 million, or 4.0 percent in 2018, primarily due to growth in our MPCI business and growth
in our Chubb Agribusiness. The growth in MPCI premium was driven by policy count growth and the year-over-year impact of
the premium sharing formulas under the U.S. government. Under the MPCI profit and loss calculation, we cede additional
premiums to the government during profitable years. In the prior year, the program was more profitable which resulted in higher
cessions compared to 2018. The increase was partially offset by lower volatility factors, which are a component of the policy
pricing that measures the likelihood the commodity price will fluctuate over the crop year and reduces the premium we charge.
Net premiums earned increased $61 million, or 4.1 percent in 2018, due to the factors described above.
2017 vs. 2016
Net premiums written increased $188 million in 2017, primarily due to an increase in MPCI production and growth in our
Agriculture P&C products. The increase in MPCI premium was driven in part by higher policy count and the year over year
impact of our update to the MPCI margin estimate which resulted in a smaller cession to the U.S. government. Under the
government's crop insurance profit and loss calculation formulas, we retained more premiums in 2017 as losses were higher
compared to 2016.
Net premiums earned increased $192 million in 2017, due to the factors described above.
Combined Ratio
2018 vs. 2017
The loss and loss expense ratio increased 1.8 percentage points in 2018 due to higher catastrophe losses and lower favorable
prior period development.
The policy acquisition cost ratio decreased 0.4 percentage points in 2018 due to lower MPCI reinsurance cessions in the
current year.
63
The administrative expense ratio remained relatively flat in 2018.
2017 vs. 2016
The loss and loss expense ratio increased 0.9 percentage points in 2017 reflecting the revision to the 2017 crop year margin
estimate as discussed above. In addition, the increase was partially offset by higher favorable prior period development.
The policy acquisition cost ratio decreased 0.9 percentage point in 2017, primarily due to lower direct commissions in the
current year and an increase in MPCI net premiums earned.
The administrative expense ratio remained relatively flat in 2017.
Catastrophe Losses and Prior Period Development
(in millions of U.S. dollars)
Catastrophe losses excluding reinstatement premiums, pre-tax
Favorable prior period development net of related adjustments, pre-tax
2018
2017
$
$
21 $
110 $
18 $
119 $
2016
19
72
Catastrophe losses in 2018, 2017, and 2016 were primarily weather-related events in our farm, ranch and specialty P&C
business. Refer to the table on page 56.
Net favorable prior period development was $110 million, $119 million, and $72 million in 2018, 2017, and 2016,
respectively. For 2018, the prior period development amount included $140 million of favorable incurred losses and $10
million of lower acquisition costs due to lower than expected MPCI losses for the 2017 crop year, partially offset by a $40
million decrease in net premiums earned related to the MPCI profit and loss calculation formula. For 2017, the prior period
development amount included $174 million of favorable incurred losses and $11 million of lower acquisition costs due to lower
than expected MPCI losses for the 2016 crop year, partially offset by a $66 million decrease in net premiums earned related to
the MPCI profit and loss calculation formula.
CAY Loss Ratio Excluding Catastrophe Losses
Loss and loss expense ratio
Catastrophe losses and related adjustments
Prior period development net of related adjustments
CAY loss ratio excluding catastrophe losses
2018
71.0 %
(1.3)%
7.0 %
76.7 %
2017
69.2 %
(1.2)%
8.2 %
76.2 %
2016
68.3 %
(1.5)%
5.6 %
72.4 %
2018 vs. 2017
The CAY loss ratio excluding catastrophe losses increased 0.5 percentage points in 2018, primarily due to a less favorable crop
margin in the current year versus 2017, partially offset by lower underlying losses in our Chubb Agribusiness unit.
2017 vs. 2016
The CAY loss ratio excluding catastrophe losses increased 3.8 percentage points in 2017 reflecting the revision to the 2017
crop year margin estimate as discussed above.
64
Overseas General Insurance
Overseas General Insurance segment comprises Chubb International and Chubb Global Markets (CGM). Chubb International
comprises our international commercial P&C traditional and specialty lines serving large corporations, middle market and small
customers; A&H and traditional and specialty personal lines business serving local territories outside the U.S., Bermuda, and
Canada. CGM, our London-based international commercial P&C excess and surplus lines business, includes Lloyd's of London
(Lloyd's) Syndicate 2488. Chubb provides funds at Lloyd's to support underwriting by Syndicate 2488 which is managed by
Chubb Underwriting Agencies Limited.
(in millions of U.S. dollars, except for percentages)
2018
2017
2016
Net premiums written (1)
Net premiums earned
Losses and loss expenses
Policy acquisition costs
Administrative expenses
Underwriting income (2)
Net investment income
Other (income) expense
Amortization of purchased intangibles
Segment income
Loss and loss expense ratio
Policy acquisition cost ratio
Administrative expense ratio
Combined ratio
NM – not meaningful
(1)
$
8,902
$
8,350
$
8,124
8,612
4,429
2,346
1,014
823
619
—
41
8,131
4,281
2,221
982
647
610
(4)
45
8,132
4,005
2,136
1,057
934
600
(11)
48
$
1,401
$
1,216
$
1,497
2018 vs.
2017
% Change
2017 vs.
2016
6.6 %
5.9 %
3.5 %
5.6 %
3.3 %
27.2 %
1.5 %
NM
(8.9)%
15.2 %
2.8 %
—
6.9 %
4.0 %
(7.1)%
(30.7)%
1.7 %
(63.6)%
(6.3)%
(18.8)%
51.4%
27.2%
11.8%
90.4%
52.6%
27.3%
12.1%
92.0%
49.3% (1.2)
26.3% (0.1)
12.9% (0.3)
88.5% (1.6)
pts
pts
pts
pts
3.3
1.0
(0.8)
3.5
pts
pt
pts
pts
On a constant-dollar basis, for the years ended December 31, 2018 and 2017, net premiums written increased $448 million, or 5.3 percent, and increased $229 million,
or 2.8 percent, respectively. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.
(2)
On a constant-dollar basis, for the years ended December 31, 2018 and 2017, underwriting income increased $159 million, or 24.1 percent, and decreased $310 million
or 32.3 percent, respectively. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.
Premiums
2018 vs. 2017
Net premiums written increased $552 million in 2018, or $448 million (5.3 percent) on a constant-dollar basis, reflecting
growth across most regions and lines of business. P&C lines growth ($235 million) was across all regions, principally in small
commercial property and general casualty lines reflecting new business, and in middle market driven by new business and rate
increases. Personal lines growth ($134 million) was principally in our automobile line in Mexico driven by new business, as
well as in our specialty lines in Asia. A&H lines growth ($79 million) was principally in Asia driven by new business.
Net premiums earned increased $481 million in 2018, or $384 million (4.7 percent) on a constant-dollar basis, due to the
factors described above.
2017 vs. 2016
Net premiums written increased $226 million in 2017, or $229 million (2.8 percent) on constant-dollar basis. Excluding the
favorable impact of the 14-day stub period ($215 million), adverse impact of merger-related accounting policy adjustments in
2016 to align the timing of premium recognition ($126 million) and merger-related actions ($131 million), net premiums
written increased $271 million on a constant-dollar basis, driven by growth in personal lines business, primarily from new
automobile business written in Latin America, as well as growth across most P&C lines, primarily in Asia and Latin America.
Net premiums earned remained flat in 2017, and decreased $31 million on a constant-dollar basis, primarily due to a higher
mix of multi-year policies written in the current year in comparison to the growth in net premiums written, as well as from the
merger-related actions described above. These decreases were partially offset by the favorable impact of the 14-day stub
period, as noted above.
65
Net Premiums Written by Region
(in millions of U.S. dollars, except for percentages)
2018
2017
2016
% Change
C$ (1)
2017
2018 vs.
2017
C$ (1)
2018 vs.
2017
2017 vs.
2016
Region
Europe
Latin America
Asia
Other (2)
Net premiums written
Region
Europe
Latin America
Asia
Other (2)
$ 3,508
$ 3,281
$ 3,227
$ 3,440
2,181
2,884
329
2,108
2,596
365
1,992
2,537
368
2,012
2,635
367
6.9 %
3.5 %
11.1 %
2.0 %
8.4 %
9.4 %
(9.9)%
(10.4)%
$ 8,902
$ 8,350
$ 8,124
$ 8,454
6.6 %
5.3 %
1.7 %
5.8 %
2.3 %
(0.8)%
2.8 %
2018
% of Total
2017
% of Total
2016
% of Total
39%
25%
32%
4%
40%
25%
31%
4%
40%
25%
31%
4%
Net premiums written
(1) On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.
(2)
100%
100%
100%
Comprises Combined International, Eurasia and Africa region, and other international.
Combined Ratio
2018 vs. 2017
The loss and loss expense ratio decreased 1.2 percentage points in 2018, reflecting lower catastrophe losses (1.6 percentage
points) and a change in the mix of business towards consumer and property and casualty lines in countries that have a lower
loss ratio and a higher acquisition cost ratio (0.3 percentage points), partially offset by lower favorable prior period development
in the current year (0.6 percentage points).
The policy acquisition cost ratio was relatively flat in 2018.
The administrative expense ratio decreased 0.3 percentage points in 2018, primarily driven by integration-expense savings
realized (0.3 percentage points).
2017 vs. 2016
The loss and loss expense ratio increased 3.3 percentage points in 2017, reflecting higher catastrophe losses and higher non-
catastrophe large losses in the current year (0.2 percentage points), partially offset by a change in the mix of business (0.5
percentage points) towards products and regions that have a lower loss ratio and a higher acquisition cost ratio, integration-
related claims handling expense savings realized of $38 million (0.5 percentage points) and lower favorable prior period
development in the current year (2.1 percentage points).
The policy acquisition cost ratio increased 1.0 percentage point in 2017, compared to the prior year periods, which included
the net favorable impact of initial year purchase accounting adjustments related to the Chubb Corp acquisition (0.3 percentage
points). Excluding this item, the policy acquisition cost ratio increased 0.7 percentage points for the twelve months ended
December 31, 2017, primarily due to a change in the mix of business (0.4 percentage points) towards products and regions
within personal lines which have a higher acquisition cost ratio and a lower loss ratio. In addition, the adverse impact of
aligning accounting policy after the Chubb Corp acquisition in the prior year increased the policy acquisition ratio by 0.2
percentage points. These increases were partially offset by integration-related expense savings realized of $22 million (0.3
percentage points).
The administrative expense ratio decreased 0.8 percentage points in 2017, primarily due to integration-related expense savings
realized of $116 million (1.4 percentage points). This decrease was partially offset by the impact of merit-based salary
increases, inflation, and increased spending to support growth initiatives.
66
Catastrophe Losses and Prior Period Development
(in millions of U.S. dollars)
Catastrophe losses excluding reinstatement premiums, pre-tax
Favorable prior period development net of related adjustments, pre-tax
2018
2017
$
$
206 $
212 $
331 $
252 $
2016
183
423
Catastrophe losses were primarily from the following events (refer to the table on page 56):
• 2018: Typhoons Jebi, Mangkhut and Trami; Hurricane Florence and storms in Australia
• 2017: Hurricanes Harvey, Irma and Maria; Earthquakes in Mexico, Cyclone Debbie in Australia, and flooding in Latin
America
• 2016: severe weather-related events in Europe, earthquakes in Ecuador and New Zealand, and flooding in the U.K.
CAY Loss Ratio Excluding Catastrophe Losses
Loss and loss expense ratio
Catastrophe losses and related adjustments
Prior period development net of related adjustments
CAY loss ratio excluding catastrophe losses
2018
51.4 %
(2.4)%
2.5 %
51.5 %
2017
52.6 %
(4.0)%
3.1 %
51.7 %
2016
49.3 %
(2.3)%
5.2 %
52.2 %
2018 vs. 2017
The CAY loss ratio excluding catastrophe losses decreased 0.2 percentage points in 2018 primarily due to a change in the mix
of business towards consumer and property and casualty lines in countries that have a lower loss ratio and a higher acquisition
cost ratio (0.3 percentage points).
2017 vs. 2016
The CAY loss ratio excluding catastrophe losses decreased 0.5 percentage points in 2017 due to a mix of business (0.5
percentage points) towards products and regions that have a lower loss ratio and a higher acquisition cost ratio and integration-
related claims handling expense savings realized of $38 million (0.5 percentage points), partially offset by higher non-
catastrophe large losses in the current year (0.2 percentage points).
Effective January 1, 2019, we have redomiciled our European headquarters to France, with Paris being the principal office for
our Continental European operations. We have a significant investment in France in both financial and human resources, as well
as a large portfolio of commercial and consumer insurance business throughout the country. Following the anticipated
withdrawal of the UK from the EU, we will continue to have a substantial presence in London in addition to its offices and
operations across the UK and EU. Our primary aim is to ensure a seamless transition and to offer certainty and continuity of
service for all our customers and business partners, regardless of location or the final outcome of the Brexit negotiations. Total
costs incurred in 2018 related to our relocation of European insurance companies, and other Brexit related costs, were $11
million, and the expected costs for 2019 are projected to be immaterial.
67
Global Reinsurance
The Global Reinsurance segment represents our reinsurance operations comprising Chubb Tempest Re Bermuda, Chubb
Tempest Re USA, Chubb Tempest Re International, and Chubb Tempest Re Canada. Global Reinsurance markets its reinsurance
products worldwide primarily through reinsurance brokers under the Chubb Tempest Re brand name and provides a broad range
of traditional reinsurance coverage to a diverse array of primary P&C companies.
(in millions of U.S. dollars, except for percentages)
2018
2017
2016
Net premiums written
Net premiums earned
Losses and loss expenses
Policy acquisition costs
Administrative expenses
Underwriting income (loss)
Net investment income
Other (income) expense
Segment income
Loss and loss expense ratio
Policy acquisition cost ratio
Administrative expense ratio
Combined ratio
NM – not meaningful
$
$
671
670
479
162
41
(12)
257
(32)
$
685
704
561
177
44
(78)
273
(1)
676
710
325
187
52
146
263
(4)
$
277
$
196
$
413
2018 vs.
2017
(2.1)%
(4.9)%
(14.7)%
(8.4)%
(8.4)%
84.8 %
(6.1)%
NM
41.3 %
% Change
2017 vs.
2016
1.4 %
(0.7)%
72.6 %
(5.3)%
(15.4)%
NM
3.8 %
(75.0)%
(52.5)%
71.6%
24.2%
6.0%
79.8%
25.1%
6.3%
45.7% (8.2)
26.3% (0.9)
7.5% (0.3)
101.8%
111.2%
79.5% (9.4)
pts
pts
pts
pts
34.1
(1.2)
(1.2)
31.7
pts
pts
pts
pts
Premiums
2018 vs. 2017
Net premiums written decreased $14 million in 2018, or $22 million (3.3 percent) on a constant-dollar basis, primarily due to
higher reinstatement premiums collected in the prior year principally relating to the 2017 natural catastrophes ($15 million
year-over-year decrease) and lower renewals, which is reflective of competitive market conditions primarily in catastrophe and
catastrophe exposed lines of business, partially offset by new business written in the casualty line of business.
Net premiums earned decreased $34 million in 2018, or $42 million (6.0 percent) on a constant-dollar basis, reflecting the
decrease in net premiums written. The decrease was also due to $14 million of short-term treaties (less than one year in
duration) earned in the prior year that were written in 2016 and 2017.
2017 vs. 2016
Net premiums written increased $9 million in 2017, or $14 million (2.2 percent) on a constant-dollar basis, primarily due to a
$30 million increase in catastrophe reinstatement premiums and the timing of the Chubb Corp acquisition which excluded
approximately $20 million of production generated prior to the Chubb Corp acquisition close on January 14, 2016 (14-day stub
period). These increases were negatively impacted by merger-related actions of $10 million, declining rates and increasing
competition.
Net premiums earned were about flat in 2017, which is approximately in line with the modest increase in net premiums
written.
Combined Ratio
2018 vs. 2017
The loss and loss expense ratio decreased 8.2 percentage points in 2018 principally due to lower catastrophe losses partially
offset by lower favorable prior period development and a shift in the mix of business from property catastrophe business towards
casualty business, which generally has a higher loss ratio.
The policy acquisition cost ratio decreased 0.9 percentage points in 2018 primarily due to lower acquisition expenses from
proportional business sold.
68
The administrative expense ratio decreased 0.3 percentage points in 2018 primarily due to continued expense management.
2017 vs. 2016
The loss and loss expense ratio increased 34.1 percentage points in 2017 primarily due to higher catastrophe losses and an
increase in the loss ratio on our U.S. property business, partially offset by lower favorable prior period development.
The policy acquisition cost ratio decreased 1.2 percentage points in 2017 primarily due to higher net premiums earned from fully
earned catastrophe reinstatement premiums, partially offset by lower profit commissions receivable on our outbound retrocessional
treaties.
The administrative expense ratio decreased 1.2 percentage points in 2017 primarily reflecting expense reductions implemented
to align our cost structure with our premium base and integration-related expense savings realized.
Catastrophe Losses and Prior Period Development
(in millions of U.S dollars)
Catastrophe losses, pre-tax (1)
Favorable prior period development net of related adjustments, pre-tax (2)
(1) Excludes catastrophe reinstatement premiums collected - pre-tax
(2) Net favorable (unfavorable) reinstatement premiums receivable, net of acquisition expenses, on prior period
development - pre-tax
2018
2017
2016
$
$
$
$
205 $
313 $
50 $
22 $
(7) $
59 $
37 $
4 $
91
78
7
(7)
Catastrophe losses were primarily from the following events (refer to table on page 56):
• 2018: Hurricanes Florence and Michael; Typhoons Jebi and Trami; Windstorm Friederike, California Wildfires, and severe
weather-related events in the U.S., Canada and Japan
• 2017: Hurricanes Harvey, Irma and Maria; Northern California Wildfires, and severe weather-related events in the U.S.
• 2016: Fort McMurray wildfire, Hurricane Matthew, and severe weather-related events in Europe, the U.S. and Canada
CAY Loss Ratio Excluding Catastrophe Losses
Loss and loss expense ratio
Catastrophe losses and related adjustments
Prior period development net of related adjustments
CAY loss ratio excluding catastrophe losses
2018
71.6 %
(29.2)%
8.1 %
50.5 %
2017
79.8 %
(42.4)%
8.6 %
46.0 %
2016
45.7 %
(12.5)%
11.8 %
45.0 %
2018 vs. 2017
The CAY loss ratio excluding catastrophe losses increased 4.5 percentage points primarily due to a shift in the mix of business
from property catastrophe business towards casualty business which generally has a higher loss ratio and higher losses in our
U.S. property lines.
2017 vs. 2016
The CAY loss ratio excluding catastrophe losses increased 1.0 percentage point due to an increase in the loss ratio on our U.S.
property business.
69
Life Insurance
The Life Insurance segment comprises Chubb's international life operations, Chubb Tempest Life Re (Chubb Life Re), and the
North American supplemental A&H and life business of Combined Insurance. We assess the performance of our life business
based on Life Insurance underwriting income, which includes Net investment income and (Gains) losses from fair value changes
in separate account assets that do not qualify for separate account reporting under GAAP.
(in millions of U.S. dollars, except for percentages)
Net premiums written
Net premiums earned
Losses and loss expenses
Policy benefits (1)
(Gains) losses from fair value changes in separate account assets (1)
Policy acquisition costs
Administrative expenses
Net investment income
Life Insurance underwriting income
Other (income) expense (1)
Amortization of purchased intangibles
Segment income
NM – not meaningful
2018
2017
2016
$ 2,270 $ 2,141 $ 2,124
2,218
2,101
2,055
766
590
38
557
310
341
298
(12)
2
739
676
(97)
530
303
313
263
13
2
663
588
(11)
509
307
283
282
16
3
% Change
2018 vs.
2017
2017 vs.
2016
6.1 %
5.6 %
3.7 %
(12.7)%
NM
5.1 %
2.3 %
8.9 %
13.3 %
0.8 %
2.2 %
11.5 %
15.0 %
NM
4.1 %
(1.3)%
10.6 %
(6.7)%
NM
—
(18.8)%
(33.3)%
$
308 $
248 $
263
24.2 %
(5.7)%
(1)
(Gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP have been reclassified from Other income
(expense) for purposes of presenting Life Insurance underwriting income. The offsetting movement in the separate account liabilities is included in Policy benefits.
Premiums
2018 vs. 2017
Net premiums written increased $129 million in 2018, or $123 million (5.7 percent) on a constant-dollar basis, primarily due
to growth in our North American Combined Insurance supplemental A&H program business ($73 million), and Asian and Latin
American international life operations ($58 million), partially offset by our life reinsurance business, which continues to decline
as no new life reinsurance business is being written ($8 million).
2017 vs. 2016
Net premiums written increased $17 million in 2017, or $8 million (0.3 percent) on a constant-dollar basis, due to growth in
our Asian international life operations and Combined Insurance supplemental A&H program business. This growth was partially
offset by planned declines in our Latin American operations, reflecting merger-related actions of $37 million, and in our life
reinsurance business, which continues to decline as no new business is being written.
Deposits
The following table presents deposits collected on universal life and investment contracts:
(in millions of U.S. dollars, except for percentages)
2018
2017
2016
% Change
2018 vs.
2017
C$ (1)
2018 vs.
2017
2017 vs.
2016
Deposits collected on universal life and investment
contracts
$ 1,538 $ 1,436 $ 1,006
7.1%
6.0%
42.7%
(1) On a constant-dollar basis. Amounts are calculated by translating prior period results using the same local currency rates as the comparable current period.
Deposits collected on universal life and investment contracts (life deposits) are not reflected as revenues in our Consolidated
statements of operations in accordance with GAAP. New life deposits are an important component of production, and although
they do not significantly affect current period income from operations they are key to our efforts to grow our business. Life
70
deposits collected increased in 2018 due to growth in Korea, Taiwan, and Vietnam. Foreign exchange favorably impacted
growth by $14 million in 2018.
Life deposits collected increased in 2017 due to growth in Taiwan, partially offset by a decline in Korea. Foreign exchange
favorably impacted growth by $25 million in 2017.
Life Insurance underwriting income
Life Insurance underwriting income increased $35 million in 2018 compared to 2017 primarily due to an increase in net
investment income as well as growth as described above.
Life Insurance underwriting income decreased $19 million in 2017 compared to 2016 primarily due to the adverse impact of
updating our long-term benefit ratio in our variable annuity business in 2016 ($48 million). This decrease was partially offset by
higher net investment income as well as improved margins in our international life operations and growth in our Combined
North America operations.
Corporate
Corporate results primarily include the results of our non-insurance companies, income and expenses not attributable to
reportable segments and loss and loss expenses of asbestos and environmental (A&E) liabilities.
Our exposure to A&E claims principally arises out of liabilities acquired when we purchased Westchester Specialty in 1998,
CIGNA’s P&C business in 1999, and legacy Chubb Corp A&E claims in 2016. Corporate staff expenses and net investment
income of Chubb Limited, including the amortization of the fair value adjustment on acquired invested assets and debt, interest
expense, amortization of purchased intangibles related to the Chubb Corp acquisition, Chubb integration expenses and other
merger related expenses and the one-time pension curtailment benefit related to the harmonization of our U.S. pension plans
are reported within Corporate.
(in millions of U.S. dollars, except for percentages)
2018
2017
2016
Losses and loss expenses
Administrative expenses
Underwriting loss
Net investment income (loss)
Interest expense
Adjusted net realized gains (losses)
Other (income) expense
Amortization expense (benefit) of purchased intangibles
Chubb integration expenses
Income tax expense (benefit)
Net loss
NM – not meaningful
$
53 $
285 $
295
348
(209)
641
(649)
(406)
255
59
695
267
552
(283)
607
91
(318)
168
310
(139)
169
183
352
(368)
605
(140)
(217)
(80)
492
815
2018 vs.
2017
(81.4)%
10.5 %
(37.0)%
(26.1)%
5.6 %
NM
27.7 %
51.8 %
% Change
2017 vs.
2016
68.6 %
45.9 %
56.8 %
(23.1)%
0.3 %
NM
46.5 %
NM
(81.0)%
(37.0)%
NM
NM
$
(2,450) $
(1,372) $
(2,475)
78.6 %
(44.6)%
Losses and loss expenses decreased $232 million in 2018 primarily due to lower adverse development related to Brandywine
asbestos and environmental exposures of $134 million compared to $170 million in the prior year as well as favorable
reinsurance settlements in the current year of $205 million. Refer to Note 6 of the Consolidated Financial Statements for further
information.
Losses and loss expenses increased $116 million in 2017 primarily due to higher adverse development related to Brandywine
asbestos and environmental exposures. Additionally, during the fourth quarter of 2016, we amended several of our U.S.
retirement programs as part of a harmonization effort that moved us towards a more unified retirement savings approach. This
resulted in a one-time pension curtailment benefit of $113 million, $23 million of which was related to claims staff and was
71
therefore recorded in losses and loss expenses in the above table. Refer to Note 12 to the Consolidated Financial Statements for
further discussion of the pension curtailment.
Administrative expenses were higher by $28 million in 2018 compared to 2017, primarily due to increased spending to support
overall company growth and higher global advertising expenses.
Administrative expenses were higher by $84 million in 2017 compared to 2016 which included the one-time pension
curtailment benefit in 2016 discussed above, of which $90 million reduced administrative expenses in 2016. This increase
was partially offset by integration-related expense savings ($34 million) and lower post-retirement benefit expenses ($7 million).
Chubb integration expenses are one-time in nature and are not related to the on-going business activities of the segments. The
Chief Executive Officer does not manage segment results or allocate resources to segments when considering these costs and
they are therefore excluded from our definition of segment income. Chubb integration expenses for 2018 were $59 million,
compared to $310 million and $492 million for 2017 and 2016, respectively. These expenses principally consisted of
personnel-related expenses and rebranding ($18 million and $14 million, respectively) in 2018, and personnel-related expenses
($168 million and $181 million) and Consulting fees ($64 million and $125 million) in 2017 and 2016, respectively.
Refer to the respective sections that follow for a discussion of Net investment income, Interest expense, Other (income) expense,
Net realized gains and losses, Amortization of purchased intangibles, and Income tax expense.
Effective income tax rate
Our effective income tax rate reflects a mix of income or losses in jurisdictions with a wide range of tax rates, permanent
differences between US GAAP and local tax laws, and the timing of recording discrete items. A change in the geographic mix of
earnings could impact our effective tax rate.
In 2018, 2017, and 2016, our effective income tax rate was 14.9 percent, (3.7) percent, and 16.5 percent, respectively. The
effective income tax rate in 2018 was favorably impacted by the reduced U.S. Federal income tax rate resulting from the
passage of the Tax Cuts and Jobs Act (2017 Tax Act) and an increase to the provisional benefit recorded related to the impact of
the 2017 Tax Act. The effective income tax rate in 2017 included the favorable income tax benefit of $450 million, which
represented our best estimate of the impact of the 2017 Tax Act. In addition, the income tax benefit in 2017 reflected the
significant catastrophe losses in the year. Refer to Note 7 to the Consolidated Financial Statements for additional information on
the 2017 Tax Act.
The 2017 Tax Act included provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes may be imposed on
income of foreign subsidiaries and for a Base Erosion and Anti-Abuse Tax (BEAT) under which taxes may be imposed on certain
payments to affiliated foreign companies. There remain substantial uncertainties in the interpretation of BEAT and GILTI and the
formal guidance issued to date is still in proposed form. Finalization of the proposed guidance, and changes to the
interpretations and assumptions of these provisions may impact amounts recorded with respect to the international provisions of
the 2017 Tax Act, which may be material in the period the adjustment is recorded.
Our effective income tax rate reflects the lower corporate tax rates that prevailed outside the United States on income attributed
to certain foreign operations, including 7.83 percent in Switzerland, 0.0 percent in Bermuda, and 19.0 percent in the U.K.
During 2018, approximately 51 percent of our total pre-tax income was tax effected based on these lower rates compared with
62 percent and 54 percent in 2017 and 2016, respectively.
72
Non-GAAP Reconciliation
In presenting our results, we included and discussed certain non-GAAP measures. These non-GAAP measures, which may be
defined differently by other companies, are important for an understanding of our overall results of operations and financial
condition. However, they should not be viewed as a substitute for measures determined in accordance with generally accepted
accounting principles (GAAP).
We provide financial measures, including net premiums written, net premiums earned, and underwriting income on a constant-
dollar basis. We believe it is useful to evaluate the trends in these measures exclusive of the effect of fluctuations in exchange
rates between the U.S. dollar and the currencies in which our international business is transacted, as these exchange rates
could fluctuate significantly between periods and distort the analysis of trends. The impact is determined by assuming constant
foreign exchange rates between periods by translating prior period results using the same local currency exchange rates as the
comparable current period.
P&C performance metrics are non-GAAP financial measures and comprise consolidated operating results (including Corporate)
and exclude the operating results of the Life Insurance segment. We believe that these measures are useful and meaningful to
investors as they are used by management to assess the company’s P&C operations which are the most economically similar.
We exclude the Life Insurance segment because the results of this business do not always correlate with the results of our P&C
operations.
The P&C combined ratio is a non-GAAP financial measure and includes the impact of realized gains and losses on crop
derivatives. These derivatives were purchased to provide economic benefit, in a manner similar to reinsurance protection, in the
event that a significant decline in commodity pricing will impact underwriting results. We view gains and losses on these
derivatives as part of the results of our underwriting operations. The P&C combined ratio also excludes the one-time pension
curtailment benefit recognized in 2016.
CAY P&C combined ratio excluding catastrophe losses (CATs) is a non-GAAP financial measure which excludes CATs and prior
period development (PPD). We exclude CATs as they are not predictable as to timing and amount and PPD as these unexpected
loss developments on historical reserves are not indicative of our current underwriting performance. The combined ratio
numerator is adjusted to exclude net premiums earned adjustments on PPD, prior period expense adjustments and
reinstatement premiums on PPD, and the denominator is adjusted to exclude net premiums earned adjustments on PPD and
reinstatement premiums on CATs and PPD. In periods where there are adjustments on loss sensitive policies, these adjustments
are excluded from PPD and net premiums earned when calculating the ratios. We believe this measure provides a better
evaluation of our underwriting performance and enhances the understanding of the trends in our P&C business that may be
obscured by these items. This measure is commonly reported among our peer companies and allows for a better comparison.
Reinstatement premiums are additional premiums paid on certain reinsurance agreements in order to reinstate coverage that
had been exhausted by loss occurrences. The reinstatement premium amount is typically a pro rata portion of the original ceded
premium paid based on how much of the reinsurance limit had been exhausted.
Net premiums earned adjustments within PPD are adjustments to the initial premium earned on retrospectively rated policies
based on actual claim experience that develops after the policy period ends. The premium adjustments correlate to the prior
period loss development on these same policies and are fully earned in the period the adjustments are recorded.
Prior period expense adjustments typically relate to either profit commission reserves or policyholder dividend reserves based on
actual claim experience that develops after the policy period ends. The expense adjustments correlate to the prior period loss
development on these same policies.
P&C combined ratio with expected level of CATs and CAY P&C combined ratio with expected level of CATs are non-GAAP
financial measures which excludes CATs above or below managements' view of typical CATs for that period. An expected level of
CATs is determined based on various factors, including historical experience, seasonal patterns, and consideration of both
modeled CATs (e.g., windstorm and earthquake) as well as non-modeled CATs (e.g., wildfires, floods and freeze). For the years
ended December 31, 2018 and 2017, based on these and other factors, the expected level of CATs was $937 million and
$908 million, respectively, resulting in CATs above expected level of $689 million and $1,838 million, respectively. We believe
that these measures are meaningful and provide a better indication of our underwriting performance as the portion of CATs
intended to be covered by the premiums over time is retained in the calculation. These measures more appropriately align the
numerator with an expected level of CATs to the denominator which includes the net premiums earned on policies with
exposures to that business. The CAY P&C combined ratio with an expected level of CATs excludes PPD as these unexpected loss
developments on historical reserves are not indicative of our current underwriting performance.
73
The following tables present the calculation of combined ratio, as reported for each segment to P&C combined ratio, adjusted
for catastrophe losses (CATs) and PPD:
For the Year Ended
December 31, 2018
(in millions of U.S. dollars except for ratios)
Numerator
Losses and loss expenses
Losses and loss expenses
Realized (gains) losses on crop derivatives
Adjusted losses and loss expenses
Catastrophe losses
PPD and related adjustments
PPD, net of related adjustments - favorable
(unfavorable)
Net premiums earned adjustments on PPD
- unfavorable (favorable)
Expense adjustments - unfavorable
(favorable)
PPD reinstatement premiums - unfavorable
(favorable)
PPD - gross of related adjustments -
favorable (unfavorable)
CAY loss and loss expense ex CATs
Policy acquisition costs and administrative
expenses
Policy acquisition costs and administrative
expenses
Expense adjustments - favorable
(unfavorable)
Policy acquisition costs and administrative
expenses, adjusted
Denominator
Net premiums earned
Reinstatement premiums (collected)
expensed on catastrophe losses
Net premiums earned adjustments on PPD
- unfavorable (favorable)
PPD reinstatement premiums - unfavorable
(favorable)
North
America
Commercial
P&C
Insurance
North
America
Personal
P&C
Insurance
North
America
Agricultural
Insurance
Overseas
General
Insurance
Global
Reinsurance
Corporate
Total P&C
$ 8,000
—
A $ 8,000
(579)
$ 3,229
—
$ 3,229
(611)
$ 1,111
3
$ 1,114
(21)
$4,429
—
$4,429
(206)
$
$
479
—
479
(205)
$
$
53
—
53
—
$17,301
3
$17,304
(1,622)
610
29
7
7
(41)
—
—
1
110
40
(10)
—
212
—
—
4
653
(40)
140
216
50
8
(1)
—
57
(45)
896
—
—
—
77
(4)
12
(45)
981
B $ 8,074
$ 2,578
$ 1,233
$4,439
$
331
$
8
$16,663
C $ 2,795
$ 1,208
$
70
$3,360
$
203
$ 295
$ 7,931
(7)
—
10
—
1
—
4
D $ 2,788
$ 1,208
$
80
$3,360
E $12,402
$ 4,593
$ 1,569
$8,612
$
$
—
29
7
26
—
1
—
40
—
—
—
4
204
$ 295
$ 7,935
670
(22)
8
—
$27,846
4
77
12
$
A/E
C/E
656
4.5%
70.3%
87.0%
71.6%
26.3%
51.4%
71.0%
22.5%
64.5%
$8,616
$ 1,609
$ 4,620
$27,939
F $12,438
Net premiums earned excluding adjustments
P&C Combined ratio
Losses and loss expense ratio
Policy acquisition cost and administrative
expense ratio
P&C Combined ratio
CAY P&C Combined ratio ex CATs
Loss and loss expense ratio, adjusted
Policy acquisition cost and administrative
expense ratio, adjusted
CAY P&C Combined ratio ex CATs
Combined ratio
Combined ratio
Add: impact of gains and losses on crop
derivatives
P&C Combined ratio
Note: The ratios above are calculated using whole U.S. dollars. Accordingly, calculations using rounded amounts may differ. Letters A, B, C, D, E and F included in the table are
references for calculating the ratios above.
101.8%
50.5%
81.6%
55.8%
96.6%
81.9%
39.0%
39.0%
76.7%
30.2%
81.6%
51.5%
22.4%
31.1%
90.5%
26.1%
75.5%
90.4%
87.3%
64.9%
4.9%
D/F
B/F
—
62.1%
28.5%
90.6%
28.4%
88.0%
90.6%
59.6%
90.6%
74
For the Year Ended
December 31, 2017
(in millions of U.S. dollars except for ratios)
Numerator
Losses and loss expenses
Losses and loss expenses
Realized (gains) losses on crop derivatives
Adjusted losses and loss expenses
Catastrophe losses
PPD and related adjustments
PPD, net of related adjustments - favorable
(unfavorable)
Net premiums earned adjustments on PPD
- unfavorable (favorable)
Expense adjustments - unfavorable
(favorable)
PPD reinstatement premiums - unfavorable
(favorable)
PPD - gross of related adjustments -
favorable (unfavorable)
CAY loss and loss expense ex CATs
Policy acquisition costs and administrative
expenses
Policy acquisition costs and administrative
expenses
Expense adjustments - favorable
(unfavorable)
Policy acquisition costs and administrative
expenses, adjusted
Denominator
Net premiums earned
Reinstatement premiums (collected)
expensed on catastrophe losses
Net premiums earned adjustments on PPD
- unfavorable (favorable)
PPD reinstatement premiums - unfavorable
(favorable)
North
America
Commercial
P&C
Insurance
North
America
Personal
P&C
Insurance
North
America
Agricultural
Insurance
Overseas
General
Insurance
Global
Reinsurance
Corporate
Total P&C
$ 8,287
—
A $ 8,287
(1,220)
$3,265
—
$3,265
(871)
$ 1,036
7
$ 1,043
(18)
$ 4,281
—
$ 4,281
(331)
$
$
561
—
561
(313)
$ 285
—
$ 285
—
$17,715
7
$17,722
(2,753)
746
42
6
9
(69)
—
—
—
119
66
(11)
—
—
—
—
252
59
(278)
829
104
(5)
9
—
—
—
(4)
—
—
55
803
(69)
174
252
(278)
937
B $ 7,870
$2,325
$ 1,199
$ 4,202
$
303
$
7
$15,906
C $ 2,854
$1,163
$
73
$ 3,203
$
221
$ 267
$ 7,781
(6)
—
11
—
—
—
5
D $ 2,848
$1,163
$
84
$ 3,203
E $12,191
$4,399
$ 1,508
$ 8,131
$
$
4
42
9
22
—
—
—
66
—
4
—
—
221
$ 267
$ 7,786
704
(37)
(4)
—
$26,933
(7)
104
9
$
A/E
C/E
663
4.8%
26.5%
69.2%
74.2%
79.8%
52.6%
68.0%
23.4%
$4,421
$ 8,135
$ 1,574
$27,039
F $12,246
91.4% 100.7%
Net premiums earned excluding adjustments
P&C Combined ratio
Losses and loss expense ratio
Policy acquisition cost and administrative
expense ratio
P&C Combined ratio
CAY P&C Combined ratio ex CATs
Loss and loss expense ratio, adjusted
Policy acquisition cost and administrative
expense ratio, adjusted
CAY P&C Combined ratio ex CATs
Combined ratio
Combined ratio
Add: impact of gains and losses on crop
derivatives
P&C Combined ratio
Note: The ratios above are calculated using whole U.S. dollars. Accordingly, calculations using rounded amounts may differ. Letters A, B, C, D, E and F included in the table are
references for calculating the ratios above.
111.2%
33.2%
31.4%
23.2%
79.2%
91.0%
52.6%
78.9%
26.3%
64.3%
92.0%
87.5%
51.7%
39.3%
46.0%
74.0%
81.5%
76.2%
39.4%
5.3%
D/F
B/F
—
58.8%
28.8%
87.6%
28.9%
94.7%
94.7%
94.7%
65.8%
75
Adjusted interest expense and adjusted net investment income are non-GAAP financial measures which exclude amortization of
the fair value adjustment on assumed long-term debt and acquired invested assets, respectively, related to the Chubb Corp
acquisition due to the size and complexity of this acquisition. Refer to the Interest Expense section for a reconciliation of interest
expense to adjusted interest expense.
The following table presents a reconciliation of the 2019 quarterly expected net investment income range to the 2019 quarterly
expected adjusted net investment income range:
(in millions of U.S. dollars)
Expected net investment income range, pre-tax
Expected amortization expense of the fair value adjustment on acquired invested assets, pre-tax
Expected adjusted net investment income range, pre-tax
2019
Per Quarter
$825 to $835
$55
$880 to $890
"2016 Comparative basis" is the combined legacy ACE and legacy Chubb Corp results, excluding the impact of the unearned
premium reserves intangible amortization and the elimination of the historical policy acquisition costs as a result of purchase
accounting related to the Chubb Corp acquisition in order to present the underlying profitability of our insurance business for the
entire relevant periods. The combined company results for the year ended December 31, 2016 are inclusive of the first 14 days
of January 2016 (the Chubb Corp acquisition was completed on January 14, 2016). We believe this measure provides visibility
into our results, allows for comparability to our historical results and is consistent with how management evaluates results. The
following tables present a reconciliation of 2016 actual results to "2016 Comparative basis":
(in millions of U.S. dollars)
Net premiums written
2016 Net premiums written
14 day stub period
2016 Comparative basis
Net premiums earned
2016 Net premiums earned
14 day stub period
2016 Comparative basis
(in millions of U.S. dollars)
Loss and loss expenses
North America
Commercial
P&C Insurance
North America
Personal P&C
Insurance
North
America
Agricultural
Insurance
Overseas
General
Insurance
Global
Reinsurance
Life
Insurance
Consolidated
$
$
$
$
11,740
$
4,153
$
1,328
$
8,124
$
676
$
2,124
$ 28,145
519
100
—
215
20
1
855
12,259
$
4,253
$
1,328
$
8,339
$
696
$
2,125
$ 29,000
12,217
$
4,319
$
1,316
$
8,132
$
710
$
2,055
$ 28,749
208
110
—
71
—
2
391
12,425
$
4,429
$
1,316
$
8,203
$
710
$
2,057
$ 29,140
North America
Commercial
P&C Insurance
North
America
Personal P&C
Insurance
North
America
Agricultural
Insurance
Overseas
General
Insurance
Global
Reinsurance
Corporate
Total P&C
2016 Loss and loss expenses
$
7,439
$
2,558
$
893
$
4,005
$
325
$
169
$ 15,389
14 day stub period
(Gain) loss on crop derivatives
Pension curtailment benefit
2016 Comparative basis
Policy acquisition costs
2016 Policy acquisition costs
Amortization of acquired UPR intangible asset
Elimination of deferred acquisition cost benefit
14 day stub period
2016 Comparative basis
Administrative expenses
2016 Administrative expenses
Pension curtailment benefit
14 day stub period
2016 Comparative basis
$
$
$
$
$
127
—
—
53
—
—
—
5
—
42
—
—
—
—
—
—
—
23
222
5
23
7,566
$
2,611
$
898
$
4,047
$
325
$
192
$ 15,639
2,023
$
966
$
83
$
2,136
$
187
$
— $ 5,395
(859)
729
33
(492)
406
14
—
—
—
(208)
238
13
—
—
—
—
—
—
(1,559)
1,373
60
1,926
$
894
$
83
$
2,179
$
187
$
— $ 5,269
1,125
$
363
$
(6) $
1,057
$
52
$
183
$ 2,774
—
35
—
13
—
—
—
12
—
—
90
3
90
63
1,160
$
376
$
(6) $
1,069
$
52
$
276
$ 2,927
76
Net Investment Income
(in millions of U.S. dollars, except for percentages)
Average invested assets
Net investment income (1)
Yield on average invested assets
Market yield on fixed maturities
2018
101,453
3,305
$
$
$
$
2017
99,675
3,125
$
$
2016
96,656
2,865
3.3%
3.7%
3.1%
2.9%
3.0%
2.8%
(1)
Includes $248 million, $332 million and $393 million of amortization expense related to the fair value adjustment of acquired invested assets related to the Chubb Corp
acquisition in 2018, 2017 and 2016, respectively.
Net investment income is influenced by a number of factors including the amounts and timing of inward and outward cash
flows, the level of interest rates, and changes in overall asset allocation. Net investment income increased 5.8 percent in 2018
compared with 2017, primarily due to higher reinvestment rates offset by lower private equity distributions. Net investment
income increased 9.1 percent in 2017 compared with 2016, primarily reflecting higher private equity distributions that
included a $44 million final distribution from a co-investment with one of our private equity fund partners and a higher overall
invested asset base. Refer to Note 2 g) to the Consolidated Financial Statements for additional information.
Net Realized and Unrealized Gains (Losses)
We take a long-term view with our investment strategy, and our investment managers manage our investment portfolio to
maximize total return within certain specific guidelines designed to minimize risk. The majority of our investment portfolio is
available for sale and reported at fair value. Our held to maturity investment portfolio is reported at amortized cost. The effect of
market movements on our fixed maturities portfolio impacts Net income (through Net realized gains (losses)) when securities
are sold or when we record an Other-than-temporary impairment (OTTI) charge. For a further discussion related to how we
assess OTTI for our fixed maturities, including credit-related OTTI, and the related impact on Net income, refer to Note 2 c) to
the Consolidated Financial Statements. Effective January 1, 2018, we adopted new accounting guidance that requires the effect
of changes in fair value of equity securities and cost-method private equity securities to be recognized immediately in Net
income (through realized gains (losses)). Additionally, Net income is impacted through the reporting of changes in the fair value
of derivatives, including financial futures, options, swaps, and GLB reinsurance. Changes in unrealized appreciation and
depreciation on available for sale securities resulting from the revaluation of securities held, changes in cumulative foreign
currency translation adjustment, and unrealized postretirement benefit obligations liability adjustment, are reported as separate
components of Accumulated other comprehensive income (loss) in Shareholders’ equity in the Consolidated balance sheets.
Net
Realized
Gains
(Losses)
Net
Unrealized
Gains
(Losses)
2018
Net
Impact
Net
Realized
Gains
(Losses)
Net
Unrealized
Gains
(Losses)
Net
Impact
$
(302) $ (1,996) $ (2,298) $
(31) $
537 $
506 $
(in millions of U.S. dollars)
Fixed maturities
Fixed income and equity derivatives
Public equity
Private equity
Mark-to-market on public and private equity
Total investment portfolio
Variable annuity reinsurance derivative
transactions, net of applicable hedges
Other derivatives
Foreign exchange
Other
(75)
70
121
(255)
(441)
(252)
(3)
131
(87)
—
—
—
—
(75)
70
121
(255)
(1,996)
(2,437)
—
—
(802)
(321)
(252)
(3)
(671)
(408)
(11)
16
(11)
—
(37)
103
(5)
36
(13)
Year Ended December 31
2017
2016
Net
Realized
Gains
(Losses)
(163)
(33)
44
(4)
—
—
88
8
—
(11)
104
(3)
—
633
596
(156)
—
—
471
(16)
103
(5)
507
(29)
(83)
(10)
118
(14)
Net gains (losses), pre-tax
$
(652) $ (3,119) $ (3,771) $
84 $
1,088 $ 1,172 $
(145)
77
For the year ended December 31, 2018, other-than-temporary impairments in Net realized gains (losses) include $49 million
for fixed maturities. For the year ended December 31, 2017, other-than-temporary impairments in Net realized gains (losses)
include $23 million for fixed maturities, $10 million for public equity, and $12 million for private equity. For the year ended
December 31, 2016, other-than-temporary impairments in Net realized gains (losses) include $81 million for fixed maturities,
$8 million for public equity, and $14 million for private equity.
The unrealized loss in fixed maturities of $2.0 billion, pre-tax, is principally driven by rising interest rates. Other net realized
gains (losses) for the year ended December 31, 2018, included a $36 million loss from the extinguishment of debt as
discussed in Note 8 to the Consolidated Financial Statements, a $24 million loss related to lease impairments, and a $23
million loss related to the impairment of fixed assets.
The variable annuity reinsurance derivative transactions resulted in realized gains (losses), due to the (increase) decrease in the
fair value of GLB liabilities of $(248) million, $364 million, and $50 million for the years ended December 31, 2018, 2017,
and 2016, respectively. The realized losses in 2018 reflected an increase in the fair value of GLB liabilities due to lower global
equity market levels, the impact of discounting future claims for one less year and changes made to our valuation model relating
to policyholder behavior. The realized gains in 2017 and 2016 reflected a decrease in the fair value of GLB liabilities due to
higher global equity market levels and changes in assumptions on policyholder behavior, partially offset by the unfavorable
impact of discounting future claims for one less year. Additionally, the realized gain in 2017 was also due to changes in interest
rates assumptions.
As part of our loss mitigation strategy for our GLB exposures, we maintain positions in derivative instruments that decrease in
fair value when the S&P 500 index increases. During the years ended December 31, 2018, 2017, and 2016, we experienced
realized losses of $(4) million, $(261) million, and $(136) million, respectively, related to these derivative instruments.
Amortization of purchased intangibles and Other amortization
Amortization expense related to purchased intangibles were $339 million, $260 million, and $19 million for the years ended
December 31, 2018, 2017, and 2016, respectively. The increase in amortization expense of purchased intangibles in 2018
and 2017 compared to 2016, primarily reflects a lower amortization benefit from the fair value adjustment on acquired Unpaid
losses and loss expenses related to the Chubb Corp acquisition. The amortization of purchased intangibles is expected to be an
expense of $298 million, or approximately $75 million each quarter, in 2019. Refer to Note 5 to the Consolidated Financial
Statements under Item 8.
Reduction of deferred tax liability associated with intangible assets related to Other intangible assets (excluding the fair value
adjustment on Unpaid losses and loss expense)
At December 31, 2018, the deferred tax liability associated with the Other intangible assets (excluding the fair value
adjustment on Unpaid losses and loss expenses) was $1,360 million.
The following table presents, as of December 31, 2018, the expected reduction to the deferred tax liability associated with
Other intangible assets (which reduces as agency distribution relationships and renewal rights, and other intangible assets
amortize), at current foreign currency exchange rates for the next five years:
For the Years Ending December 31
(in millions of U.S. dollars)
2019
2020
2021
2022
2023
Total
78
Reduction to deferred tax
liability associated with
intangible assets
$
$
80
70
63
57
53
323
Amortization of the fair value adjustment on acquired invested assets and assumed long-term debt
The following table presents at December 31, 2018, the expected amortization expense of the fair value adjustment on
acquired invested assets, at current foreign currency exchange rates, and the expected amortization benefit from the
amortization of the fair value adjustment on assumed long-term debt for the next five years as follows:
For the Years Ending December 31
(in millions of U.S. dollars)
2019
2020
2021
2022
2023
Total
Acquired invested
assets (1)
Assumed long-term
debt (2)
$
$
(225) $
(200)
(95)
—
—
(520) $
21
21
21
21
21
105
(1)
Recorded as a reduction to Net investment income in the Consolidated statements of operations.
(2) Recorded as a reduction to Interest expense in the Consolidated statements of operations.
The estimate of amortization expense of the fair value adjustment on acquired invested assets could vary materially based on
current market conditions, bond calls, overall duration of the acquired investment portfolio, and foreign exchange.
Interest Expense
The following table presents our pre-tax interest expense for the years ended December 31, 2018 and 2017. Also presented
below is our estimated pre-tax interest expense for the year ended December 31, 2019 based on our existing debt obligations
and fees based on our expected usage of certain facilities.
(in millions of U.S. dollars)
Fixed interest expense based on
outstanding debt
Variable interest expense based on
expected usage
Adjusted interest expense
$
$
Amortization of the fair value of
debt assumed in the Chubb Corp
acquisition
Total interest expense, including
amortization of the fair value of debt $
First
Quarter
2019
Second
Quarter
2019
Third
Quarter
2019
Fourth
Quarter
2019
Full Year
2019
Full Year
2018
Full Year
2017
Estimated Interest Expense
Actual Interest Expense
124 $
123 $
116 $
117 $
480 $
520 $
560
22
25
26
27
100
154
146 $
148 $
142 $
144 $
580 $
674 $
96
656
(5)
(5)
(5)
(6)
(21)
(33)
(49)
141 $
143 $
137 $
138 $
559 $
641 $
607
Estimated 2019 fixed interest expense assumes that the $500 million 5.9 percent senior note, due June 15, 2019, matured
and was fully paid. Estimated variable interest expense is based on expected usage and current interest rates and may fluctuate.
Investments
Our investment portfolio is invested primarily in publicly traded, investment grade, fixed income securities with an average
credit quality of A/Aa as rated by the independent investment rating services Standard and Poor’s (S&P)/ Moody’s Investors
Service (Moody’s). The portfolio is externally managed by independent, professional investment managers and is broadly
diversified across geographies, sectors, and issuers. Other investments principally comprise direct investments, investment
funds, and limited partnerships. We hold no collateralized debt obligations in our investment portfolio, and we provide no credit
default protection. We have long-standing global credit limits for our entire portfolio across the organization. Exposures are
aggregated, monitored, and actively managed by our Global Credit Committee, comprising senior executives, including our Chief
Financial Officer, our Chief Risk Officer, our Chief Investment Officer, and our Treasurer. We also have well-established, strict
79
contractual investment rules requiring managers to maintain highly diversified exposures to individual issuers and closely
monitor investment manager compliance with portfolio guidelines.
The average duration of our fixed income securities, including the effect of options and swaps, was 3.7 years and 4.2 years at
December 31, 2018 and 2017, respectively. We estimate that a 100 basis point (bps) increase in interest rates would reduce
the valuation of our fixed income portfolio by approximately $3.5 billion at December 31, 2018.
The following table shows the fair value and cost/amortized cost of our invested assets:
(in millions of U.S. dollars)
Fixed maturities available for sale
Fixed maturities held to maturity
Short-term investments
Equity securities (1)
Other investments (1)
Total investments
December 31, 2018
December 31, 2017
Fair
Value
$
78,470 $
Cost/
Amortized
Cost
79,323 $
Fair
Value
78,939 $
Cost/
Amortized
Cost
77,835
13,259
3,016
94,745
770
5,277
13,435
3,016
95,774
770
5,277
14,474
3,561
96,974
937
4,672
14,335
3,561
95,731
737
4,417
$
100,792 $
101,821 $
102,583 $
100,885
(1)
Effective Q1 2018, we adopted new accounting guidance that requires any changes in fair value of equity securities and other investments that are accounted for under the
cost-method to be recognized immediately in net income. Therefore, the amortized cost of these investments is equal to their fair value at December 31, 2018.
The fair value of our total investments decreased $1.8 billion during the year ended December 31, 2018, primarily due to
unrealized depreciation driven by rising interest rates, the payment of dividends on our Common Shares, share repurchases,
and unfavorable foreign currency movement. This decrease was partially offset by the investing of operating cash flows and the
investing of net proceeds from the debt issuance, net of debt repayment.
The following tables present the market value of our fixed maturities and short-term investments at December 31, 2018 and
2017. The first table lists investments according to type and the second according to S&P credit rating:
(in millions of U.S. dollars, except for percentages)
Market Value
% of Total
Market Value
% of Total
December 31, 2018
December 31, 2017
$
4,799
5% $
4,049
Treasury
Agency
Corporate and asset-backed securities
Mortgage-backed securities
Municipal
Non-U.S.
Short-term investments
Total
AAA
AA
A
BBB
BB
B
Other
Total
80
$
$
528
29,091
18,026
16,327
22,958
3,016
94,745
14,571
36,715
17,253
12,035
8,363
5,596
212
1%
31%
19%
17%
24%
3%
564
27,215
18,032
20,766
22,787
3,561
4%
1%
28%
19%
21%
23%
4%
100% $
96,974
100%
15% $
15,512
39%
18%
13%
9%
6%
—
37,407
18,369
12,377
7,941
5,135
233
16%
39%
19%
13%
8%
5%
—
$
94,745
100% $
96,974
100%
Corporate and asset-backed securities
The following table presents our 10 largest global exposures to corporate bonds by market value at December 31, 2018:
(in millions of U.S. dollars)
Wells Fargo & Co
Bank of America Corp
JP Morgan Chase & Co
Comcast Corp
Goldman Sachs Group Inc
AT&T Inc
HSBC Holdings Plc
Anheuser-Busch InBev NV
Verizon Communications Inc
Morgan Stanley
Mortgage-backed securities
$
Market Value
557
465
443
365
351
340
339
337
331
292
December 31, 2018
(in millions of U.S. dollars)
AAA
AA
A
BBB
BB and
below
Total
Total
Agency residential mortgage-backed (RMBS)
$
— $ 14,686 $
— $
— $
— $ 14,686 $ 14,896
Non-agency RMBS
Commercial mortgage-backed
Total mortgage-backed securities
26
2,809
48
243
68
99
27
—
20
—
189
189
3,151
3,197
$ 2,835 $ 14,977 $
167 $
27 $
20 $ 18,026 $ 18,282
S&P Credit Rating
Market
Value
Amortized
Cost
Municipal
As part of our overall investment strategy, we may invest in states, municipalities, and other political subdivisions fixed maturity
securities (Municipal). We apply the same investment selection process described previously to our Municipal investments. The
portfolio is highly diversified primarily in state general obligation bonds and essential service revenue bonds including education
and utilities (water, power, and sewers).
Non-U.S.
Our exposure to the Euro results primarily from Chubb European Group SE which is headquartered in France and offers a broad
range of coverages throughout the European Union, Central, and Eastern Europe. Chubb primarily invests in Euro denominated
investments to support its local currency insurance obligations and required capital levels. Chubb’s local currency investment
portfolios have strict contractual investment guidelines requiring managers to maintain a high quality and diversified portfolio to
both sector and individual issuers. Investment portfolios are monitored daily to ensure investment manager compliance with
portfolio guidelines.
Our non-U.S. investment grade fixed income portfolios are currency-matched with the insurance liabilities of our non-U.S.
operations. The average credit quality of our non-U.S. fixed income securities is A and 50 percent of our holdings are rated AAA
or guaranteed by governments or quasi-government agencies. Within the context of these investment portfolios, our government
and corporate bond holdings are highly diversified across industries and geographies. Issuer limits are based on credit rating
(AA—two percent, A—one percent, BBB—0.5 percent of the total portfolio) and are monitored daily via an internal compliance
system. We manage our indirect exposure using the same credit rating based investment approach. Accordingly, we do not
believe our indirect exposure is material.
81
The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/
sovereign for non-U.S. government securities at December 31, 2018:
(in millions of U.S. dollars)
United Kingdom
Republic of Korea
Canada
Federative Republic of Brazil
Province of Ontario
Province of Quebec
United Mexican States
Kingdom of Thailand
Commonwealth of Australia
Federal Republic of Germany
Other Non-U.S. Government Securities (1)
Total
(1)
There are no investments in Portugal, Ireland, Italy, Greece or Spain.
Market Value
Amortized Cost
$
1,064 $
1,053
1,055
831
707
644
502
487
460
308
304
950
837
700
648
504
502
439
289
295
4,319
4,306
$
10,681 $
10,523
The following table summarizes the market value and amortized cost of our non-U.S. fixed income portfolio by country/
sovereign for non-U.S. corporate securities at December 31, 2018:
(in millions of U.S. dollars)
United Kingdom
Canada
United States (1)
France
Australia
Netherlands
Germany
Japan
Switzerland
China
Market Value
Amortized Cost
$
1,924 $
1,479
1,141
1,014
823
671
525
484
469
373
1,936
1,506
1,176
1,018
817
674
524
486
474
374
Other Non-U.S. Corporate Securities
Total
3,374
3,411
$
12,277 $
12,396
(1)
The countries that are listed in the non-U.S. corporate fixed income portfolio above represent the ultimate parent company's country of risk. Non-U.S. corporate securities
could be issued by foreign subsidiaries of U.S. corporations.
Below-investment grade corporate fixed income portfolio
Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss
from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally
unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually
have higher levels of debt and are more sensitive to adverse economic conditions, such as recession or increasing interest rates,
than investment grade issuers. At December 31, 2018, our corporate fixed income investment portfolio included below-
investment grade and non-rated securities which, in total, comprised approximately 13 percent of our fixed income portfolio.
Our below-investment grade and non-rated portfolio includes over 1,200 issuers, with the greatest single exposure being $128
million.
We manage high-yield bonds as a distinct and separate asset class from investment grade bonds. The allocation to high-yield
bonds is explicitly set by internal management and is targeted to securities in the upper tier of credit quality (BB/B). Our
minimum rating for initial purchase is BB/B. Ten external investment managers are responsible for high-yield security selection
82
and portfolio construction. Our high-yield managers have a conservative approach to credit selection and very low historical
default experience. Holdings are highly diversified across industries and generally subject to a 1.5 percent issuer limit as a
percentage of high-yield allocation. We monitor position limits daily through an internal compliance system. Derivative and
structured securities (e.g., credit default swaps and collateralized loan obligations) are not permitted in the high-yield portfolio.
Asbestos and Environmental (A&E)
Asbestos and environmental (A&E) reserving considerations
For asbestos, Chubb faces claims relating to policies issued to manufacturers, distributors, installers, and other parties in the
chain of commerce for asbestos and products containing asbestos. Claimants will generally allege damages across an extended
time period which may coincide with multiple policies covering a wide range of time periods for a single insured.
Environmental claims present exposure for remediation and defense costs associated with the contamination of property as a
result of pollution.
The following table presents count information for asbestos claims by causative agent and environmental claims by account, for
direct policies only:
Open at beginning of year
Newly reported/reopened
Closed or otherwise disposed
Open at end of year
(1)
2017 was revised to conform to current year presentation.
Asbestos (by causative agent)
Environmental (by account)
2018
1,789
188
139
1,838
2017 (1)
1,822
166
199
1,789
2018
1,349
149
137
1,361
2017 (1)
1,419
133
203
1,349
Survival ratios are calculated by dividing the asbestos or environmental loss and allocated loss adjustment expense (ALAE)
reserves by the average asbestos or environmental loss and ALAE payments for the three most recent calendar years (3-year
survival ratio). The 3-year survival ratios for gross and net Asbestos loss and ALAE reserves were 4.4 years and 4.9 years,
respectively. The 3-year survival ratios for gross and net Environmental loss and ALAE reserves were 5.4 years and 17.6 years,
respectively. The net 3-year survival ratios were impacted by favorable reinsurance settlements in 2018. Excluding the
settlements, the 3-year survival ratio for net Asbestos loss and ALAE reserves and net Environmental loss and ALAE reserves
were 4.7 years and 5.7 years, respectively. Refer to the PPD section in Note 6 to the consolidated financial statements for
additional information on the settlements. The survival ratios provide only a very rough depiction of reserves and are
significantly impacted by a number of factors such as aggressive settlement practices, variations in gross to ceded relationships
within the asbestos or environmental claims, and levels of coverage provided. We, therefore, urge caution in using these very
simplistic ratios to gauge reserve adequacy.
83
Catastrophe Management
We actively monitor and manage our catastrophe risk accumulation around the world such as setting risk limits based on
probable maximum loss (PML) and purchasing catastrophe reinsurance. The table below presents our modeled pre-tax
estimates of natural catastrophe PML, net of reinsurance, at December 31, 2018, for Worldwide, U.S. hurricane and California
earthquake events, based on our in-force portfolio at October 1, 2018 and reflecting the April 1, 2018 reinsurance program
(see Natural Catastrophe Property Reinsurance Program section) as well as inuring reinsurance protection coverages. According
to the model, for the 1-in-100 return period scenario, there is a one percent chance that our annual aggregate losses incurred in
any year from U.S. hurricane events could be in excess of $2,730 million (or 5.4 percent of our total shareholders’ equity at
December 31, 2018).
Worldwide (1)
Annual Aggregate
Modeled Net Probable Maximum Loss (PML)
U.S. Hurricane (2)
Annual Aggregate
California Earthquake (3)
Single Occurrence
(in millions of U.S. dollars, except
for percentages)
Chubb
% of Total
Shareholders’
Equity
Chubb
% of Total
Shareholders’
Equity
Chubb
% of Total
Shareholders’
Equity
1-in-10
1-in-100
1-in-250
$
$
$
1,884
3,880
6,195
3.7% $
7.7% $
12.3% $
1,078
2,730
4,830
2.1% $
5.4% $
9.6% $
128
1,361
1,493
0.3%
2.7%
3.0%
(1) Worldwide losses are comprised of losses arising only from hurricanes, typhoons, convective storms and earthquakes and do not include “non-modeled” perils such as
wildfire and flood.
(2) U.S. Hurricane losses include losses from wind and storm-surge and exclude rainfall.
(3) California earthquakes include fire-following perils.
The above estimates of Chubb’s loss profile are inherently uncertain for many reasons, including the following:
• While the use of third-party catastrophe modeling packages to simulate potential hurricane and earthquake losses is
prevalent within the insurance industry, the models are reliant upon significant meteorology, seismology, and engineering
assumptions to estimate catastrophe losses. In particular, modeled catastrophe events are not always a representation of
actual events and ensuing additional loss potential;
• There is no universal standard in the preparation of insured data for use in the models, the running of the modeling
software and interpretation of loss output. These loss estimates do not represent our potential maximum exposures and it is
highly likely that our actual incurred losses would vary materially from the modeled estimates; and
• The potential effects of climate change add to modeling complexity.
Natural Catastrophe Property Reinsurance Program
Chubb’s core property catastrophe reinsurance program provides protection against natural catastrophes impacting its primary
property operations (i.e., excluding our Global Reinsurance and Life Insurance segments).
We regularly review our reinsurance protection and corresponding property catastrophe exposures. This may or may not lead to
the purchase of additional reinsurance prior to a program’s renewal date. In addition, prior to each renewal date, we consider
how much, if any, coverage we intend to buy and we may make material changes to the current structure in light of various
factors, including modeled PML assessment at various return periods, reinsurance pricing, our risk tolerance and exposures, and
various other structuring considerations.
Chubb renewed its Global Property Catastrophe Reinsurance Program for our North American and International operations
effective April 1, 2018 through March 31, 2019, with no significant change in coverage from the expiring program. The
program consists of three layers in excess of losses retained by Chubb on a per occurrence basis. In addition, Chubb also
renewed its terrorism coverage (excluding nuclear, biological, chemical and radiation coverage, with an inclusion of coverage for
biological and chemical coverage for personal lines) for the United States from April 1, 2018 through March 31, 2019 with the
same limits and retention and percentage placed except that the majority of terrorism coverage is on an aggregate basis above
our retentions without a reinstatement.
84
Natural Catastrophe Property Reinsurance Program
Loss Location
United States
(excluding Alaska and Hawaii)
United States
(excluding Alaska and Hawaii)
United States
(excluding Alaska and Hawaii)
United States
(excluding Alaska and Hawaii)
International
(including Alaska and Hawaii)
International
(including Alaska and Hawaii)
Alaska, Hawaii, and Canada
Layer of Loss
$0 million –
$1.0 billion
$1.0 billion –
$1.25 billion
$1.25 billion –
$2.0 billion
$2.0 billion –
$3.5 billion
$0 million –
$175 million
$175 million –
$925 million
$925 million –
$2.425 billion
Comments
Notes
Losses retained by Chubb
All natural perils and terrorism
All natural perils and terrorism
All natural perils and terrorism
Losses retained by Chubb
All natural perils and terrorism
All natural perils and terrorism
(a)
(b)
(c)
(d)
(a)
(c)
(d)
(a)
(b)
(c)
(d)
Ultimate retention will depend upon the nature of the loss and the interplay between the underlying per risk programs and certain other catastrophe programs purchased by
individual business units. These other catastrophe programs have the potential to reduce our effective retention below the stated levels. We added California to our
Northeast homeowners quota share treaty effective October 1, 2018, which favorably impacted our net liabilities from events in California, such as the wildfires.
These coverages are 20 percent placed with Reinsurers.
These coverages are both part of the same Second layer within the Global Catastrophe Program and are 100 percent placed with Reinsurers. As such, it may be exhausted
in one region and not available in the other.
These coverages are both part of the same Third layer within the Global Catastrophe Program and are 100 percent placed with Reinsurers. As such, it may be exhausted in
one region and not available in the other.
Chubb also has a property catastrophe bond in place that offers additional natural catastrophe protection for certain parts of the
portfolio. The geographic scope of this coverage is from Virginia through Maine. The East Lane VI 2015 bond currently provides
$250 million of coverage as part of a $430 million layer in excess of $2,014 million retention through March 13, 2020.
Political Risk and Credit Insurance
Political risk insurance is a specialized coverage that provides clients with protection against unexpected, catastrophic political
or macroeconomic events, primarily in emerging markets. We participate in this market through our wholly-owned subsidiary
Sovereign Risk Insurance Ltd. (Sovereign), and through a unit of our London-based CGM operation. Chubb is one of the world's
leading underwriters of political risk and credit insurance, has a global portfolio spread across more than 150 countries and is
also a member of the Berne Union. Our clients include financial institutions, national export credit agencies, leading multilateral
agencies, private equity firms and multinational corporations. CGM writes political risk and credit insurance business out of
underwriting offices in London, United Kingdom; Hamburg, Germany; Sao Paulo, Brazil; Singapore; Tokyo, Japan; and in the
U.S. in the following locations: Chicago, Illinois; New York, New York; and Los Angeles, California.
Our political risk insurance provides protection to commercial lenders against defaults on cross border loans, insulates investors
against equity losses, and protects exporters against defaults on contracts. Commercial lenders, our largest client segment, are
covered for missed scheduled loan repayments due to acts of confiscation, expropriation or nationalization by the host
government, currency inconvertibility or exchange transfer restrictions, or war or other acts of political violence. In addition, in
the case of loans to government-owned entities or loans that have a government guarantee, political risk policies cover
scheduled payments against risks of non-payment or non-honoring of government guarantees. Private equity investors and
corporations receive similar coverage to that of lenders, except their equity is protected against financial losses, inability to
repatriate dividends, and physical damage to their operations caused by covered events. Our export contracts protection
provides coverage for both exporters and their financing banks against the risk of contract frustration due to government actions,
including non-payment by governmental entities.
CGM's credit insurance businesses cover losses due to insolvency, protracted default, and political risk perils including export
and license cancellation. Our credit insurance product provides coverage to larger companies that have sophisticated credit risk
management systems, with exposure to multiple customers and that have the ability to self-insure losses up to a certain level
through excess of loss coverage. It also provides coverage to trade finance banks, exporters, and trading companies, with
85
exposure to trade-related financing instruments. CGM also has limited capacity for Specialist Credit insurance products which
provide coverage for project finance and working capital loans for large corporations and banks.
We have implemented structural features in our policies in order to control potential losses within the political risk and credit
insurance businesses. These include basic loss sharing features that include co-insurance and deductibles, and in the case of
trade credit, the use of non-qualifying losses that drop smaller exposures deemed too difficult to assess. Ultimate loss severity is
also limited by using waiting periods to enable the insurer and insured to agree on recovery strategies, and the subrogation of
the rights of the lender/exporter to the insurer following a claim. We have the option to pay claims over the original loan
payment schedule, rather than in a lump sum in order to provide insureds and the insurer additional time to remedy problems
and work towards full recoveries. It is important to note that political risk and credit policies are named peril conditional
contracts, not financial guarantees, and claims are only paid after conditions and warranties are fulfilled. Political risk and credit
insurance do not cover currency devaluations, bond defaults, movements in overseas equity markets, transactions deemed
illegal, situations where corruption or misrepresentation has occurred, or debt that is not legally enforceable. In addition to
assessing and mitigating potential exposure on a policy-by-policy basis, we also have specific risk management measures in
place to manage overall exposure and risk. These measures include placing country, credit, and individual transaction limits
based on country risk and credit ratings, combined single loss limits on multi-country policies, the use of reinsurance protection
as well as quarterly modeling and stress-testing of the portfolio. We have a dedicated Country and Credit Risk management
team that are responsible for the portfolio.
Crop Insurance
We are, and have been since the 1980s, one of the leading writers of crop insurance in the U.S. and have conducted that
business through a managing general agent subsidiary of Rain and Hail. We provide protection throughout the U.S. on a variety
of crops and are therefore geographically diversified, which reduces the risk of exposure to a single event or a heavy
accumulation of losses in any one region. Our crop insurance business comprises two components - Multiple Peril Crop
Insurance (MPCI) and crop-hail insurance.
The MPCI program, offered in conjunction with the U.S. Department of Agriculture’s Risk Management Agency (RMA), is a
federal subsidized insurance program that covers revenue shortfalls or production losses due to natural causes such as drought,
excessive moisture, hail, wind, freeze, insects, and disease. These Revenue Products are defined as providing both commodity
price and yield coverages. Policies are available for various crops in different areas of the U.S. and generally have deductibles
generally ranging from 10 percent to 50 percent of the insured's risk. The USDA's Risk Management Agency (RMA) sets the
policy terms and conditions, rates and forms, and is also responsible for setting compliance standards. As a participant in the
MPCI program, we report all details of policies to the RMA and are party to a Standard Reinsurance Agreement (SRA). The SRA
sets out the relationship between private insurance companies and the Federal Crop Insurance Corporation (FCIC) concerning
the terms and conditions regarding the risks each will bear including the pro-rata and state stop-loss provisions, which allows
companies to limit the exposure of any one state or group of states on their underwriting results. In addition to the pro-rata and
excess of loss reinsurance protections inherent in the SRA, we also purchase third-party proportional and stop-loss reinsurance
for our MPCI business to reduce our exposure. We may also enter into crop derivative contracts to further manage our risk
exposure.
Each year the RMA issues a final SRA for the subsequent reinsurance year (i.e., the 2019 SRA covers the 2019 reinsurance
year from July 1, 2018 through June 30, 2019). There were no significant changes in the terms and conditions to the 2019
SRA and therefore, the new SRA does not impact Chubb's outlook on the crop program relative to 2019.
We recognize net premiums written as soon as estimable on our MPCI business, which is generally when we receive acreage
reports from the policyholders on the various crops throughout the U.S. This allows us to best determine the premium
associated with the liability that is being planted. The MPCI program has specific timeframes as to when producers must report
acreage to us and in certain cases, the reporting occurs after the close of the respective reinsurance year. Once the net premium
written has been recorded, the premium is then earned over the growing season for the crops. A majority of the crops that are
covered in the program are typically subject to the SRA in effect at the beginning of the year. Given the major crops covered in
the program, we typically see a substantial written and earned premium impact in the second and third quarters.
The pricing of MPCI premium is determined using a number of factors including commodity prices and related volatility (i.e.,
both impact the amount of premium we can charge to the policyholder). For example, in most states, the pricing for the MPCI
Revenue Product for corn (i.e., insurance coverage for lower than expected crop revenue in a given season) includes a factor
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based on the average commodity price in February. If corn commodity prices are higher in February, compared to the February
price in the prior year, and all other factors are the same, the increase in price will increase the corn premium year-over-year.
Pricing is also impacted by volatility factors, which measure the likelihood commodity prices will fluctuate over the crop year.
For example, if volatility is set at a higher rate compared to the prior year, and all other factors are the same, the premium
charged to the policyholder will be higher year-over-year for the same level of coverage.
Losses incurred on the MPCI business are determined using both commodity price and crop yield. With respect to commodity
price, there are two important periods on a large portion of the business: The month of February when the initial premium base
is set, and the month of October when the final harvest price is set. If the price declines from February to October, with yield
remaining at normal levels, the policyholder may be eligible to recover on the policy. However, in most cases there are
deductibles on these policies, therefore, the impact of a decline in price would have to exceed the deductible before a
policyholder would be eligible to recover.
We evaluate our MPCI business at an aggregate level and the combination of all of our insured crops (both winter and summer)
go into our underwriting gain or loss estimate in any given year. Typically, we do not have enough information on the harvest
prices or crop yield outputs to quantify the preliminary estimated impact to our underwriting results until the fourth quarter.
Our crop-hail program is a private offering. Premium is earned on the crop-hail program over the coverage period of the policy.
Given the very short nature of the growing season, most crop-hail business is typically written in the second and third quarters
and the recognition of earned premium is also more heavily concentrated during this timeframe. We use industry data to
develop our own rates and forms for the coverage offered. The policy primarily protects farmers against yield reduction caused
by hail and/or fire, and related costs such as transit to storage. We offer various deductibles to allow the grower to partially self-
insure for a reduced premium cost. We limit our crop-hail exposures through the use of township liability limits and third-party
reinsurance on our net retained hail business.
Liquidity
Liquidity is a measure of a company's ability to generate cash flows sufficient to meet short-term and long-term cash
requirements. As a holding company, Chubb Limited possesses assets that consist primarily of the stock of its subsidiaries and
other investments. In addition to net investment income, Chubb Limited's cash flows depend primarily on dividends or other
statutorily permissible payments. Historically, these dividends and other payments have come primarily from Chubb's
Bermuda-based operating subsidiaries, which we refer to as our Bermuda subsidiaries. Our consolidated sources of funds
consist primarily of net premiums written, fees, net investment income, and proceeds from sales and maturities of investments.
Funds are used at our various companies primarily to pay claims, operating expenses, and dividends; to service debt; to
purchase investments; and to fund acquisitions.
We anticipate that positive cash flows from operations (underwriting activities and investment income) should be sufficient to
cover cash outflows under most loss scenarios for the near term. Should the need arise, we generally have access to capital
markets and available credit facilities. Refer to “Credit Facilities” below for additional information. Our access to funds under the
existing credit facility is dependent on the ability of the bank that is a party to the facility to meet its funding commitments.
Should our existing credit provider experience financial difficulty, we may be required to replace credit sources, possibly in a
difficult market. If we cannot obtain adequate capital or sources of credit on favorable terms, on a timely basis, or at all, our
business, operating results, and financial condition could be adversely affected. To date, we have not experienced difficulty
accessing our credit facility.
To further ensure the sufficiency of funds to settle unforeseen claims, we hold certain invested assets in cash and short-term
investments. In addition, for certain insurance, reinsurance, or deposit contracts that tend to have relatively large and
reasonably predictable cash outflows, we attempt to establish dedicated portfolios of assets that are duration-matched with the
related liabilities. With respect to the duration of our overall investment portfolio, we manage asset durations to both maximize
return given current market conditions and provide sufficient liquidity to cover future loss payments. At December 31, 2018,
the average duration of our fixed maturities (3.7 years) is less than the average expected duration of our insurance liabilities
(4.1 years).
Despite our safeguards, if paid losses accelerate beyond our ability to fund such paid losses from current operating cash flows,
we might need to either liquidate a portion of our investment portfolio or arrange for financing. Potential events causing such a
liquidity strain could include several significant catastrophes occurring in a relatively short period of time, large uncollectible
reinsurance recoverables on paid losses (as a result of coverage disputes, reinsurers' credit problems, or decreases in the value
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of collateral supporting reinsurance recoverables) or increases in collateral postings under our variable annuity reinsurance
business. Because each subsidiary focuses on a more limited number of specific product lines than is collectively available from
the Chubb Group of Companies, the mix of business tends to be less diverse at the subsidiary level. As a result, the probability
of a liquidity strain, as described above, may be greater for individual subsidiaries than when liquidity is assessed on a
consolidated basis. If such a liquidity strain were to occur in a subsidiary, we could be required to liquidate a portion of our
investments, potentially at distressed prices, as well as be required to contribute capital to the particular subsidiary and/or
curtail dividends from the subsidiary to support holding company operations.
The payment of dividends or other statutorily permissible distributions from our operating companies are subject to the laws
and regulations applicable to each jurisdiction, as well as the need to maintain capital levels adequate to support the insurance
and reinsurance operations, including financial strength ratings issued by independent rating agencies. During 2018, we were
able to meet all of our obligations, including the payments of dividends on our Common Shares, with our net cash flows.
We assess which subsidiaries to draw dividends from based on a number of factors. Considerations such as regulatory and legal
restrictions as well as the subsidiary's financial condition are paramount to the dividend decision. Chubb Limited received
dividends of $75 million and $450 million from its Bermuda subsidiaries in 2018 and 2017, respectively.
The payment of any dividends from CGM or its subsidiaries is subject to applicable U.K. insurance laws and regulations. In
addition, the release of funds by Syndicate 2488 to subsidiaries of CGM is subject to regulations promulgated by the Society of
Lloyd's. Chubb Limited received no dividends from CGM in 2018 and 2017.
The U.S. insurance subsidiaries of Chubb INA may pay dividends, without prior regulatory approval, subject to restrictions set
out in state law of the subsidiary's domicile (or, if applicable, commercial domicile). Chubb INA's international subsidiaries are
also subject to insurance laws and regulations particular to the countries in which the subsidiaries operate. These laws and
regulations sometimes include restrictions that limit the amount of dividends payable without prior approval of regulatory
insurance authorities. Chubb Limited received no dividends from Chubb INA in 2018 and 2017. Debt issued by Chubb INA is
serviced by statutorily permissible distributions by Chubb INA's insurance subsidiaries to Chubb INA as well as other group
resources. Chubb INA received dividends of $5.2 billion and $2.1 billion from its subsidiaries in 2018 and 2017, respectively.
At December 31, 2018, the amount of dividends available to be paid to Chubb INA in 2019 from its subsidiaries without prior
approval of insurance regulatory authorities totals $3.5 billion.
Cash Flows
Our insurance and reinsurance operations provide liquidity in that premiums are received in advance, sometimes substantially in
advance, of the time claims are paid. Generally, cash flows are affected by claim payments that, due to the nature of our
operations, may comprise large loss payments on a limited number of claims and which can fluctuate significantly from period
to period. The irregular timing of these loss payments can create significant variations in cash flows from operations between
periods. Refer to “Contractual Obligations and Commitments” for our estimate of future claim payments by period. Sources of
liquidity include cash from operations, routine sales of investments, and financing arrangements. The following is a discussion
of our cash flows for 2018, 2017, and 2016.
Operating cash flows reflect Net income for each period, adjusted for non-cash items and changes in working capital.
Operating cash flows were $5.5 billion in 2018, compared to $4.5 billion and $5.3 billion in 2017 and 2016, respectively.
Operating cash flow was higher in 2018 compared to 2017, primarily due to higher premiums collected, net of higher
catastrophe loss payments related to the 2017 catastrophe events, and lower taxes paid. The decrease in operating cash flows
of $789 million in 2017 compared to 2016 was principally due to higher claims paid, related to the significant catastrophe
losses during 2017.
Cash used for investing was $2.9 billion in 2018, compared to $2.4 billion and $5.3 billion in 2017 and 2016, respectively.
The current year included higher net private equity contributions, net of distributions received, of $793 million. Cash used for
investing in 2017 was lower compared to 2016 which included cash paid for the purchase of Chubb Corp of $14.3 billion,
largely funded by sales in our investment portfolio, including net proceeds in short-term investments.
Cash used for financing was $2.0 billion in 2018, compared to $2.3 billion in 2017, and $742 million in 2016. Cash used for
financing was lower by $328 million in 2018 compared to 2017. The current year included net proceeds from the issuance of
long-term debt (net of repayments) of $170 million compared to the prior year which had repayments of $501 million. Cash
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used for financing in 2017, which included $801 million of share repurchases and $501 million of repayments of long-term
debt, was higher compared to 2016, which did not have share repurchases or debt repayments.
Both internal and external forces influence our financial condition, results of operations, and cash flows. Claim settlements,
premium levels, and investment returns may be impacted by changing rates of inflation and other economic conditions. In many
cases, significant periods of time, ranging up to several years or more, may lapse between the occurrence of an insured loss, the
reporting of the loss to us, and the settlement of the liability for that loss.
We use repurchase agreements as a low-cost funding alternative. At December 31, 2018, there were $1.4 billion in repurchase
agreements outstanding with various maturities over the next seven months.
In addition to cash from operations, routine sales of investments, and financing arrangements, we have agreements with a third-
party bank provider which implemented two international multi-currency notional cash pooling programs to enhance cash
management efficiency during periods of short-term timing mismatches between expected inflows and outflows of cash by
currency. The programs allow us to optimize investment income by avoiding portfolio disruption. In each program, participating
Chubb entities establish deposit accounts in different currencies with the bank provider. Each day the credit or debit balances in
every account are notionally translated into a single currency (U.S. dollars) and then notionally pooled. The bank extends
overdraft credit to all participating Chubb entities as needed, provided that the overall notionally pooled balance of all accounts
in each pool at the end of each day is at least zero. Actual cash balances are not physically converted and are not commingled
between legal entities. Chubb entities may incur overdraft balances as a means to address short-term liquidity needs. Any
overdraft balances incurred under this program by a Chubb entity would be guaranteed by Chubb Limited (up to $300 million
in the aggregate). Our syndicated letter of credit facility allows for same day drawings to fund a net pool overdraft should
participating Chubb entities withdraw contributed funds from the pool.
Capital Resources
Capital resources consist of funds deployed or available to be deployed to support our business operations.
(in millions of U.S. dollars, except for percentages)
Short-term debt
Long-term debt
Total financial debt
Trust preferred securities
Total shareholders’ equity
Total capitalization
Ratio of financial debt to total capitalization
Ratio of financial debt plus trust preferred securities to total capitalization
December 31
2018
509
$
December 31
2017
1,013
$
12,087
12,596
308
50,312
$
63,216
$
19.9%
20.4%
11,556
12,569
308
51,172
64,049
19.6%
20.1%
Repurchase agreements are excluded from the table above and are disclosed separately from short-term debt in the
Consolidated balance sheets. The repurchase agreements are collateralized borrowings where we maintain the right and ability
to redeem the collateral on short notice, unlike short-term debt which comprises the current maturities of our long-term debt
instruments.
In April 2018, we redeemed $1.0 billion of 6.375 percent unsecured junior subordinated capital securities with the final
maturity date of March 2067. With the redemption of the capital securities, we no longer have exposures related to our debt
obligations that are tied to the London Interbank Offered Rates (LIBOR). Related to certain of our investment portfolio, we are
monitoring industry efforts via our external investment managers to establish alternatives and transition away from LIBOR by
the end of 2021. Refer to Note 8 to the Consolidated Financial Statements for details about the debt issued and debt
redeemed.
We believe our financial strength provides us with the flexibility and capacity to obtain available funds externally through debt or
equity financing on both a short-term and long-term basis. Our ability to access the capital markets is dependent on, among
other things, market conditions and our perceived financial strength. We have accessed both the debt and equity markets from
time to time. We generally maintain the ability to issue certain classes of debt and equity securities via an unlimited Securities
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and Exchange Commission (SEC) shelf registration which is renewed every three years. This allows us capital market access for
refinancing as well as for unforeseen or opportunistic capital needs. In October 2018, we filed an unlimited shelf registration
which allows us to issue certain classes of debt and equity. This shelf registration expires in October 2021.
Securities Repurchases
From time to time, we repurchase shares as part of our capital management program. Our Board of Directors (Board) has authorized
share repurchase programs as follows:
• $1.0 billion of Chubb Common Shares from November 17, 2016 through December 31, 2017
• $1.0 billion of Chubb Common Shares from January 1, 2018 through December 31, 2018
• $1.5 billion of Chubb Common Shares from December 1, 2018 through December 31, 2019
Share repurchases may be made in the open market, in privately negotiated transactions, block trades, accelerated repurchases
and/or through option or other forward transactions. There were no share repurchases in 2016. In 2017 and 2018, we
repurchased $830 million and $1.02 billion, respectively, of Common Shares in a series of open market transactions under the
Board share repurchase authorizations. The $1.0 billion Board authorization approved in December 2017 remained effective
through December 31, 2018, and was fully utilized before the $1.5 billion December 1, 2018 to December 31, 2019
authorization began being utilized. For the period January 1 through February 27, 2019, we repurchased 1,328,754 Common
Shares for a total of $174 million in a series of open market transactions. At February 27, 2019, $1.30 billion in share
repurchase authorization remained through December 31, 2019.
Common Shares
Our Common Shares had a par value of CHF 24.15 each at December 31, 2018.
As of December 31, 2018, there were 20,580,486 Common Shares in treasury with a weighted average cost of $127.19 per
share.
Under Swiss law, dividends must be stated in Swiss francs though dividend payments are made by Chubb in U.S. dollars.
At our May 2017 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.84
per share, which was paid in four quarterly installments of $0.71 per share at dates determined by the Board after the annual
general meeting by way of a distribution from capital contribution reserves, transferred to free reserves for payment.
At our May 2018 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.92
per share, expected to be paid in four quarterly installments of $0.73 per share after the annual general meeting by way of
distribution from capital contribution reserves, transferred to free reserves for payment. The Board will determine the record and
payment dates at which the annual dividend may be paid until the date of the 2019 annual general meeting, and is authorized
to abstain from distributing a dividend at its discretion. The first three quarterly installments each of $0.73 per share, have
been distributed by the Board as expected.
Dividend distributions on Common Shares amounted to CHF 2.84 ($2.90) per share for the year ended December 31, 2018.
Refer to Note 10 to the Consolidated Financial Statements for additional information on our dividends.
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Contractual Obligations and Commitments
The following table presents our future payments due by period under contractual obligations at December 31, 2018:
(in millions of U.S. dollars)
Payment amounts determinable from the respective contracts
Deposit liabilities (1)
Purchase obligations (2)
Investments, including Limited Partnerships (3)
Operating leases
Repurchase agreements
Short-term debt
Long-term debt (4)
Trust preferred securities
Interest on debt obligations (4)
Total obligations in which payment amounts are determinable from
the respective contracts
Payment amounts not determinable from the respective contracts
Estimated gross loss payments under insurance and reinsurance
contracts
Estimated payments for future policy benefits
Total contractual obligations and commitments
Payments Due By Period
2020
and 2021
2022
and 2023
Thereafter
Total
2019
$
1,937 $
20 $
35 $
61 $ 1,821
510
4,416
820
1,418
509
11,788
309
6,450
177
1,493
173
1,418
509
—
—
473
269
1,208
277
—
—
64
734
186
—
—
1,301
1,475
—
882
—
817
—
981
184
—
—
9,012
309
4,278
28,157
4,263
3,972
3,337
16,585
62,982
17,798
17,524
20,592
963
1,875
8,728
1,632
18,932
16,122
$ 111,731 $ 23,024 $ 23,371 $ 13,697 $ 51,639
(1)
(2)
(3)
(4)
Refer to Note 1 k) to the Consolidated Financial Statements.
Primarily comprises audit fees and agreements with vendors to purchase system software administration and maintenance services.
Funding commitment primarily related to limited partnerships. The timing of the payments of these commitments is uncertain and may differ from the estimated timing in
the table.
Included in debt obligations are €900 million ($1.0 billion calculated using the Euro balance sheet rate as of December 31, 2018) of 1.55 percent Euro denominated
senior notes due March 2028 and €900 million ($1.0 billion calculated using the Euro balance sheet rate as of December 31, 2018) of 2.50 percent Euro denominated
senior notes due March 2038. Incepted on March 7, 2018, these senior notes are subject to foreign exchange fluctuations on interest expense and principal.
The above table excludes the following items:
• Pension obligations: Minimum funding requirements for our pension obligations are immaterial. Subsequent funding
commitments are apt to vary due to many factors and are difficult to estimate at this time. Refer to Note 12 to the
Consolidated Financial Statements for additional information.
• Liabilities for unrecognized tax benefits: The liability for unrecognized tax benefits, excluding interest, was $14 million at
December 31, 2018. We record accruals for interest and penalties, if any, related to unrecognized tax benefits in Income
Tax expense in the Consolidated statements of operations. At December 31, 2018, we had accrued $3 million in liabilities
for income tax-related interest and penalties in our Consolidated balance sheets. We are unable to make a reasonably
reliable estimate for the timing of cash settlement with respect to these liabilities. Refer to Note 7 to the Consolidated
Financial Statements for additional information.
We have no other significant contractual obligations or commitments not reflected in the table above. We do not have any off-
balance sheet arrangements that are reasonably likely to have a material effect on our financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures, or capital resources.
Estimated gross loss payments under insurance and reinsurance contracts
We are obligated to pay claims under insurance and reinsurance contracts for specified loss events covered under those
contracts. Such loss payments represent our most significant future payment obligation as a P&C insurance and reinsurance
company. In contrast to other contractual obligations, cash payments are not determinable from the terms specified within the
contract. For example, we do not ultimately make a payment to our counterparty for many insurance and reinsurance contracts
(i.e., when a loss event has not occurred) and if a payment is to be made, the amount and timing cannot be determined from
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the contract. In the table above, we estimate payments by period relating to our gross liability for unpaid losses and loss
expenses included in the Consolidated balance sheet at December 31, 2018, and do not take into account reinsurance
recoverable. These estimated loss payments are inherently uncertain and the amount and timing of actual loss payments are
likely to differ from these estimates and the differences could be material. Given the numerous factors and assumptions involved
in both estimates of loss and loss expense reserves and related estimates as to the timing of future loss and loss expense
payments in the table above, differences between actual and estimated loss payments will not necessarily indicate a
commensurate change in ultimate loss estimates. The liability for Unpaid losses and loss expenses presented in our balance
sheet is discounted for certain structured settlements for which the timing and amount of future claim payments are reliably
determinable and certain reserves for unsettled claims that are discounted in statutory filings. Accordingly, the estimated
amounts in the table exceed the liability for Unpaid losses and loss expenses presented in our balance sheet. Refer to Note 1 h)
to the Consolidated Financial Statements for additional information.
Estimated payments for future policy benefits
We establish reserves for future policy benefits for life, long-term health, and annuity contracts. The amounts in the table are
gross of fees or premiums due from the underlying contracts. The liability for Future policy benefits for life, long-term health,
and annuity contracts presented in our balance sheet is discounted and reflected net of fees or premiums due from the
underlying contracts. Accordingly, the estimated amounts in the table exceed the liability for Future policy benefits presented in
our balance sheet. Payment amounts related to these reserves must be estimated and are not determinable from the
contract. Due to the uncertainty with respect to the timing and amount of these payments, actual results could materially differ
from the estimates in the table.
Credit Facilities
As our Bermuda subsidiaries are non-admitted insurers and reinsurers in the U.S., the terms of certain U.S. insurance and
reinsurance contracts require them to provide collateral, which can be in the form of letters of credit (LOCs). LOCs may also be
used for general corporate purposes.
On October 25, 2017, we entered into a credit facility that provides for up to $1.0 billion of availability, all of which may be
used for the issuance of LOC and for revolving loans. We have the ability to increase the capacity to $2.0 billion under certain
conditions, but any such increase would not raise the sub-limit for revolving loans above $1.0 billion. Our existing credit facility
has a remaining term expiring in October 2022. At December 31, 2018, our LOC usage was $398 million.
Our access to funds under an existing credit facility is dependent on the ability of the banks that are a party to the facility to
meet their funding commitments. In the event that such credit support is insufficient, we could be required to provide
alternative security to clients. This could take the form of additional insurance trusts supported by our investment portfolio or
funds withheld using our cash resources. The value of LOCs required is driven by, among other things, statutory liabilities
reported by variable annuity guarantee reinsurance clients, loss development of existing reserves, the payment pattern of such
reserves, the expansion of business, and loss experience of such business.
The facility noted above requires that we maintain certain covenants, all of which have been met at December 31, 2018.
These covenants include:
(i) a minimum consolidated net worth of not less than $34.985 billion; and
(ii) a ratio of consolidated debt to total capitalization of not greater than 0.35 to 1.
At December 31, 2018, (a) the minimum consolidated net worth requirement under the covenant described in (i) above was
$34.985 billion and our actual consolidated net worth as calculated under that covenant was $52.8 billion and (b) our ratio of
debt to total capitalization, as calculated under the covenant which excludes the fair value adjustment of debt acquired through
the Chubb Corp acquisition, was 0.20 to 1, which is below the maximum debt to total capitalization ratio of 0.35 to 1 as
described in (ii) above.
Our failure to comply with the covenants under any credit facility would, subject to grace periods in the case of certain
covenants, result in an event of default. This could require us to repay any outstanding borrowings or to cash collateralize LOCs
under such facility. Our failure to repay material financial obligations, as well as our failure with respect to certain other events
expressly identified, would result in an event of default under the facility.
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Should our existing credit provider experience financial difficulty, we may be required to replace credit sources, possibly in a
difficult market. If we cannot obtain adequate capital or sources of credit on favorable terms, on a timely basis, or at all, our
business, operating results, and financial condition could be adversely affected. To date, we have not experienced difficulty
accessing our credit facility.
Ratings
Chubb Limited and its subsidiaries are assigned credit and financial strength (insurance) ratings from internationally recognized
rating agencies, including S&P, A.M. Best, Moody's, and Fitch. The ratings issued on our companies by these agencies are
announced publicly and are available directly from the agencies. Our Internet site (investors.chubb.com, under Shareholder
Resources/Rating Agency Ratings) also contains some information about our ratings, but such information on our website is not
incorporated by reference into this report.
Financial strength ratings reflect the rating agencies' opinions of a company's claims paying ability. Independent ratings are one
of the important factors that establish our competitive position in the insurance markets. The rating agencies consider many
factors in determining the financial strength rating of an insurance company, including the relative level of statutory surplus
necessary to support the business operations of the company. These ratings are based upon factors relevant to policyholders,
agents, and intermediaries and are not directed toward the protection of investors. Such ratings are not recommendations to
buy, sell, or hold securities.
Credit ratings assess a company's ability to make timely payments of principal and interest on its debt. It is possible that, in the
future, one or more of the rating agencies may reduce our existing ratings. If one or more of our ratings were downgraded, we could
incur higher borrowing costs, and our ability to access the capital markets could be impacted. In addition, our insurance and
reinsurance operations could be adversely impacted by a downgrade in our financial strength ratings, including a possible reduction
in demand for our products in certain markets. Also, we have insurance and reinsurance contracts which contain rating triggers.
In the event the S&P or A.M. Best financial strength ratings of Chubb fall, we may be faced with the cancellation of premium or
be required to post collateral on our underlying obligation associated with this premium. We estimate that at December 31, 2018,
a one-notch downgrade of our S&P or A.M. Best financial strength ratings would result in an immaterial loss of premium or
requirement for collateral to be posted.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Sensitive Instruments and Risk Management
Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. We are exposed to
potential losses from various market risks including changes in interest rates, equity prices, and foreign currency exchange rates.
Further, through writing the GLB and GMDB products, we are exposed to volatility in the equity and credit markets, as well as
interest rates. Our investment portfolio consists primarily of fixed income securities, denominated in both U.S. dollars and
foreign currencies, which are sensitive to changes in interest rates and foreign currency exchange rates. The majority of our fixed
income portfolio is classified as available for sale. The effect of market movements on our available for sale investment portfolio
impacts Net income (through Net realized gains (losses)) when securities are sold or when we record an OTTI charge in Net
income. Changes in interest rates and foreign currency exchange rates will have an immediate effect on Shareholders' equity and
Comprehensive income and in certain instances, Net income. From time to time, we also use derivative instruments such as
futures, options, swaps, and foreign currency forward contracts to manage the duration of our investment portfolio and foreign
currency exposures and also to obtain exposure to a particular financial market. At December 31, 2018 and 2017, our notional
exposure to derivative instruments was $9.1 billion and $4.8 billion, respectively. These instruments are recognized as assets or
liabilities in our consolidated financial statements and are sensitive to changes in interest rates, foreign currency exchange rates,
and equity security prices. As part of our investing activities, we purchase to be announced mortgage backed securities (TBAs).
Changes in the fair value of TBAs are included in Net realized gains (losses) and therefore, have an immediate effect on both
our Net income and Shareholders' equity.
We seek to mitigate market risk using a number of techniques, including maintaining and managing the assets and liabilities of
our international operations consistent with the foreign currencies of the underlying insurance and reinsurance businesses,
thereby limiting exchange rate risk to net assets denominated in foreign currencies.
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The following is a discussion of our primary market risk exposures at December 31, 2018. Our policies to address these risks in
2018 were not materially different from 2017. We do not currently anticipate significant changes in our primary market risk
exposures or in how those exposures are managed in future reporting periods based upon what is known or expected to be in
effect in future reporting periods.
Interest rate risk – fixed income portfolio and debt obligations
Our fixed income portfolio and debt obligations have exposure to interest rate risk. Changes in investment values attributable to
interest rate changes are mitigated by corresponding and partially offsetting changes in the economic value of our insurance
reserves and debt obligations. We monitor this exposure through periodic reviews of our asset and liability positions.
The following table presents the impact at December 31, 2018 and 2017, on the fair value of our fixed income portfolio of a
hypothetical increase in interest rates of 100 bps applied instantly across the U.S. yield curve (an immediate time horizon was
used as this presents the worst case scenario):
(in billions of U.S. dollars, except for percentages)
Fair value of fixed income portfolio
Pre-tax impact of 100 bps increase in interest rates:
Decrease in dollars
As a percentage of total fixed income portfolio at fair value
$
$
2018
94.7
3.5
3.7%
$
$
2017
97.0
4.1
4.2%
Changes in interest rates will have an immediate effect on Comprehensive income and Shareholders' equity but will not
ordinarily have an immediate effect on Net income. Variations in market interest rates could produce significant changes in the
timing of prepayments due to available prepayment options. For these reasons, actual results could differ from those reflected in
the tables.
Although our debt and trust preferred securities (collectively referred to as debt obligations) are reported at amortized cost and
not adjusted for fair value changes, changes in interest rates could have a material impact on their fair value, albeit there would
be no impact on our consolidated financial statements.
The following table presents the impact at December 31, 2018 and 2017, on the fair value of our debt obligations of a
hypothetical decrease in interest rates of 100 bps applied instantly across the U.S. yield curve (an immediate time horizon was
used as this presents the worst case scenario):
(in millions of U.S. dollars, except for percentages)
Fair value of debt obligations, including repurchase agreements
Pre-tax impact of 100 bps decrease in interest rates:
Increase in dollars
As a percentage of total debt obligations at fair value
$
$
2018
14,524
1,201
8.3%
$
$
2017
15,221
1,144
7.5%
94
Foreign currency management
As a global company, Chubb entities transact business in multiple currencies. Our policy is to generally match assets, liabilities
and required capital for each individual jurisdiction in local currency, which would include the use of derivatives. We do not
hedge our net asset non-U.S. dollar capital positions; however, we do consider hedging for planned cross border transactions.
The following table summarizes the net assets in non-U.S. currencies at December 31, 2018 and 2017:
(in millions of U.S. dollars, except for percentages)
Value of
Net Assets
Canadian dollar (CAD)
British pound sterling (GBP)
Euro (EUR)
Australian dollar (AUD)
Brazilian real (BRL)
Mexican peso (MXN)
Korean won (KRW) (x100)
Thai baht (THB)
Hong Kong dollar (HKD)
Japanese yen (JPY)
Euro denominated debt (1)
Other foreign currencies
$
2,114
1,901
1,896
1,149
938
729
726
459
362
343
(2,016)
1,791
2018
Exchange
rate
per USD
0.7333 $
1.2754
1.1467
0.7049
0.2577
0.0509
0.0900
0.0309
0.1277
0.0091
1.1467
2017
Exchange
rate
per USD
2018 vs. 2017
% change in
exchange rate
per USD
Value of
Net Assets
2,289
2,696
1,846
1,283
1,524
815
674
513
400
465
0.7955
1.3513
1.2005
0.7809
0.3019
0.0509
0.0937
0.0307
0.1280
0.0089
(7.8)%
(5.6)%
(4.5)%
(9.7)%
(14.6)%
—
(3.9)%
0.7 %
(0.2)%
2.2 %
various
1,644
various
NM
Value of net assets denominated in foreign
currencies (2)
As a percentage of total net assets
$
10,392
$
14,149
20.7%
27.7%
Pre-tax decrease to Shareholders' equity of a
hypothetical 10 percent strengthening of the
U.S. dollar
NM – not meaningful
(1) Refer to Note 8 to the Consolidated Financial Statements for additional information.
(2) At December 31, 2018, net assets denominated in foreign currencies comprised approximately 22 percent tangible assets and 78 percent intangible assets, primarily
1,285
945
$
$
goodwill.
Effective July 1, 2018, Argentina was designated as a highly inflationary economy and therefore we changed the functional
currency for our Argentine operations from the Argentine Peso to the U.S. dollar. Our net assets denominated in the Argentine
Peso represent less than 0.1 percent of consolidated shareholders’ equity. Therefore, this change in the functional currency of
our Argentine operations did not have a material impact on our financial condition or results of operations.
Reinsurance of GMDB and GLB guarantees
Chubb views its variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance with the
probability of long-term economic loss relatively small, at the time of pricing. Adverse changes in market factors and
policyholder behavior will have an impact on both Life insurance underwriting income and net income. When evaluating these
risks, we expect to be compensated for taking both the risk of a cumulative long-term economic net loss, as well as the short-
term accounting variations caused by these market movements. Therefore, we evaluate this business in terms of its long-term
economic risk and reward.
Net income is directly impacted by changes in benefit reserves calculated in connection with reinsurance of variable annuity
guarantees. In addition, net income is directly impacted by changes in the fair value of the GLB liability (FVL), which is
classified as a derivative for accounting purposes. The FVL established for a GLB reinsurance contract represents the difference
between the fair value of the contract and the benefit reserves. Benefit reserves and FVL calculations are directly affected by
market factors, including equity levels, interest rate levels, credit risk, and implied volatilities, as well as policyholder behaviors,
such as annuitization and lapse rates, and policyholder mortality.
95
The tables below are estimates of the sensitivities to instantaneous changes in economic inputs (e.g., equity shock, interest rate
shock, etc.) or actuarial assumptions at December 31, 2018 of the FVL and of the fair value of specific derivative instruments
held (hedge value) to partially offset the risk in the variable annuity guarantee reinsurance portfolio. The following assumptions
should be considered when using the below tables:
• No changes to the benefit ratio used to establish benefit reserves at December 31, 2018.
• Equity shocks impact all global equity markets equally
• Our liabilities are sensitive to global equity markets in the following proportions: 75 percent—85 percent U.S. equity,
and 15 percent—25 percent international equity.
• Our current hedge portfolio is sensitive only to U.S. equity markets.
• We would suggest using the S&P 500 index as a proxy for U.S. equity, and the MSCI EAFE index as a proxy for
international equity.
•
Interest rate shocks assume a parallel shift in the U.S. yield curve
• Our liabilities are also sensitive to global interest rates at various points on the yield curve, mainly the U.S. Treasury
curve in the following proportions: up to 10 percent short-term rates (maturing in less than 5 years), 25 percent—35
percent medium-term rates (maturing between 5 years and 10 years, inclusive), and 55 percent—65 percent long-
term rates (maturing beyond 10 years).
• A change in AA-rated credit spreads impacts the rate used to discount cash flows in the fair value model. AA-rated
credit spreads are a proxy for both our own credit spreads and the credit spreads of the ceding insurers.
• The hedge sensitivity is from December 31, 2018 market levels.
• The sensitivities are not directly additive because changes in one factor will affect the sensitivity to changes in other factors.
The sensitivities do not scale linearly and may be proportionally greater for larger movements in the market factors. The
sensitivities may also vary due to foreign exchange rate fluctuations. The calculation of the FVL is based on internal models
that include assumptions regarding future policyholder behavior, including lapse, annuitization, and asset allocation. These
assumptions impact both the absolute level of the FVL as well as the sensitivities to changes in market factors shown
below. Actual sensitivity of our net income may differ from those disclosed in the tables below due to differences between
short-term market movements and management judgment regarding the long-term assumptions implicit in our benefit
ratios.
•
In addition, the tables below do not reflect the expected quarterly run rate of net income generated by the variable annuity
guarantee reinsurance portfolio if markets remain unchanged during the period. All else equal, if markets remain unchanged
during the period, the Gross FVL will increase, resulting in a realized loss. The Gross FVL increases primarily because future
premiums are lower by the amount collected in the quarter, and also because future claims are discounted for a shorter
period. We refer to this increase in Gross FVL as “timing effect”. The unfavorable impact of timing effect on our Gross FVL
in a quarter is not reflected in the sensitivity tables below. For this reason, when using the tables below to estimate the
sensitivity of Gross FVL in the first quarter 2019 to various changes, it is necessary to assume an additional $5 million to
$45 million increase in Gross FVL and realized losses. The impact to Net income is partially mitigated because this realized
loss is partially offset by the positive quarterly run rate of Life insurance underwriting income generated by the variable
annuity guarantee reinsurance portfolio if markets remain unchanged during the period. Note that both the timing effect and
the quarterly run rate of Life insurance underwriting income change over time as the book ages.
96
Interest Rate Shock
(in millions of U.S. dollars)
+100 bps
(Increase)/decrease in Gross FVL
Increase/(decrease) in hedge value
Increase/(decrease) in net income
Flat
(Increase)/decrease in Gross FVL
Increase/(decrease) in hedge value
Increase/(decrease) in net income
-100 bps
(Increase)/decrease in Gross FVL
Increase/(decrease) in hedge value
Worldwide Equity Shock
+10%
Flat
-10%
-20%
-30%
-40%
$
$
$
$
$
$
$
$
$
$
326
(48)
278
149
(48)
101
(77)
(48)
196
—
196
$
$
47
48
95
— $
(170)
—
48
— $
(122)
(245)
$
(435)
—
48
$
(124)
$
(317)
$
(527)
$
$
$
$
97
(27)
(364)
97
(267)
(646)
97
$
$
$
$
145
(172)
(578)
145
$
$
194
(333)
(804)
194
(433)
$
(610)
(873)
$ (1,105)
145
194
Increase/(decrease) in net income
$
(125)
$
(245)
$
(387)
$
(549)
$
(728)
$
(911)
Sensitivities to Other Economic Variables
(in millions of U.S. dollars)
(Increase)/decrease in Gross FVL
Sensitivities to Actuarial Assumptions
(in millions of U.S. dollars)
(Increase)/decrease in Gross FVL
AA-rated Credit Spreads
Interest Rate Volatility
Equity Volatility
+100 bps
-100 bps
+2%
-2%
+2%
$
70
$
(78)
$
— $
— $
(8)
$
Mortality
+20%
+10%
-10%
$
18
$
9
$
(9)
$
-2%
7
-20%
(19)
(in millions of U.S. dollars)
(Increase)/decrease in Gross FVL
(in millions of U.S. dollars)
(Increase)/decrease in Gross FVL
Lapses
+50%
+25%
-25%
-50%
$
95
$
50
$
(54)
$
(113)
Annuitization
+50%
+25%
-25%
-50%
$
(498)
$
(264)
$
300
$
548
Variable Annuity Net Amount at Risk
All our VA reinsurance treaties include annual or aggregate claim limits and many include an aggregate deductible which limit
the net amount at risk under these programs. The tables below present the net amount at risk at December 31, 2018 following
an immediate change in equity market levels, assuming all global equity markets are impacted equally. For further information
on the net amount at risk, refer to Note 4 c) to the Consolidated Financial Statements.
a) Reinsurance covering the GMDB risk only
(in millions of U.S. dollars)
GMDB net amount at risk
Claims at 100% immediate mortality
Equity Shock
+20%
Flat
-20%
-40%
-60%
-80%
$
275
174
$
408 $
177
772
168
$
923
152
$
868
136
$
736
122
The treaty claim limits function as a ceiling as equity markets fall. As the shocks in the table above become incrementally more
negative, the impact on the NAR and claims at 100 percent mortality begin to drop due to the specific nature of these claim
limits, many of which are annual claim limits calculated as a percentage of the reinsured account value. There is also some
impact due to a small portion of the GMDB reinsurance under which claims are positively correlated to equity markets (claims
decrease as equity markets fall).
97
b) Reinsurance covering the GLB risk only
(in millions of U.S. dollars)
GLB net amount at risk
Equity Shock
+20%
Flat
-20%
-40%
-60%
-80%
$
794
$
1,233 $ 1,952
$ 2,672
$ 3,083
$ 3,388
The treaty claim limits cause the net amount at risk to increase at a declining rate as equity markets fall.
c) Reinsurance covering both the GMDB and GLB risks on the same underlying policyholders
(in millions of U.S. dollars)
GMDB net amount at risk
GLB net amount at risk
Claims at 100% immediate mortality
Equity Shock
+20%
Flat
-20%
-40%
-60%
-80%
$
87
$
103 $
381
17
517
18
117
689
18
$
126
878
18
$
131
$
132
1,069
1,195
18
18
The treaty limits control the increase in the GMDB net amount at risk as equity markets fall. The GMDB net amount at risk
continues to grow as equity markets fall because most of these reinsurance treaties do not have annual claim limits calculated
as a percentage of the underlying account value. The treaty limits cause the GLB net amount at risk to increase at a declining
rate as equity markets fall.
ITEM 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included in this Form 10-K commencing on page F-1.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Chubb’s management, with the participation of Chubb’s Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of Chubb’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the
Securities Exchange Act of 1934 as of December 31, 2018. Based upon that evaluation, Chubb’s Chief Executive Officer and
Chief Financial Officer concluded that Chubb’s disclosure controls and procedures are effective in allowing information required
to be disclosed in reports filed under the Securities Exchange Act of 1934 to be recorded, processed, summarized, and reported
within time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to
Chubb’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
In 2016, Chubb completed the acquisition of The Chubb Corporation. For the year ended December 31, 2018, we continued to
integrate the information technology environments of the two companies.
There were no other changes to Chubb's internal controls over financial reporting for the year ended December 31, 2018 that
have materially affected, or are reasonably likely to materially affect, Chubb's internal controls over financial reporting. Chubb's
management report on internal control over financial reporting is included on page F-3 and PricewaterhouseCoopers LLP's audit
report is included on page F-4.
ITEM 9B. Other Information
Disclosure of Certain Activities Under Section 13(r) of the Securities Exchange Act of 1934
Section 13(r) of the Securities Exchange Act of 1934, as amended, requires an issuer to disclose in its annual or quarterly
reports whether it or an affiliate knowingly engaged in certain activities described in that section, including certain activities
related to Iran during the period covered by the report.
98
Chubb, through certain of its non-U.S. subsidiaries, provides insurance and reinsurance coverage relating to marine risks for
policyholders with global operations. As a result of the modification of U.S. and European sanctions on Iran in 2016, several
marine policyholders have informed us that they are shipping cargo to and from Iran, including transporting crude oil,
petrochemicals and refined petroleum products. As the activities of our insureds and reinsureds are permitted under applicable
laws and regulations, including U. S. Department of Treasury General License H, Chubb intends for its non-U.S. subsidiaries to
continue providing such coverage to its insureds and reinsureds to the extent permitted by applicable law. Since these policies
insure multiple voyages and fleets containing multiple ships, we are unable to attribute gross revenues and net profits from such
marine policies to these activities involving Iran.
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
Information pertaining to this item is incorporated by reference to the sections entitled “Agenda Item 5 - Election of the Board of
Directors”, “Corporate Governance - The Board of Directors - Director Nomination Process”, “Corporate Governance - The
Committees of the Board - Audit Committee”, and “Corporate Governance - Did Our Officers and Directors Comply with
Section 16(a) Beneficial Ownership Reporting in 2018?” of the definitive proxy statement for the 2019 Annual General Meeting
of Shareholders which will be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation
14A. Also incorporated herein by reference is the text under the caption “Executive Officers of the Registrant” appearing at the
end of Part I Item 1 of the Annual Report on Form 10-K.
Code of Ethics
Chubb has adopted a Code of Conduct, which sets forth standards by which all Chubb employees, officers, and directors must
abide as they work for Chubb. Chubb has posted this Code of Conduct on its Internet site (investors.chubb.com, under
Corporate Governance/Highlights and Governance Documents/The Chubb Code of Conduct). Chubb intends to disclose on its
Internet site any amendments to, or waivers from, its Code of Conduct that are required to be publicly disclosed pursuant to the
rules of the SEC or the New York Stock Exchange.
ITEM 11. Executive Compensation
This item is incorporated by reference to the sections entitled “Executive Compensation”, “Compensation Committee Report”
and “Director Compensation” of the definitive proxy statement for the 2019 Annual General Meeting of Shareholders which will
be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation 14A.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Plan category
Equity compensation plans approved by security holders (1)
Equity compensation plans not approved by security holders (2)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants, and rights
Weighted-average
exercise price of
outstanding options,
warrants, and rights (3)
Number of securities
remaining available for
future issuance under
equity compensation
plans
11,965,165 $
108.26
16,205,809
34,521
(1) These totals include securities available for future issuance under the following plans:
(i) Chubb Limited 2016 Long-Term Incentive Plan (LTIP). A total of 19,500,000 shares are authorized to be issued pursuant to
awards made as options, stock appreciation rights, stock units, performance shares, performance units, restricted stock, and
restricted stock units. The maximum number of shares that may be delivered to participants and their beneficiaries under the LTIP
shall be equal to the sum of: (x) 19,500,000 shares of stock; and (y) any shares of stock that have not been delivered pursuant to
the ACE LTIP (as defined in clause (ii) of this footnote (1) below) and remain available for grant pursuant to the ACE LTIP, including
shares of stock represented by awards granted under the ACE LTIP that are forfeited, expire or are canceled after the effective date of
the LTIP without delivery of shares of stock or which result in the forfeiture of the shares of stock back to the Company to the extent
that such shares would have been added back to the reserve under the terms of the ACE LTIP. As of December 31, 2018, a total of
3,340,842 option awards and 481,357 restricted stock unit awards are outstanding, and 14,100,867 shares remain available for
future issuance under this plan.
99
(ii) ACE Limited 2004 Long-Term Incentive Plan (ACE LTIP). As of December 31, 2018, a total of 7,159,680 option awards and
210,121 restricted stock unit awards are outstanding. No additional grants will be made pursuant to the ACE LTIP.
(iii) The Chubb Corporation Long-Term Incentive Plan (2014) (Chubb Corp. LTIP). As of December 31, 2018, a total of
506,778 option awards, 72,077 restricted stock unit awards, nil performance unit awards (representing 100% of the
aggregate target in accordance with the Chubb Corp. merger agreement) and 151,171 deferred stock unit awards are
outstanding. No additional grants will be made pursuant to the Chubb Corp. LTIP.
(iv) ESPP. A total of 6,500,000 shares have been authorized for purchase at a discount. As of December 31, 2018,
2,104,942 shares remain available for future issuance under this plan.
(2) These plans are the Chubb Corp. CCAP Excess Benefit Plan (CCAP Excess Benefit Plan) and the Chubb Corp. Deferred
Compensation Plan for Directors, under which no Common Shares are available for future issuance other than with respect to
outstanding rewards. The CCAP Excess Benefit Plan is a nonqualified, defined contribution plan and covers those participants
in the Capital Accumulation Plan of The Chubb Corporation (CCAP) (Chubb Corp.’s legacy 401(k) plan) and Chubb Corp.’s
legacy employee stock ownership plan (ESOP) whose total benefits under those plans are limited by certain provisions of the
Internal Revenue Code. A participant in the CCAP Excess Benefit Plan is entitled to a benefit equaling the difference between
the participant’s benefits under the CCAP and the ESOP, without considering the applicable limitations of the Code, and the
participant’s actual benefits under such plans. A participant’s excess ESOP benefit is expressed as Common Shares.
Payments under the CCAP Excess Benefit Plan are generally made: (i) for excess benefits related to the CCAP, in cash
annually as soon as practical after the amount of excess benefit can be determined; and (ii) for excess benefits related to the
ESOP, in Common Shares as soon as practicable after the participant’s termination of employment. Allocations under the
ESOP ceased in 2004. Accordingly, other than dividends, no new contributions are made to the ESOP or the CCAP Excess
Benefit Plan with respect to excess ESOP benefits.
(3) Weighted average exercise price excludes shares issuable under performance unit awards and restricted stock unit awards.
ITEM 13. Certain Relationships and Related Transactions and Director Independence
This item is incorporated by reference to the sections entitled “Corporate Governance - What Is Our Related Party Transactions
Approval Policy And What Procedures Do We Use To Implement It?”, “Corporate Governance - What Related Party Transactions
Do We Have?”, and “Corporate Governance - The Board of Directors - Director Independence” of the definitive proxy statement
for the 2019 Annual General Meeting of Shareholders which will be filed with the SEC not later than 120 days after the close of
the fiscal year pursuant to Regulation 14A.
ITEM 14. Principal Accounting Fees and Services
This item is incorporated by reference to the section entitled “Agenda Item 4 – Election of Auditors – 4.2 – Ratification of
appointment of PricewaterhouseCoopers LLP (United States) as independent registered public accounting firm for purposes of
U.S. securities law reporting” of the definitive proxy statement for the 2019 Annual General Meeting of Shareholders which will
be filed with the SEC not later than 120 days after the close of the fiscal year pursuant to Regulation 14A.
100
PART IV
ITEM 15. Exhibits, Financial Statement Schedules
(a)
Financial Statements, Schedules, and Exhibits
1.
Consolidated Financial Statements
Management's Responsibility for Financial Statements and Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2018 and 2017
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31,
2018, 2017, and 2016
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2018, 2017, and
2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules
Schedule I - Summary of Investments - Other Than Investments in Related Parties at December
31, 2018
Schedule II - Condensed Financial Information of Registrant (Parent Company Only) at December
31, 2018 and 2017 and for the years ended December 31, 2018, 2017, and 2016
Schedule IV - Supplemental Information Concerning Reinsurance for the years ended December 31, 2018,
2017, and 2016
Schedule VI - Supplementary Information Concerning Property and Casualty Operations as of and for the years
ended December 31, 2018, 2017, and 2016
Page
F-3
F-4
F-6
F-7
F-8
F-9
F-10
F-107
F-108
F-111
F-112
Other schedules have been omitted as they are not applicable to Chubb, or the required information has been included in
the Consolidated Financial Statements and related notes.
3.
Exhibits
Exhibit
Number
2.1
3.1
3.2
4.1
4.2
4.3
4.4
Exhibit Description
Agreement and Plan of Merger, by and among ACE Limited,
William Investment Holdings Corporation and The Chubb
Corporation, dated as of June 30, 2015
Articles of Association of the Company, as amended and
restated
Organizational Regulations of the Company as amended
Articles of Association of the Company, as amended and
restated
Organizational Regulations of the Company as amended
Specimen share certificate representing Common Shares
Form of 2.6 percent Senior Notes due 2015
Incorporated by Reference
Form
8-K
Original
Number
2.1
Filed
Herewith
Date Filed
July 7, 2015
8-K
8-K
8-K
8-K
8-K
8-K
3.1
3.1
4.1
3.1
4.3
4.1
May 18, 2018
November 21, 2016
May 18, 2018
November 21, 2016
July 18, 2008
November 23, 2010
101
Exhibit
Number
Exhibit Description
Indenture, dated March 15, 2002, between ACE Limited and
Bank One Trust Company, N.A.
Senior Indenture, dated August 1, 1999, among ACE INA
Holdings, Inc., ACE Limited and Bank of New York Mellon
Trust Company, N.A. (as successor), as trustee
Incorporated by Reference
Original
Number
Date Filed
Filed
Herewith
4.1
March 22, 2002
4.4
December 10, 2014
Form
8-K
S-3
ASR
Indenture, dated November 30, 1999, among ACE INA
Holdings, Inc. and Bank One Trust Company, N.A., as trustee
10-K
10.38
March 29, 2000
Indenture, dated December 1, 1999, among ACE INA
Holdings, Inc., ACE Limited and Bank One Trust Company,
National Association, as trustee
Amended and Restated Trust Agreement, dated March 31,
2000, among ACE INA Holdings, Inc., Bank One Trust
Company, National Association, as property trustee, Bank One
Delaware Inc., as Delaware trustee and the administrative
trustees named therein
10-K
10.41
March 29, 2000
10-K
4.17
March 16, 2006
Common Securities Guarantee Agreement, dated March 31,
2000
10-K
4.18
March 16, 2006
Capital Securities Guarantee Agreement, dated March 31,
2000
10-K
4.19
March 16, 2006
Form of 2.70 percent Senior Notes due 2023
Form of 4.15 percent Senior Notes due 2043
First Supplemental Indenture dated as of March 13, 2013 to
the Indenture dated as of August 1, 1999 among ACE INA
Holdings, Inc., as Issuer, ACE Limited, as Guarantor, and The
Bank of New York Mellon Trust Company, N.A., as Successor
Trustee
Form of 3.35 percent Senior Notes due 2024
Form of 3.150 percent Senior Notes due 2025
Form of 2.30 percent Senior Notes due 2020
Form of 2.875 percent Senior Notes due 2022
Form of 3.35 percent Senior Notes due 2026
Form of 4.35 percent Senior Notes due 2045
First Supplemental Indenture to the Chubb Corp Senior
Indenture dated as of January 15, 2016 to the Indenture
dated as of October 25, 1989 among ACE INA Holdings, Inc.,
as Successor Issuer, ACE Limited, as Guarantor, and The Bank
of New York Mellon Trust Company, N.A., as Trustee
Second Supplemental Indenture to the Chubb Corp Junior
Subordinated Indenture dated as of January 15, 2016 to the
Indenture dated as of March 29, 2007 among ACE INA
Holdings, Inc., as Successor Issuer, ACE Limited, as
Guarantor, and The Bank of New York Mellon Trust Company,
N.A., as Trustee
Chubb Corp Senior Indenture (incorporated by reference to
Exhibit 4(a) to Chubb Corp's Registration Statement on Form
S-3 filed on October 27, 1989) (File No. 33-31796)
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
4.1
4.2
4.3
4.1
4.1
4.1
4.2
4.3
4.4
4.1
March 13, 2013
March 13, 2013
March 13, 2013
May 27, 2014
March 16, 2015
November 3, 2015
November 3, 2015
November 3, 2015
November 3, 2015
January 15, 2016
8-K
4.2
January 15, 2016
S-3
4(a)
October 27, 1989
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
102
Exhibit Description
Chubb Corp Junior Subordinated Indenture (incorporated by
reference to Exhibit 4.1 to Chubb Corp's Current Report on
Form 8-K filed on March 30, 2007) (File No. 001-08661)
First Supplemental Indenture to the Chubb Corp Junior
Subordinated Indenture dated as of March 29, 2007 between
the Chubb Corporation and The Bank of New York Trust
Company, N.A., as Trustee (incorporated by reference to
Exhibit 4.2 to Chubb Corp's Current Report on Form 8-K filed
on March 30, 2007) (File No. 001-08661)
Form of 5.75 percent Chubb Corp Senior Notes due 2018
(incorporated by reference to Exhibit 4.1 to Chubb Corp's
Current Report on Form 8-K filed on May 6, 2008) (File No.
001-08661)
Form of 6.60 percent Chubb Corp Debentures due 2018
(incorporated by reference to Exhibit 4(a) to Chubb Corp's
Registration Statement on Form S-3 filed on October 27,
1989) (File No. 33-31796)
Form of 6.80 percent Chubb Corp Debentures due 2031
(incorporated by reference to Exhibit 4(a) to Chubb Corp's
Registration Statement on Form S-3 filed on October 27,
1989) (File No. 33-31796)
Form of 6.00 percent Chubb Corp Senior Notes due 2037
(incorporated by reference to Exhibit 4.1 to Chubb Corp's
Current Report on Form 8-K filed on May 11, 2007) (File No.
001-08661)
Form of 6.50 percent Chubb Corp Senior Notes due 2038
(incorporated by reference to Exhibit 4.2 to Chubb Corp's
Current Report on Form 8-K filed on May 6, 2008) (File No.
001-08661)
Form of debenture for the 6.375 percent Chubb Corp DISCs
(incorporated by reference to Exhibit 4.3 to Chubb Corp's
Current Report on Form 8-K filed on March 30, 2007) (File
No. 001-08661)
Incorporated by Reference
Original
Number
Date Filed
Filed
Herewith
4.1
March 30, 2007
Form
8-K
8-K
4.2
March 30, 2007
8-K
4.1
May 6, 2008
S-3
4(a)
October 27, 1989
S-3
4(a)
October 27, 1989
8-K
4.1
May 11, 2007
8-K
4.2
May 6, 2008
8-K
4.3
March 30, 2007
Procedures regarding the registration of shareholders in the
share register of Chubb Limited
10-K
4.32
February 28, 2017
Exhibit
Number
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
Form of Officer's Certificate related to the 1.550% Senior
Notes due 2028 and 2.500% Senior Notes due 2038
4.34
Form of Global Note for the 1.550% Senior Notes due 2028
4.35
Form of Global Note for the 2.500% Senior Notes due 2038
8-K
8-K
8-K
4.1
4.2
4.3
March 6, 2018
March 6, 2018
March 6, 2018
10.1*
Form of Indemnification Agreement between the Company and
the directors of the Company, dated August 13, 2015
10-K
10.1
February 26, 2016
10.2
Credit Agreement for $1,000,000,000 Senior Unsecured
Letter of Credit Facility, dated as of November 6, 2012,
among ACE Limited, and certain subsidiaries and Wells Fargo
Bank, National Association as Administrative Agent, the
Swingline Bank and an Issuing Bank
10-K
10.13
February 28, 2013
10.3*
Employment Terms dated October 29, 2001, between ACE
Limited and Evan Greenberg
10-K
10.64
March 27, 2003
103
Exhibit
Number
10.4*
10.5*
10.6*
10.7*
Exhibit Description
Employment Terms dated November 2, 2001, between ACE
Limited and Philip V. Bancroft
Incorporated by Reference
Form
10-K
Original
Number
10.65
Date Filed
Filed
Herewith
March 27, 2003
Executive Severance Agreement between ACE Limited and
Philip Bancroft, effective January 2, 2002
10-Q
10.1
May 10, 2004
Letter Regarding Executive Severance between ACE Limited
and Philip V. Bancroft
10-K
10.17
February 25, 2011
Employment Terms dated April 10, 2006, between ACE and
John Keogh
10-K
10.29
February 29, 2008
10.8*
Executive Severance Agreement between ACE and John Keogh
10-K
10.30
February 29, 2008
10.9*
ACE Limited Executive Severance Plan as amended effective
May 18, 2011
10-K
10.21
February 24, 2012
10.10*
Form of employment agreement between the Company (or
subsidiaries of the Company) and executive officers of the
Company to allocate a percentage of aggregate salary to the
Company (or subsidiaries of the Company)
8-K
10.1
July 16, 2008
10.11*
Description of Executive Officer Cash Compensation for 2011
10-Q
10.1
November 3, 2011
10.12*
Outside Directors Compensation Parameters
X
10.13*
ACE Limited Annual Performance Incentive Plan
S-1
10.13
January 21, 1993
10.14*
ACE Limited Elective Deferred Compensation Plan (as
amended and restated effective January 1, 2005)
10-K
10.24
March 16, 2006
10.15*
ACE USA Officer Deferred Compensation Plan (as amended
through January 1, 2001)
10-K
10.25
March 16, 2006
10.16*
ACE USA Officer Deferred Compensation Plan (as amended
and restated effective January 1, 2011)
10-Q
10.7
October 30, 2013
10.17*
ACE USA Officer Deferred Compensation Plan (as amended
and restated effective January 1, 2009)
10-K
10.36
February 27, 2009
10.18*
First Amendment to the Amended and Restated ACE USA
Officers Deferred Compensation Plan
10-K
10.28
February 25, 2010
10.19*
Form of Swiss Mandatory Retirement Benefit Agreement (for
Swiss-employed named executive officers)
10-Q
10.2
May 7, 2010
10.20*
ACE Limited Supplemental Retirement Plan (as amended and
restated effective July 1, 2001)
10-Q
10.1
November 14, 2001
10.21*
ACE Limited Supplemental Retirement Plan (as amended and
restated effective January 1, 2011)
10-Q
10.6
October 30, 2013
10.22*
Amendments to the ACE Limited Supplemental Retirement
Plan and the ACE Limited Elective Deferred Compensation
Plan
10-K
10.38
February 29, 2008
10.23*
ACE Limited Elective Deferred Compensation Plan (as
amended and restated effective January 1, 2009)
10-K
10.39
February 27, 2009
10.24*
ACE Limited Elective Deferred Compensation Plan (as
amended and restated effective January 1, 2011)
10-Q
10.5
October 30, 2013
104
Exhibit
Number
10.25*
Exhibit Description
Deferred Compensation Plan amendments, effective January
1, 2009
Incorporated by Reference
Form
10-K
Original
Number
Date Filed
Filed
Herewith
10.40
February 27, 2009
10.26*
Amendment to the ACE Limited Supplemental Retirement
Plan
10-K
10.39
February 29, 2008
10.27*
Amendment and restated ACE Limited Supplemental
Retirement Plan, effective January 1, 2009
10-K
10.42
February 27, 2009
10.28*
ACE USA Supplemental Employee Retirement Savings Plan
(see exhibit 10.6 to Form 10-Q filed with the SEC on May 15,
2000)
10-Q
10.6
May 15, 2000
10.29*
ACE USA Supplemental Employee Retirement Savings Plan
(as amended through the Second Amendment)
10-K
10.30
March 1, 2007
10.30*
ACE USA Supplemental Employee Retirement Savings Plan
(as amended through the Third Amendment)
10-K
10.31
March 1, 2007
10.31*
ACE USA Supplemental Employee Retirement Savings Plan
(as amended and restated)
10-K
10.46
February 27, 2009
10.32*
First Amendment to the Amended and Restated ACE USA
Supplemental Employee Retirement Savings Plan
10-K
10.39
February 25, 2010
10.33*
The ACE Limited 1995 Outside Directors Plan (as amended
through the Seventh Amendment)
10-Q
10.1
August 14, 2003
10.34*
ACE Limited 1998 Long-Term Incentive Plan (as amended
through the Fourth Amendment)
10-K
10.34
March 1, 2007
10.35*
ACE Limited 2004 Long-Term Incentive Plan (as amended
through the Fifth Amendment)
10.36*
ACE Limited 2004 Long-Term Incentive Plan (as amended
through the Sixth Amendment)
8-K
8-K
10
May 21, 2010
10.1
May 20, 2013
10.37*
ACE Limited Rules of the Approved U.K. Stock Option
Program (see exhibit 10.2 to Form 10-Q filed with the SEC on
February 13, 1998)
10-Q
10.2
February 13, 1998
10.38*
Form of Restricted Stock Award Terms under the ACE Limited
2004 Long-Term Incentive Plan
10-K
10.54
February 27, 2009
10.39*
Form of Restricted Stock Award Terms under the ACE Limited
2004 Long-Term Incentive Plan
10-K
10.55
February 27, 2009
10.40*
Director Restricted Stock Award Terms under the ACE Limited
2004 Long-Term Incentive Plan
10-Q
10.1
November 9, 2009
10.41*
Form of Restricted Stock Unit Award Terms under the ACE
Limited 2004 Long-Term Incentive Plan
10-Q
10.1
May 8, 2008
10.42*
Form of Restricted Stock Unit Award Terms under the ACE
Limited 2004 Long-Term Incentive Plan
10-Q
10.2
May 8, 2008
10.43*
Form of Restricted Stock Unit Award Terms under the ACE
Limited 2004 Long-Term Incentive Plan
10-K
10.60
February 27, 2009
10.44*
Form of Restricted Stock Unit Award Terms under the ACE
Limited 2004 Long-Term Incentive Plan
10-Q
10.2
October 30, 2013
105
Exhibit
Number
10.45*
Exhibit Description
Form of Restricted Stock Unit Award Terms under the ACE
Limited 2004 Long-Term Incentive Plan for Chief Executive
Officer, Chief Financial Officer and the General Counsel
Incorporated by Reference
Original
Number
Date Filed
Filed
Herewith
10.56
February 28, 2014
Form
10-K
10.46*
Form of Incentive Stock Option Terms under the ACE Limited
2004 Long-Term Incentive Plan
8-K
10.4
September 13, 2004
10.47*
Form of Incentive Stock Option Terms under the ACE Limited
2004 Long-Term Incentive Plan
10-Q
10.4
May 8, 2008
10.48*
Form of Incentive Stock Option Terms under the ACE Limited
2004 Long-Term Incentive Plan
10-K
10.63
February 27, 2009
10.49*
Form of Incentive Stock Option Terms under the ACE Limited
2004 Long-Term Incentive Plan
10-Q
10.3
October 30, 2013
10.50*
Form of Non-Qualified Stock Option Terms under the ACE
Limited 2004 Long-Term Incentive Plan
8-K
10.5
September 13, 2004
10.51*
Form of Non-Qualified Stock Option Terms under the ACE
Limited 2004 Long-Term Incentive Plan
10-Q
10.3
May 8, 2008
10.52*
Form of Non-Qualified Stock Option Terms under the ACE
Limited 2004 Long-Term Incentive Plan
10-Q
10.4
October 30, 2013
10.53*
Form of Performance Based Restricted Stock Award Terms
under the ACE Limited 2004 Long-Term Incentive Plan, as
updated through May 4, 2006
10-Q
10.3
May 5, 2006
10.54*
Revised Form of Performance Based Restricted Stock Award
Terms under the ACE Limited 2004 Long-Term Incentive Plan
10-Q
10.2
November 8, 2006
10.55*
Revised Form of Performance Based Restricted Stock Award
Terms under The ACE Limited 2004 Long-Term Incentive Plan
10-K
10.65
February 25, 2011
10.56*
Form of Performance Based Restricted Stock Award Terms
under the ACE Limited 2004 Long-Term Incentive Plan
10-K
10.67
February 28, 2014
Form of Performance Based Restricted Stock Award Terms
under the ACE Limited 2004 Long-Term Incentive Plan for
Chief Executive Officer, Chief Financial Officer and the General
Counsel
Form of Restricted Stock Unit Award Terms (for outside
directors) under the ACE Limited 2004 Long-Term Incentive
Plan
Form of Restricted Stock Unit Award Terms (for outside
directors) under the ACE Limited 2004 Long-Term Incentive
Plan
Form of Incentive Stock Option Terms under the ACE Limited
2004 Long-Term Incentive Plan for Messrs. Greenberg and
Cusumano
Form of Non-Qualified Stock Option Terms under the ACE
Limited 2004 Long-Term Incentive Plan for Messrs. Greenberg
and Cusumano
Form of Restricted Stock Award Terms under the ACE Limited
2004 Long-Term Incentive Plan for Messrs. Greenberg and
Cusumano
10-K
10.68
February 28, 2014
10-Q
10.2
November 7, 2007
10-Q
10.2
August 7, 2009
10-Q
10.1
August 4, 2011
10-Q
10.2
August 4, 2011
10-Q
10.3
August 4, 2011
10.57*
10.58*
10.59*
10.60*
10.61*
10.62*
106
Exhibit
Number
Exhibit Description
10.63*
ACE Limited Employee Stock Purchase Plan, as amended
10.64*
Form of Performance Based Restricted Stock Award Terms
under the ACE Limited 2004 Long-Term Incentive Plan for
Messrs. Greenberg and Cusumano
Incorporated by Reference
Original
Number
10.1
Date Filed
May 22, 2012
Filed
Herewith
10.72
February 24, 2012
Form
8-K
10-K
10.65*
Separation and Release Agreement between the Company and
Robert Cusumano, dated July 24, 2013
10-Q
10.8
October 30, 2013
10.66*
10.67*
10.68*
10.69*
10.70*
Form of Restricted Stock Award Terms under the ACE Limited
2004 Long-Term Incentive Plan for Swiss Executive
Management
Form of Performance Based Restricted Stock Award Terms
under the ACE Limited 2004 Long-Term Incentive Plan for
Swiss Executive Management
Form of Restricted Stock Unit Award Terms under the ACE
Limited 2004 Long-Term Incentive Plan for Swiss Executive
Management
Form of Incentive Stock Option Terms under the ACE Limited
2004 Long-Term Incentive Plan for Swiss Executive
Management
Form of Non-Qualified Stock Option Terms under the ACE
Limited 2004 Long-Term Incentive Plan for Swiss Executive
Management
10-K
10.68
February 27, 2015
10-K
10.69
February 27, 2015
10-K
10.70
February 27, 2015
10-K
10.71
February 27, 2015
10-K
10.72
February 27, 2015
10.71*
Form of Executive Management Non-Competition Agreement
8-K
10.1
May 22, 2015
10.72
Commitment Increase Agreement to increase the credit
capacity under the Credit Agreement originally entered into on
November 6, 2012 to $1,500,000,000 under the Senior
Unsecured Letter of Credit Facility, dated as of December 11,
2015, among ACE Limited, and certain subsidiaries, and
Wells Fargo Bank, National Association as Administrative
Agent, the Swingline Bank and an Issuing Bank
10-K
10.72
February 26, 2016
10.73*
Form of Performance Based Restricted Stock Award Terms
under the ACE Limited 2004 Long-Term Incentive Plan
10-K
10.73
February 26, 2016
10.74*
Form of Performance Based Restricted Stock Award Terms
under the ACE Limited 2004 Long-Term Incentive Plan for
Special Award for Messrs. Greenberg and Keogh
10-K
10.74
February 26, 2016
10.75*
Chubb Limited 2016 Long-Term Incentive Plan
S-8
4.4
May 26, 2016
10.76*
Form of Incentive Stock Option Terms under the Chubb
Limited 2016 Long-Term Incentive Plan
10-Q
10.2
August 5, 2016
10.77*
Form of Restricted Stock Award Terms under the Chubb
Limited 2016 Long-Term Incentive Plan
10-Q
10.3
August 5, 2016
10.78*
Form of Restricted Stock Unit Award Terms under the Chubb
Limited 2016 Long-Term Incentive Plan
10-Q
10.4
August 5, 2016
10.79*
Form of Non-Qualified Stock Option Terms under the Chubb
Limited 2016 Long-Term Incentive Plan
10-Q
10.5
August 5, 2016
107
Exhibit
Number
10.80*
10.81*
10.82*
10.83*
10.84*
Exhibit Description
Form of Incentive Stock Option Terms under the Chubb
Limited 2016 Long-Term Incentive Plan for Swiss Executive
Management
Form of Restricted Stock Award Terms under the Chubb
Limited 2016 Long-Term Incentive Plan for Swiss Executive
Management
Form of Restricted Stock Unit Award Terms under the Chubb
Limited 2016 Long-Term Incentive Plan for Swiss Executive
Management
Form of Non-Qualified Stock Option Terms under the Chubb
Limited 2016 Long-Term Incentive Plan for Swiss Executive
Management
Form of Performance Based Restricted Stock Award Terms
under the Chubb Limited 2016 Long-Term Incentive Plan for
Swiss Executive Management
Incorporated by Reference
Form
10-Q
Original
Number
10.6
Date Filed
August 5, 2016
Filed
Herewith
10-Q
10.7
August 5, 2016
10-Q
10.8
August 5, 2016
10-Q
10.9
August 5, 2016
10-K
10.84
February 28, 2017
10.85*
Form of Performance Based Restricted Stock Award Terms
under the Chubb Limited 2016 Long-Term Incentive Plan
10-K
10.85
February 28, 2017
10.86*
Chubb Limited Employee Stock Purchase Plan, as amended
and restated
S-8
4.4
May 25, 2017
10.87*
Director Restricted Stock Award Terms under the Chubb
Limited 2016 Long-Term Incentive Plan
10-Q
10.1
August 3, 2017
10.88
Amended and Restated Credit Agreement for $1,000,000
Senior Unsecured Letter of Credit Facility, dated as of October
25, 2017, among Chubb Limited, and certain subsidiaries
and Wells Fargo Bank, National Association as Administrative
Agent, the Swingline Bank and an Issuing Bank
10-K
10.88
February 23, 2018
10.89*
Form of Incentive Stock Option Terms under the Chubb
Limited 2016 Long-Term Incentive Plan for Executive Officers
10-K
10.89
February 23, 2018
10.90*
Form of Restricted Stock Award Terms under the Chubb
Limited 2016 Long-Term Incentive Plan for Executive Officers
10-K
10.90
February 23, 2018
10.91*
Form of Performance Based Restricted Stock Award Terms
under the Chubb Limited 2016 Long-Term Incentive Plan for
Executive Officers
10-K
10.91
February 23, 2018
10.92*
Form of Non-Qualified Stock Option Terms under the Chubb
Limited 2016 Long-Term Incentive Plan for Executive Officers
10-K
10.92
February 23, 2018
10.93*
Form of Restricted Stock Unit Award Terms under the Chubb
Limited 2016 Long-Term Plan for Executive Officers
10-K
10.93
February 23, 2018
Form of Incentive Stock Option Terms under the Chubb
Limited 2016 Long-Term Incentive Plan for Swiss Executive
Management
Form of Non-Qualified Stock Option Terms under the Chubb
Limited 2016 Long-Term Incentive Plan for Swiss Executive
Management
Form of Restricted Stock Award Terms under the Chubb
Limited 2016 Long-Term Incentive Plan for Swiss Executive
Management
10-K
10.94
February 23, 2018
10-K
10.95
February 23, 2018
10-K
10.96
February 23, 2018
10.94*
10.95*
10.96*
108
Exhibit
Number
10.97*
10.98*
Exhibit Description
Form of Restricted Stock Unit Award Terms under the Chubb
Limited 2016 Long-Term Incentive Plan for Swiss Executive
Management
Form of Performance Based Restricted Stock Award Terms
under the Chubb Limited 2016 Long-Term Incentive Plan for
Swiss Executive Management
Incorporated by Reference
Form
10-K
Original
Number
Date Filed
Filed
Herewith
10.97
February 23, 2018
10-K
10.98
February 23, 2018
10.99*
Chubb Limited Clawback Policy
10-K
10.99
February 23, 2018
21.1
23.1
31.1
31.2
32.1
32.2
101
Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm
Certification Pursuant to Section 302 of The Sarbanes-Oxley
Act of 2002
Certification Pursuant to Section 302 of The Sarbanes-Oxley
Act of 2002
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
The following financial information from Chubb Limited's
Annual Report on Form 10-K for the year ended December
31, 2018, formatted in XBRL: (i) Consolidated Balance
Sheets at December 31, 2018 and 2017; (ii) Consolidated
Statements of Operations and Comprehensive Income for the
years ended December 31, 2018, 2017, and 2016;
(iii) Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2018, 2017, and 2016;
(iv) Consolidated Statements of Cash Flows for the years
ended December 31, 2018, 2017, and 2016; and (v) Notes
to the Consolidated Financial Statements
* Management contract, compensatory plan or arrangement
ITEM 16. Form 10-K Summary
None.
X
X
X
X
X
X
X
109
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHUBB LIMITED
By:
/s/ Philip V. Bancroft
Philip V. Bancroft
Executive Vice President and Chief Financial Officer
February 28, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Evan G. Greenberg
Chairman, President, Chief Executive Officer, and Director
February 28, 2019
Evan G. Greenberg
/s/ Philip V. Bancroft
Executive Vice President and Chief Financial Officer
February 28, 2019
Philip V. Bancroft
(Principal Financial Officer)
/s/ Paul B. Medini
Chief Accounting Officer
February 28, 2019
Paul B. Medini
(Principal Accounting Officer)
/s/ Michael G. Atieh
Director
Michael G. Atieh
/s/ Sheila P. Burke
Director
Sheila P. Burke
/s/ James I. Cash
Director
James I. Cash
/s/ Mary A. Cirillo
Director
Mary A. Cirillo
/s/ Michael P. Connors
Director
Michael P. Connors
110
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
Signature
Title
Date
/s/ John Edwardson
Director
John Edwardson
/s/ Robert M. Hernandez
Director
Robert M. Hernandez
/s/ Kimberly Ross
Director
Kimberly Ross
/s/ Robert Scully
Director
Robert Scully
/s/ Eugene B. Shanks, Jr.
Director
Eugene B. Shanks, Jr.
/s/ Theodore E. Shasta
Director
Theodore E. Shasta
/s/ David Sidwell
Director
David Sidwell
/s/ Olivier Steimer
Director
Olivier Steimer
/s/ James M. Zimmerman
Director
James M. Zimmerman
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
111
CHUBB LIMITED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
F-1
Chubb Limited
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Management's Responsibility for Financial Statements and Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Summary of significant accounting policies
Investments
Fair value measurements
Reinsurance
Goodwill and Other intangible assets
Unpaid losses and loss expenses
Taxation
Debt
Commitments, contingencies, and guarantees
Note 10.
Shareholders' equity
Note 11.
Share-based compensation
Note 12.
Postretirement benefits
Note 13.
Other (income) expense
Note 14.
Segment information
Note 15.
Earnings per share
Note 16.
Related party transactions
Note 17.
Statutory financial information
Note 18.
Information provided in connection with outstanding debt of subsidiaries
Note 19.
Condensed unaudited quarterly financial data
Financial Statement Schedules
Schedule I
Summary of Investments - Other Than Investments in Related Parties
Schedule II
Condensed Financial Information of Registrant
Schedule IV Supplemental Information Concerning Reinsurance
Schedule VI Supplementary Information Concerning Property and Casualty Operations
Page
F-3
F-4
F-6
F-7
F-8
F-9
F-10
F-21
F-29
F-38
F-41
F-43
F-69
F-73
F-75
F-80
F-81
F-85
F-91
F-92
F-96
F-96
F-98
F-99
F-106
F-107
F-108
F-111
F-112
F-2
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND
INTERNAL CONTROL OVER FINANCIAL REPORTING
Financial Statements
The consolidated financial statements of Chubb Limited (Chubb) were prepared by management, which is responsible for their
reliability and objectivity. The statements have been prepared in conformity with accounting principles generally accepted in
the United States of America and, as such, include amounts based on informed estimates and judgments of management.
Financial information elsewhere in this annual report is consistent with that in the consolidated financial statements.
The Board of Directors (Board), operating through its Audit Committee, which is composed entirely of directors who are not
officers or employees of Chubb, provides oversight of the financial reporting process and safeguarding of assets against
unauthorized acquisition, use or disposition. The Audit Committee annually recommends the appointment of an independent
registered public accounting firm and submits its recommendation to the Board for approval.
The Audit Committee meets with management, the independent registered public accountants and the internal auditor;
approves the overall scope of audit work and related fee arrangements; and reviews audit reports and findings. In addition, the
independent registered public accountants and the internal auditor meet separately with the Audit Committee, without
management representatives present, to discuss the results of their audits; the adequacy of Chubb's internal control; the quality
of its financial reporting; and the safeguarding of assets against unauthorized acquisition, use or disposition.
The consolidated financial statements have been audited by an independent registered public accounting firm,
PricewaterhouseCoopers LLP, which has been given access to all financial records and related data, including minutes of all
meetings of the Board and committees of the Board. Chubb believes that all representations made to our independent
registered public accountants during their audits were valid and appropriate.
Internal Control over Financial Reporting
The management of Chubb is responsible for establishing and maintaining adequate internal control over financial reporting.
Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a
process designed by, or under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America.
As of December 31, 2018, management has evaluated the effectiveness of Chubb's internal control over financial reporting
based on the criteria for effective internal control over financial reporting established in “Internal Control - Integrated
Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this
evaluation, we have concluded that Chubb's internal control over financial reporting was effective as of December 31, 2018.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the consolidated financial
statements of Chubb included in this Annual Report, has issued a report on the effectiveness of Chubb's internal controls over
financial reporting as of December 31, 2018. The report, which expresses an unqualified opinion on the effectiveness of
Chubb's internal control over financial reporting as of December 31, 2018, is included in this Item under “Report of
Independent Registered Public Accounting Firm” and follows this statement.
/s/ Evan G. Greenberg
Evan G. Greenberg
/s/ Philip V. Bancroft
Philip V. Bancroft
Chairman, President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Chubb Limited
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Chubb Limited and its subsidiaries (the "Company") as of
December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive income,
shareholders' equity and cash flows for each of the three years in the period ended December 31, 2018, including the related
notes and financial statement schedules listed in the index appearing under Item 15(a)(2) (collectively referred to as the
“consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Responsibility for Financial Statements and Internal Control over Financial Reporting. Our
responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control
over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all
material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, PA
February 28, 2019
We have served as the Company’s auditor since 1985, which includes periods before the Company became subject to SEC
reporting requirements.
F-5
CONSOLIDATED BALANCE SHEETS
Chubb Limited and Subsidiaries
(in millions of U.S. dollars, except share and per share data)
Assets
Investments
Fixed maturities available for sale, at fair value (amortized cost – $79,323 and $77,835)
(includes hybrid financial instruments of $9 and $5)
Fixed maturities held to maturity, at amortized cost (fair value – $13,259 and $14,474)
Equity securities, at fair value (cost – $770 and $737)
Short-term investments, at fair value and amortized cost
Other investments (cost – $5,277 and $4,417)
Total investments
Cash
Restricted cash
Securities lending collateral
Accrued investment income
Insurance and reinsurance balances receivable
Reinsurance recoverable on losses and loss expenses
Reinsurance recoverable on policy benefits
Deferred policy acquisition costs
Value of business acquired
Goodwill
Other intangible assets
Prepaid reinsurance premiums
Investments in partially-owned insurance companies
Other assets
Total assets
Liabilities
Unpaid losses and loss expenses
Unearned premiums
Future policy benefits
Insurance and reinsurance balances payable
Securities lending payable
Accounts payable, accrued expenses, and other liabilities
Deferred tax liabilities
Repurchase agreements
Short-term debt
Long-term debt
Trust preferred securities
Total liabilities
Commitments and contingencies
Shareholders’ equity
Common Shares (CHF 24.15 par value; 479,783,864 shares issued; 459,203,378 and
463,833,179 shares outstanding)
Common Shares in treasury (20,580,486 and 15,950,685 shares)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss) (AOCI)
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to the consolidated financial statements
December 31
2018
December 31
2017
$
78,470 $
78,939
13,435
770
3,016
5,277
14,335
937
3,561
4,672
100,968
102,444
1,247
93
1,926
883
10,075
15,993
202
4,922
295
15,271
6,143
2,544
678
6,531
728
123
1,737
909
9,334
15,034
184
4,723
326
15,541
6,513
2,529
662
6,235
$
$
167,771 $
167,022
62,960 $
15,532
5,506
6,437
1,926
10,472
304
1,418
509
12,087
308
63,179
15,216
5,321
5,868
1,737
9,545
699
1,408
1,013
11,556
308
117,459
115,850
11,121
(2,618)
12,557
31,700
(2,448)
50,312
11,121
(1,944)
13,978
27,474
543
51,172
$
167,771 $
167,022
F-6
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Chubb Limited and Subsidiaries
For the years ended December 31, 2018, 2017, and 2016
(in millions of U.S. dollars, except per share data)
Revenues
Net premiums written
(Increase) decrease in unearned premiums
Net premiums earned
Net investment income
Net realized gains (losses):
Other-than-temporary impairment (OTTI) losses gross
Portion of OTTI losses recognized in other comprehensive income (OCI)
Net OTTI losses recognized in income
Net realized gains (losses) excluding OTTI losses
Total net realized gains (losses) (includes $(302), $(15), and $(119) reclassified
from AOCI)
Total revenues
Expenses
Losses and loss expenses
Policy benefits
Policy acquisition costs
Administrative expenses
Interest expense
Other (income) expense
Amortization of purchased intangibles
Chubb integration expenses
Total expenses
Income before income tax
Income tax expense (benefit) (includes $(41), $(13), and $28 on reclassified
unrealized gains and losses)
Net income
Other comprehensive income (loss)
Unrealized appreciation (depreciation)
Reclassification adjustment for net realized (gains) losses included in net income
Change in:
Cumulative foreign currency translation adjustment
Postretirement benefit liability adjustment
Other comprehensive income (loss), before income tax
Income tax (expense) benefit related to OCI items
Other comprehensive income (loss)
Comprehensive income
Earnings per share
Basic earnings per share
Diluted earnings per share
See accompanying notes to the consolidated financial statements
F-7
2018
2017
2016
$
30,579 $
29,244 $
28,145
(515)
(210)
30,064
3,305
29,034
3,125
604
28,749
2,865
(52)
3
(49)
(603)
(652)
(46)
1
(45)
129
(111)
8
(103)
(42)
84
(145)
32,717
32,243
31,469
18,067
18,454
16,052
590
5,912
2,886
641
(434)
339
59
676
5,781
2,833
607
(400)
260
310
588
5,904
3,081
605
(222)
19
492
28,060
4,657
28,521
3,722
26,519
4,950
695
(139)
815
3,962 $
3,861 $
4,135
(2,298) $
618 $
302
(1,996)
(802)
(321)
15
633
471
(16)
(3,119)
1,088
399
(2,720)
(231)
857
(35)
119
84
(154)
545
475
(54)
421
1,242 $
4,718 $
4,556
8.55 $
8.49 $
8.26 $
8.19 $
8.94
8.87
$
$
$
$
$
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Chubb Limited and Subsidiaries
For the years ended December 31, 2018, 2017, and 2016
(in millions of U.S. dollars)
Common Shares
Balance – beginning of year
Shares issued for Chubb Corp acquisition
Balance – end of year
Common Shares in treasury
Balance – beginning of year
Common Shares repurchased
Net shares redeemed under employee share-based compensation plans
Balance – end of year
Additional paid-in capital
Balance – beginning of year
Shares issued for Chubb Corp acquisition
Equity awards assumed in Chubb Corp acquisition
Net shares redeemed under employee share-based compensation plans
Exercise of stock options
Share-based compensation expense
Funding of dividends declared to Retained earnings
Tax benefit on share-based compensation expense
Balance – end of year
Retained earnings
Balance – beginning of year
Cumulative effect of adoption of accounting standards (refer to Note 1)
Balance – beginning of year, as adjusted
Net income
Funding of dividends declared from Additional paid-in capital
Dividends declared on Common Shares
Balance – end of year
Accumulated other comprehensive income (loss)
Net unrealized appreciation on investments
Balance – beginning of year
Cumulative effect of adoption of accounting standards (refer to Note 1)
Balance – beginning of year, as adjusted
Change in year, before reclassification from AOCI, net of income tax benefit (expense) of
$338, $(228), and $72
Amounts reclassified from AOCI, net of income tax benefit (expense) of $(41), $(13), and $28
Change in year, net of income tax benefit (expense) of $297, $(241), and $100
Balance – end of year
Cumulative foreign currency translation adjustment
Balance – beginning of year
Cumulative effect of adoption of accounting standards (refer to Note 1)
Balance – beginning of year, as adjusted
Change in year, net of income tax benefit of $35, $5, and $30
Balance – end of year
Postretirement benefit liability adjustment
Balance – beginning of year
Cumulative effect of adoption of accounting standards (refer to Note 1)
Balance – beginning of year, as adjusted
Change in year, net of income tax benefit (expense) of $67, $5, and $(184)
Balance – end of year
Accumulated other comprehensive income (loss)
Total shareholders’ equity
See accompanying notes to the consolidated financial statements
2018
2017
2016
$
11,121 $
11,121 $
—
11,121
(1,944)
(1,021)
347
(2,618)
13,978
—
—
(313)
(49)
285
(1,344)
—
12,557
27,474
264
27,738
3,962
1,344
(1,344)
31,700
1,450
(296)
1,154
(1,960)
261
(1,699)
(545)
(1,187)
(22)
(1,209)
(767)
(1,976)
280
47
327
—
11,121
(1,480)
(830)
366
(1,944)
15,335
—
—
(313)
(58)
331
(1,317)
—
13,978
23,613
—
23,613
3,861
1,317
(1,317)
27,474
1,058
—
1,058
390
2
392
1,450
(1,663)
—
(1,663)
476
(1,187)
291
—
291
(254)
73
(2,448)
50,312 $
(11)
280
543
51,172 $
$
7,833
3,288
11,121
(1,922)
—
442
(1,480)
4,481
11,916
323
(382)
(64)
313
(1,284)
32
15,335
19,478
—
19,478
4,135
1,284
(1,284)
23,613
874
—
874
37
147
184
1,058
(1,539)
—
(1,539)
(124)
(1,663)
(70)
—
(70)
361
291
(314)
48,275
F-8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Chubb Limited and Subsidiaries
For the years ended December 31, 2018, 2017, and 2016
(in millions of U.S. dollars)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash flows from operating activities
2018
2017
2016
$
3,962 $
3,861 $
4,135
Net realized (gains) losses
Amortization of premiums/discounts on fixed maturities
Amortization of purchased intangibles
Deferred income taxes
Unpaid losses and loss expenses
Unearned premiums
Future policy benefits
Insurance and reinsurance balances payable
Accounts payable, accrued expenses, and other liabilities
Income taxes payable
Insurance and reinsurance balances receivable
Reinsurance recoverable
Deferred policy acquisition costs
Other
Net cash flows from operating activities
Cash flows from investing activities
Purchases of fixed maturities available for sale
Purchases of to be announced mortgage-backed securities
Purchases of fixed maturities held to maturity
Purchases of equity securities
Sales of fixed maturities available for sale
Sales of to be announced mortgage-backed securities
Sales of equity securities
Maturities and redemptions of fixed maturities available for sale
Maturities and redemptions of fixed maturities held to maturity
Net change in short-term investments
Net derivative instruments settlements
Private equity contributions
Private equity distributions
Acquisition of subsidiaries (net of cash acquired of nil, nil, and $71)
Other
Net cash flows used for investing activities
Cash flows from financing activities
Dividends paid on Common Shares
Common Shares repurchased
Proceeds from issuance of long-term debt
Proceeds from issuance of repurchase agreements
Repayment of long-term debt
Repayment of repurchase agreements
Proceeds from share-based compensation plans
Policyholder contract deposits
Policyholder contract withdrawals
Other
Net cash flows used for financing activities
Effect of foreign currency rate changes on cash and restricted cash
Net increase (decrease) in cash and restricted cash
Cash and restricted cash – beginning of year
Cash and restricted cash – end of year
Supplemental cash flow information
Taxes paid
Interest paid
See accompanying notes to the consolidated financial statements
F-9
652
592
339
16
570
654
235
722
375
161
(981)
(1,165)
(301)
(351)
5,480
(24,700)
(35)
(456)
(207)
14,001
29
315
7,352
1,124
516
16
(1,337)
980
—
(533)
(2,935)
(1,337)
(1,044)
2,171
2,029
(2,001)
(2,019)
115
453
(358)
—
(1,991)
(65)
489
851
1,340 $
503 $
621 $
$
$
$
(84)
694
260
(527)
2,137
264
217
271
(517)
(365)
(243)
(1,248)
(317)
100
4,503
(25,720)
(27)
(352)
(173)
13,228
27
187
10,425
879
(537)
(265)
(648)
1,084
—
(530)
(2,422)
(1,308)
(801)
—
2,353
(501)
(2,348)
151
442
(307)
—
(2,319)
1
(237)
1,088
851 $
736 $
644 $
145
737
1,578
96
332
(680)
188
848
(97)
147
(616)
(358)
(1,449)
286
5,292
(30,759)
(56)
(282)
(146)
16,621
56
1,000
9,349
958
12,350
(168)
(553)
958
(14,248)
(402)
(5,322)
(1,173)
—
—
2,310
—
(2,311)
167
522
(253)
(4)
(742)
(25)
(797)
1,885
1,088
662
642
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Chubb Limited and Subsidiaries
1. Summary of significant accounting policies
a) Basis of presentation
Chubb Limited is a holding company incorporated in Zurich, Switzerland. Chubb Limited, through its subsidiaries, provides a
broad range of insurance and reinsurance products to insureds worldwide. Our results are reported through the following
business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America
Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. Refer to Note 14 for additional
information.
The accompanying consolidated financial statements, which include the accounts of Chubb Limited and its subsidiaries
(collectively, Chubb, we, us, or our), have been prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP) and, in the opinion of management, reflect all adjustments (consisting of normally recurring
accruals) necessary for a fair statement of the results and financial position for such periods. All significant intercompany
accounts and transactions, including internal reinsurance transactions, have been eliminated.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. Amounts included in the
Consolidated financial statements reflect our best estimates and assumptions; actual amounts could differ materially from these
estimates. Chubb's principal estimates include:
• unpaid loss and loss expense reserves, including long-tail asbestos and environmental (A&E) reserves;
•
future policy benefits reserves;
• amortization of deferred policy acquisition costs and value of business acquired (VOBA);
•
•
•
•
•
•
•
reinsurance recoverable, including a provision for uncollectible reinsurance;
the assessment of risk transfer for certain structured insurance and reinsurance contracts;
the valuation of the investment portfolio and assessment of other than temporary impairment (OTTI);
the valuation of deferred income taxes;
the valuation of derivative instruments related to guaranteed living benefits (GLB);
the valuation and amortization of purchased intangibles; and
the assessment of goodwill for impairment.
b) Premiums
Premiums are generally recorded as written upon inception of the policy. For multi-year policies for which premiums written are
payable in annual installments, only the current annual premium is included as written at policy inception due to the ability of
the insured/reinsured to commute or cancel coverage within the policy term. The remaining annual premiums are recorded as
written at each successive anniversary date within the multi-year term.
For property and casualty (P&C) insurance and reinsurance products, premiums written are primarily earned on a pro-rata basis
over the policy terms to which they relate. Unearned premiums represent the portion of premiums written applicable to the
unexpired portion of the policies in force. For retrospectively-rated policies, written premiums are adjusted to reflect expected
ultimate premiums consistent with changes to incurred losses, or other measures of exposure as stated in the policy, and earned
over the policy coverage period. For retrospectively-rated multi-year policies, premiums recognized in the current period are
computed using a with-and-without method as the difference between the ceding enterprise's total contract costs before and
after the experience under the contract at the reporting date. Accordingly, for retrospectively-rated multi-year policies, additional
premiums are generally written and earned when losses are incurred.
Mandatory reinstatement premiums assessed on reinsurance policies are earned in the period of the loss event that gave rise to
the reinstatement premiums. All remaining unearned premiums are recognized over the remaining coverage period.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Premiums from long-duration contracts such as certain traditional term life, whole life, endowment, and long-duration personal
accident and health (A&H) policies are generally recognized as revenue when due from policyholders. Traditional life policies
include those contracts with fixed and guaranteed premiums and benefits. Benefits and expenses are matched with income to
result in the recognition of profit over the life of the contracts.
Retroactive loss portfolio transfer (LPT) contracts in which the insured loss events occurred prior to contract inception are
evaluated to determine whether they meet criteria for reinsurance accounting. If reinsurance accounting is appropriate, written
premiums are fully earned and corresponding losses and loss expenses recognized at contract inception. These contracts can
cause significant variances in gross premiums written, net premiums written, net premiums earned, and net incurred losses in
the years in which they are written. Reinsurance contracts sold not meeting the criteria for reinsurance accounting are recorded
using the deposit method as described below in Note 1 k).
Reinsurance premiums assumed are based on information provided by ceding companies supplemented by our own estimates
of premium when we have not received ceding company reports. Estimates are reviewed and adjustments are recorded in the
period in which they are determined. Premiums are earned over the coverage terms of the related reinsurance contracts and
range from one to three years.
c) Deferred policy acquisition costs and value of business acquired
Policy acquisition costs consist of commissions (direct and ceded), premium taxes, and certain underwriting costs related
directly to the successful acquisition of new or renewal insurance contracts. A VOBA intangible asset is established upon the
acquisition of blocks of long-duration contracts in a business combination and represents the present value of estimated net
cash flows for the contracts in force at the acquisition date. Acquisition costs and VOBA, collectively policy acquisition costs,
are deferred and amortized. Amortization is recorded in Policy acquisition costs in the Consolidated statements of operations.
Policy acquisition costs on P&C contracts are generally amortized ratably over the period in which premiums are earned. Policy
acquisition costs on traditional long-duration contracts are amortized over the estimated life of the contracts, generally in
proportion to premium revenue recognized based upon the same assumptions used in estimating the liability for future policy
benefits. For non-traditional long-duration contracts, we amortize policy acquisition costs over the expected life of the contracts
in proportion to expected gross profits. The effect of changes in estimates of expected gross profits is reflected in the period the
estimates are revised. Policy acquisition costs are reviewed to determine if they are recoverable from future income, including
investment income. Unrecoverable policy acquisition costs are expensed in the period identified.
Advertising costs are expensed as incurred except for direct-response campaigns that qualify for cost deferral, principally related
to long-duration A&H business produced by the Overseas General Insurance segment, which are deferred and recognized as a
component of Policy acquisition costs. For individual direct-response marketing campaigns that we can demonstrate have
specifically resulted in incremental sales to customers and such sales have probable future economic benefits, incremental costs
directly related to the marketing campaigns are capitalized as Deferred policy acquisition costs. Deferred policy acquisition
costs, including deferred marketing costs, are reviewed regularly for recoverability from future income, including investment
income, and amortized in proportion to premium revenue recognized, primarily over a ten-year period, the expected economic
future benefit period based upon the same assumptions used in estimating the liability for future policy benefits. The expected
future benefit period is evaluated periodically based on historical results and adjusted prospectively. The amount of deferred
marketing costs reported in Deferred policy acquisition costs in the Consolidated balance sheets was $255 million and $271
million at December 31, 2018 and 2017, respectively. Amortization expense for deferred marketing costs was $114 million,
$116 million, and $92 million for the years ended December 31, 2018, 2017, and 2016, respectively.
d) Reinsurance
Chubb assumes and cedes reinsurance with other insurance companies to provide greater diversification of business and
minimize the net loss potential arising from large risks. Ceded reinsurance contracts do not relieve Chubb of its primary
obligation to policyholders.
For both ceded and assumed reinsurance, risk transfer requirements must be met in order to account for a contract as
reinsurance, principally resulting in the recognition of cash flows under the contract as premiums and losses. To meet risk
transfer requirements, a reinsurance contract must include insurance risk, consisting of both underwriting and timing risk, and a
reasonable possibility of a significant loss for the assuming entity. To assess risk transfer for certain contracts, Chubb generally
develops expected discounted cash flow analyses at contract inception. Deposit accounting is used for contracts that do not
meet risk transfer requirements. Deposit accounting requires that consideration received or paid be recorded in the balance
sheet as opposed to recording premiums written or losses incurred in the statement of operations. Non-refundable fees on
deposit contracts are earned based on the terms of the contract described below in Note 1 k).
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Reinsurance recoverable includes balances due from reinsurance companies for paid and unpaid losses and loss expenses and
future policy benefits that will be recovered from reinsurers, based on contracts in force. The method for determining the
reinsurance recoverable on unpaid losses and loss expenses incurred but not reported (IBNR) involves actuarial estimates
consistent with those used to establish the associated liability for unpaid losses and loss expenses as well as a determination of
Chubb's ability to cede unpaid losses and loss expenses under the terms of the reinsurance agreement.
Reinsurance recoverable is presented net of a provision for uncollectible reinsurance determined based upon a review of the
financial condition of reinsurers and other factors. The provision for uncollectible reinsurance is based on an estimate of the
reinsurance recoverable balance that will ultimately be unrecoverable due to reinsurer insolvency, a contractual dispute, or any
other reason. The valuation of this provision includes several judgments including certain aspects of the allocation of reinsurance
recoverable on IBNR claims by reinsurer and a default analysis to estimate uncollectible reinsurance. The primary components
of the default analysis are reinsurance recoverable balances by reinsurer, net of collateral, and default factors used to determine
the portion of a reinsurer's balance deemed uncollectible. The definition of collateral for this purpose requires some judgment
and is generally limited to assets held in a Chubb-only beneficiary trust, letters of credit, and liabilities held with the same legal
entity for which Chubb believes there is a contractual right of offset. The determination of the default factor is principally based
on the financial strength rating of the reinsurer. Default factors require considerable judgment and are determined using the
current financial strength rating, or rating equivalent, of each reinsurer as well as other key considerations and assumptions. The
more significant considerations include, but are not necessarily limited to, the following:
• For reinsurers that maintain a financial strength rating from a major rating agency, and for which recoverable balances are
considered representative of the larger population (i.e., default probabilities are consistent with similarly rated reinsurers
and payment durations conform to averages), the financial rating is based on a published source and the default factor is
based on published default statistics of a major rating agency applicable to the reinsurer's particular rating class. When a
recoverable is expected to be paid in a brief period of time by a highly rated reinsurer, such as certain property catastrophe
claims, a default factor may not be applied;
• For balances recoverable from reinsurers that are both unrated by a major rating agency and for which management is
unable to determine a credible rating equivalent based on a parent, affiliate, or peer company, we determine a rating
equivalent based on an analysis of the reinsurer that considers an assessment of the creditworthiness of the particular
entity, industry benchmarks, or other factors as considered appropriate. We then apply the applicable default factor for that
rating class. For balances recoverable from unrated reinsurers for which the ceded reserve is below a certain threshold, we
generally apply a default factor of 34 percent, consistent with published statistics of a major rating agency;
• For balances recoverable from reinsurers that are either insolvent or under regulatory supervision, we establish a default
factor and resulting provision for uncollectible reinsurance based on reinsurer-specific facts and circumstances. Upon initial
notification of an insolvency, we generally recognize an expense for a substantial portion of all balances outstanding, net of
collateral, through a combination of write-offs of recoverable balances and increases to the provision for uncollectible
reinsurance. When regulatory action is taken on a reinsurer, we generally recognize a default factor by estimating an
expected recovery on all balances outstanding, net of collateral. When sufficient credible information becomes available, we
adjust the provision for uncollectible reinsurance by establishing a default factor pursuant to information received; and
• For other recoverables, management determines the provision for uncollectible reinsurance based on the specific facts and
circumstances.
The methods used to determine the reinsurance recoverable balance and related provision for uncollectible reinsurance are
regularly reviewed and updated, and any resulting adjustments are reflected in earnings in the period identified.
Prepaid reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired coverage
terms of the reinsurance contracts in-force.
The value of reinsurance business assumed of $14 million and $18 million at December 31, 2018 and 2017, respectively,
included in Other assets in the accompanying Consolidated balance sheets, represents the excess of estimated ultimate value of
the liabilities assumed under retroactive reinsurance contracts over consideration received. The value of reinsurance business
assumed is amortized and recorded to Losses and loss expenses based on the payment pattern of the losses assumed and
ranges between 9 and 40 years. The unamortized value is reviewed regularly to determine if it is recoverable based upon the
terms of the contract, estimated losses and loss expenses, and anticipated investment income. Unrecoverable amounts are
expensed in the period identified.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
e) Investments
Fixed maturities, equity securities, and short-term investments
Fixed maturities are classified as either available for sale or held to maturity.
• Available for sale (AFS) portfolio is reported at fair value with changes in fair value recorded as a separate component of
AOCI in Shareholders' equity.
• Held to maturity (HTM) portfolio includes securities for which we have the ability and intent to hold to maturity or
redemption and is reported at amortized cost.
Equity securities are reported at fair value with changes in fair value recorded in net realized gains (losses) on the Consolidated
statement of operations. Prior to January 1, 2018, changes in fair value were recorded as a separate component of AOCI in
Shareholders' equity.
Short-term investments comprise securities due to mature within one year of the date of purchase and are recorded at fair value
which typically approximates cost.
Interest, dividend income, amortization of fixed maturity market premiums and discounts related to these securities are recorded
in Net investment income, net of investment management and custody fees, in the Consolidated statement of operations.
In addition, net investment income includes the amortization of the fair value adjustment related to the acquired invested assets
of The Chubb Corporation (Chubb Corp). An adjustment of $1,652 million related to the fair value of Chubb Corp’s fixed
maturities securities was recorded (fair value adjustment) at the date of acquisition. At December 31, 2018, the remaining
balance of this fair value adjustment was $520 million which is expected to amortize over the next three years; however, the
estimate could vary materially based on current market conditions, bond calls, and the duration of the acquired investment
portfolio. In addition, sales of these acquired fixed maturities would also reduce the fair value adjustment balance. For
mortgage-backed securities and any other holdings for which there is a prepayment risk, prepayment assumptions are evaluated
and revised as necessary. Any adjustments required due to the resultant change in effective yields and maturities are recognized
prospectively. Prepayment fees or call premiums that are only payable when a security is called prior to its maturity are earned
when received and reflected in Net investment income.
We regularly review our fixed maturities for other than temporary impairment (OTTI). Refer to Note 2 for additional information.
With respect to fixed maturities where the decline in value is determined to be temporary and is not written down, a subsequent
decision may be made to sell that security and realize a loss. Subsequent decisions on fixed maturities sales are the result of
changing or unforeseen facts and circumstances (i.e., arising from a large insured loss such as a catastrophe), deterioration of
the creditworthiness of the issuer or its industry, or changes in regulatory requirements. We believe that subsequent decisions to
sell such securities are consistent with the classification of the majority of the portfolio as available for sale.
Other investments
Other investments principally comprise investment funds, limited partnerships, partially-owned investment companies, life
insurance policies, policy loans, and non-qualified separate account assets.
Investment funds and limited partnerships
Investment funds, limited partnerships, and all other investments over which Chubb cannot exercise significant influence are
accounted for as follows. Generally, we own less than three percent of the investee’s shares.
•
Income and expenses from these funds are reported within Net investment income.
• These funds are carried at net asset value, which approximates fair value with changes in fair value recorded in net realized
gains (losses) on the Consolidated statement of operations. Refer to Note 3 for a further discussion on net asset value. Prior
to January 1, 2018, changes in fair value were recorded as a separate component of AOCI in Shareholders' equity.
• As a result of the timing of the receipt of valuation data from the investment managers, these investments are generally
reported on a three-month lag.
• Sales of these investments are reported within Net realized gains (losses).
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Partially-owned investment companies
Partially-owned investment companies where our ownership interest is in excess of three percent are accounted for under the
equity method because Chubb exerts significant influence. These investments apply investment company accounting to
determine operating results, and Chubb retains the investment company accounting in applying the equity method.
• This means that investment income, realized gains or losses, and unrealized gains or losses are included in the portion of
equity earnings reflected in Other (income) expense.
• As a result of the timing of the receipt of valuation data from the investment managers, these investments are generally
reported on a three-month lag.
Other
• Policy loans are carried at outstanding balance and interest income is reflected in Net investment income.
• Life insurance policies are carried at policy cash surrender value and income is reflected in Other (income) expense.
• Non-qualified separate account assets are supported by assets that do not qualify for separate accounting reporting under
GAAP. The underlying securities are recorded on a trade date basis and carried at fair value. Unrealized gains and losses on
non-qualified separate account assets are reflected in Other (income) expense.
Investments in partially-owned insurance companies
Investments in partially-owned insurance companies primarily represent direct investments in which Chubb has significant
influence and as such, meet the requirements for equity accounting. We report our share of the net income or loss of the
partially-owned insurance companies in Other (income) expense.
Derivative instruments
Chubb recognizes all derivatives at fair value in the Consolidated balance sheets in either Accounts payable, accrued expenses,
and other liabilities or Other assets. Changes in fair value are included in Net realized gains (losses) in the Consolidated
statements of operations. We did not designate any derivatives as accounting hedges during 2018, 2017, or 2016. We
participate in derivative instruments in two principal ways:
(i) To sell protection to customers as an insurance or reinsurance contract that meets the definition of a derivative for
accounting purposes. The reinsurance of GLBs was our primary product falling into this category; and
(ii) To mitigate financial risks and manage certain investment portfolio risks and exposures, including assets and liabilities held
in foreign currencies. We use derivative instruments including futures, options, swaps, and foreign currency. Refer to Note 9
for additional information.
Securities lending program
Chubb participates in a securities lending program operated by a third-party banking institution whereby certain assets are
loaned to qualified borrowers and from which we earn an incremental return which is recorded within Net investment income in
the Consolidated statement of operations.
Borrowers provide collateral, in the form of either cash or approved securities, at a minimum of 102 percent of the fair value of
the loaned securities. Each security loan is deemed to be an overnight transaction. Cash collateral is invested in a collateral pool
which is managed by the banking institution. The collateral pool is subject to written investment guidelines with key objectives
which include the safeguard of principal and adequate liquidity to meet anticipated redemptions. The fair value of the loaned
securities is monitored on a daily basis, with additional collateral obtained or refunded as the fair value of the loaned securities
changes. The collateral is held by the third-party banking institution, and the collateral can only be accessed in the event that
the institution borrowing the securities is in default under the lending agreement. As a result of these restrictions, we consider
our securities lending activities to be non-cash investing and financing activities. An indemnification agreement with the lending
agent protects us in the event a borrower becomes insolvent or fails to return any of the securities on loan.
The fair value of the securities on loan is included in fixed maturities and equity securities in the Consolidated balance sheets.
The securities lending collateral is reported as a separate line in the Consolidated balance sheets with a related liability
reflecting our obligation to return the collateral plus interest.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Repurchase agreements
Similar to securities lending arrangements, securities sold under repurchase agreements, whereby Chubb sells securities and
repurchases them at a future date for a predetermined price, are accounted for as collateralized investments and borrowings and
are recorded at the contractual repurchase amounts plus accrued interest. Assets to be repurchased are the same or
substantially the same as the assets transferred, and the transferor, through right of substitution, maintains the right and ability
to redeem the collateral on short notice. The fair value of the underlying securities is included in fixed maturities and equity
securities. In contrast to securities lending programs, the use of cash received is not restricted. We report the obligation to return
the cash as Repurchase agreements in the Consolidated balance sheets and record the fees under these repurchase agreements
within Interest expense on the Consolidated statement of operations.
Refer to Note 3 for a discussion on the determination of fair value for Chubb's various investment securities.
f) Cash
Cash includes cash on hand and deposits with an original maturity of three months or less at time of purchase.
We have agreements with a third-party bank provider which implemented two international multi-currency notional cash pooling
programs. In each program, participating Chubb entities establish deposit accounts in different currencies with the bank
provider and each day the credit or debit balances in every account are notionally translated into a single currency (U.S. dollars)
and then notionally pooled. The bank extends overdraft credit to any participating Chubb entity as needed, provided that the
overall notionally-pooled balance of all accounts in each pool at the end of each day is at least zero. Actual cash balances are
not physically converted and are not commingled between legal entities. Any overdraft balances incurred under this program by
a Chubb entity would be guaranteed by Chubb Limited (up to $300 million in the aggregate). Our syndicated letter of credit
facility allows for same day drawings to fund a net pool overdraft should participating Chubb entities overdraw contributed funds
from the pool.
Restricted cash
Restricted cash in the Consolidated balance sheets represents amounts held for the benefit of third parties and is legally or
contractually restricted as to withdrawal or usage. Amounts include deposits with U.S. and non-U.S. regulatory authorities, trust
funds set up for the benefit of ceding companies, and amounts pledged as collateral to meet financing arrangements.
Effective January 1, 2018, we retrospectively adopted guidance on "Restricted Cash" that clarified the presentation of restricted
cash on the Consolidated statement of cash flows. As a result, we revised the Consolidated statement of cash flows for the years
ended December 31, 2017 and 2016 to include restricted cash in the beginning and ending cash balances. In addition, we
reclassified $123 million of Restricted cash from Other assets to a separate line in the Consolidated balance sheets as of
December 31, 2017.
The following table provides a reconciliation of cash and restricted cash reported within the Consolidated balance sheets that
total to the amounts shown in the Consolidated statements of cash flows:
(in millions of U.S. dollars)
Cash
Restricted cash
Total cash and restricted cash shown in the Consolidated statements of cash flows
$
$
2018
1,247 $
93
1,340 $
December 31
2016
985
103
1,088
2017
728 $
123
851 $
g) Goodwill and Other intangible assets
Goodwill represents the excess of the cost of acquisitions over the fair value of net assets acquired and is not amortized.
Goodwill is assigned at acquisition to the applicable reporting unit of the acquired entities giving rise to the goodwill. Goodwill
impairment tests are performed annually or more frequently if circumstances indicate a possible impairment. For goodwill
impairment testing, we use a qualitative assessment to determine whether it is more likely than not (i.e., more than a 50
percent probability) that the fair value of a reporting unit is greater than its carrying amount. If our assessment indicates less
than a 50 percent probability that fair value exceeds carrying value, we quantitatively estimate a reporting unit's fair value.
Goodwill recorded in connection with investments in partially-owned insurance companies is recorded in Investments in
partially-owned insurance companies and is also measured for impairment annually.
Indefinite lived intangible assets are not subject to amortization. Finite lived intangible assets are amortized over their useful
lives, generally ranging from 1 to 30 years. Intangible assets are regularly reviewed for indicators of impairment. Impairment is
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
recognized if the carrying amount is not recoverable from its undiscounted cash flows and is measured as the difference
between the carrying amount and fair value.
h) Unpaid losses and loss expenses
A liability is established for the estimated unpaid losses and loss expenses under the terms of, and with respect to, Chubb's
policies and agreements. Similar to premiums that are recognized as revenues over the coverage period of the policy, a liability
for unpaid losses and loss expenses is recognized as expense when insured events occur over the coverage period of the policy.
This liability includes a provision for both reported claims (case reserves) and incurred but not reported claims (IBNR reserves).
IBNR reserve estimates are generally calculated by first projecting the ultimate cost of all losses that have occurred (expected
losses), and then subtracting paid losses, case reserves, and loss expenses. The methods of determining such estimates and
establishing the resulting liability are reviewed regularly and any adjustments are reflected in operations in the period in which
they become known. Future developments may result in losses and loss expenses materially greater or less than recorded
amounts.
Except for net loss and loss expense reserves of $33 million, net of discount, held at December 31, 2018, representing certain
structured settlements for which the timing and amount of future claim payments are reliably determinable and $40 million, net
of discount, of certain reserves for unsettled claims that are discounted in statutory filings, Chubb does not discount its P&C loss
reserves. This compares with reserves of $36 million for certain structured settlements and $41 million of certain reserves for
unsettled claims at December 31, 2017. Structured settlements represent contracts purchased from life insurance companies
primarily to settle workers' compensation claims, where payments to the claimant by the life insurance company are expected to
be made in the form of an annuity. Chubb retains the liability to the claimant in the event that the life insurance company fails
to pay. At December 31, 2018, the liability due to claimants was $581 million, net of discount, and reinsurance recoverables
due from the life insurance companies was $548 million, net of discount. For structured settlement contracts where payments
are guaranteed regardless of claimant life expectancy, the amounts recoverable from the life insurance companies at December
31, 2018 are included in Other assets in the Consolidated balance sheets, as they do not meet the requirements for reinsurance
accounting.
Included in Unpaid losses and loss expenses are liabilities for asbestos and environmental (A&E) claims and expenses. These
unpaid losses and loss expenses are principally related to claims arising from remediation costs associated with hazardous
waste sites and bodily-injury claims related to asbestos products and environmental hazards. The estimation of these liabilities
is particularly sensitive to changes in the legal environment including specific settlements that may be used as precedents to
settle future claims. However, Chubb does not anticipate future changes in laws and regulations in setting its A&E reserve levels.
Also included in Unpaid losses and loss expenses is the fair value adjustment of $207 million and $309 million at December
31, 2018 and December 31, 2017, respectively, related to Chubb Corp’s historical unpaid losses and loss expenses. The
estimated fair value consists of the present value of the expected net unpaid loss and loss adjustment expense payments
adjusted for an estimated risk margin. The estimated cash flows are discounted at a risk free rate. The estimated risk margin
varies based on the inherent risks associated with each type of reserve. The fair value is amortized through Amortization of
purchased intangibles on the consolidated statements of operations through the year 2032, based on the estimated payout
patterns of unpaid loss and loss expenses at the acquisition date.
Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves first
reported in previous calendar years and excludes the effect of losses from the development of earned premiums from previous
accident years.
For purposes of analysis and disclosure, management views prior period development to be changes in the nominal value of loss
estimates from period to period, net of premium and profit commission adjustments on loss sensitive contracts. Prior period
development generally excludes changes in loss estimates that do not arise from the emergence of claims, such as those related
to uncollectible reinsurance, interest, unallocated loss adjustment expenses, or foreign currency. Accordingly, specific items
excluded from prior period development include the following: gains/losses related to foreign currency remeasurement; losses
recognized from the early termination or commutation of reinsurance agreements that principally relate to the time value of
money; changes in the value of reinsurance business assumed reflected in losses incurred but principally related to the time
value of money; and losses that arise from changes in estimates of earned premiums from prior accident years. Except for
foreign currency remeasurement, which is included in Net realized gains (losses), these items are included in current year
losses.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
i) Future policy benefits
The valuation of long-duration contract reserves requires management to make estimates and assumptions regarding expenses,
mortality, persistency, and investment yields. Estimates are primarily based on historical experience and information provided by
ceding companies and include a margin for adverse deviation. Interest rates used in calculating reserves range from less than
1.0 percent to 11.0 percent and less than 1.0 percent to 8.0 percent at December 31, 2018 and 2017, respectively. Actual
results could differ materially from these estimates. Management monitors actual experience and where circumstances warrant,
will revise assumptions and the related reserve estimates. Revisions are recorded in the period they are determined.
Certain of our long-duration contracts are supported by assets that do not qualify for separate account reporting under GAAP.
These assets are classified as non-qualified separate account assets and reported in Other investments and the offsetting
liabilities are reported in Future policy benefits in the Consolidated balance sheets. Changes in the fair value of separate account
assets that do not qualify for separate account reporting under GAAP are reported in Other income (expense) and the offsetting
movements in the liabilities are included in Policy benefits in the Consolidated statements of operations.
j) Assumed reinsurance programs involving minimum benefit guarantees under variable annuity contracts
Chubb reinsures various death and living benefit guarantees associated with variable annuities issued primarily in the United
States. We generally receive a monthly premium during the accumulation phase of the covered annuities (in-force) based on a
percentage of either the underlying accumulated account values or the underlying accumulated guaranteed values. Depending
on an annuitant's age, the accumulation phase can last many years. To limit our exposure under these programs, all reinsurance
treaties include annual or aggregate claim limits and many include an aggregate deductible.
The guarantees which are payable on death, referred to as guaranteed minimum death benefits (GMDB), principally cover
shortfalls between accumulated account value at the time of an annuitant's death and either i) an annuitant's total deposits; ii)
an annuitant's total deposits plus a minimum annual return; or iii) the highest accumulated account value attained at any policy
anniversary date. In addition, a death benefit may be based on a formula specified in the variable annuity contract that uses a
percentage of the growth of the underlying contract value. Liabilities for GMDBs are based on cumulative assessments or
premiums to date multiplied by a benefit ratio that is determined by estimating the present value of benefit payments and
related adjustment expenses divided by the present value of cumulative assessment or expected premiums during the contract
period.
Under reinsurance programs covering GLBs, we assume the risk of guaranteed minimum income benefits (GMIB) associated
with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated
account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed
minimum level of monthly income. We also assume the risk of guaranteed minimum accumulation benefits (GMAB). However,
at December 31, 2018, the risks related to our GMAB programs are minimal given that the majority of these policies are no
longer in force. Our GLB reinsurance products meet the definition of a derivative for accounting purposes and are carried at fair
value with changes in fair value recognized in Realized gains (losses) in the Consolidated statement of operations. Refer to
Notes 4 c) and 9 a) for additional information.
k) Deposit assets and liabilities
Deposit assets arise from ceded reinsurance contracts purchased that do not transfer significant underwriting or timing risk.
Deposit liabilities include reinsurance deposit liabilities and contract holder deposit funds. The reinsurance deposit liabilities
arise from contracts sold for which there is not a significant transfer of risk. Contract holder deposit funds represent a liability for
investment contracts sold that do not meet the definition of an insurance contract, and certain of these contracts are sold with a
guaranteed rate of return. Under deposit accounting, consideration received or paid is recorded as a deposit asset or liability in
the balance sheet as opposed to recording premiums and losses in the statement of operations.
Interest income on deposit assets, representing the consideration received or to be received in excess of cash payments related
to the deposit contract, is earned based on an effective yield calculation. The calculation of the effective yield is based on the
amount and timing of actual cash flows at the balance sheet date and the estimated amount and timing of future cash flows.
The effective yield is recalculated periodically to reflect revised estimates of cash flows. When a change in the actual or
estimated cash flows occurs, the resulting change to the carrying amount of the deposit asset is reported as income or expense.
Deposit assets of $97 million and $89 million at December 31, 2018 and 2017, respectively, are reflected in Other assets in
the Consolidated balance sheets and the accretion of deposit assets related to interest pursuant to the effective yield calculation
is reflected in Net investment income in the Consolidated statements of operations.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Deposit liabilities include reinsurance deposit liabilities of $97 million and $100 million and contract holder deposit funds of
$1.8 billion at both December 31, 2018 and 2017. Deposit liabilities are reflected in Accounts payable, accrued expenses, and
other liabilities in the Consolidated balance sheets. At contract inception, the deposit liability equals net cash received. An
accretion rate is established based on actuarial estimates whereby the deposit liability is increased to the estimated amount
payable over the contract term. The deposit accretion rate is the rate of return required to fund expected future payment
obligations. We periodically reassess the estimated ultimate liability and related expected rate of return. Changes to the deposit
liability are generally reflected through Interest expense to reflect the cumulative effect of the period the contract has been in
force, and by an adjustment to the future accretion rate of the liability over the remaining estimated contract term.
The liability for contract holder deposit funds equals accumulated policy account values, which consist of the deposit payments
plus credited interest less withdrawals and amounts assessed through the end of the period.
l) Property and Equipment
Property and equipment used in operations are capitalized and carried at cost less accumulated depreciation and are reported
within Other assets in the Consolidated balance sheets. At December 31, 2018, property and equipment totaled $1.7 billion,
consisting principally of capitalized software costs of $970 million incurred to develop or obtain computer software for internal
use and company-owned facilities of $277 million. Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets. For capitalized software, the estimated useful life is generally three to five years, but can be as long as
15 years and for company-owned facilities the estimated useful life is 39 years. At December 31, 2017, property and
equipment totaled $1.3 billion.
m) Foreign currency remeasurement and translation
The functional currency for each of our foreign operations is generally the currency of the local operating environment.
Transactions in currencies other than a foreign operation's functional currency are remeasured into the functional currency, and
the resulting foreign exchange gains and losses are reflected in Net realized gains (losses) in the Consolidated statements of
operations. Functional currency assets and liabilities are translated into the reporting currency, U.S. dollars, using period end
exchange rates and the related translation adjustments are recorded as a separate component of AOCI in Shareholders' equity.
Functional statement of operations amounts expressed in functional currencies are translated using average exchange rates.
n) Administrative expenses
Administrative expenses generally include all operating costs other than policy acquisition costs. The North America Commercial
P&C Insurance segment manages and uses an in-house third-party claims administrator, ESIS Inc. (ESIS). ESIS performs claims
management and risk control services for domestic and international organizations that self-insure P&C exposures as well as
internal P&C exposures. The net operating results of ESIS are included within Administrative expenses in the Consolidated
statements of operations and were $49 million, $38 million, and $32 million for the years ended December 31, 2018, 2017,
and 2016, respectively.
o) Income taxes
Income taxes have been recorded related to those operations subject to income tax. Deferred tax assets and liabilities result
from temporary differences between the amounts recorded in the consolidated financial statements and the tax basis of our
assets and liabilities. The effect on deferred tax assets and liabilities of a change in tax law or rates is recognized in the period
that includes the enactment date. A valuation allowance against deferred tax assets is recorded if it is more likely than not that
all, or some portion, of the benefits related to these deferred tax assets will not be realized. The valuation allowance assessment
considers tax planning strategies, where appropriate.
We recognize uncertain tax positions deemed more likely than not of being sustained upon examination. Recognized income tax
positions are measured at the largest amount that has a greater than 50 percent likelihood of being realized. Changes in
recognition or measurement are reflected in the period in which the change in judgment occurs.
p) Earnings per share
Basic earnings per share is calculated using the weighted-average shares outstanding, including participating securities with
non-forfeitable rights to dividends such as unvested restricted stock. All potentially dilutive securities, including stock options
are excluded from the basic earnings per share calculation. In calculating diluted earnings per share, the weighted-average
shares outstanding is increased to include all potentially dilutive securities. Basic and diluted earnings per share are calculated
by dividing net income by the applicable weighted-average number of shares outstanding during the year.
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
q) Cash flow information
Premiums received and losses paid associated with the GLB reinsurance products, which as discussed previously, meet the
definition of a derivative instrument for accounting purposes, are included within Cash flows from operating activities. Cash
flows, such as settlements and collateral requirements, associated with GLB and all other derivative instruments, are included
on a net basis within Cash flows from investing activities. Purchases, sales, and maturities of short-term investments are
recorded on a net basis within Cash flows from investing activities.
r) Share-based compensation
Chubb measures and records compensation cost for all share-based payment awards at grant-date fair value. Compensation
costs are recognized for vesting of share-based payment awards with only service conditions on a straight-line basis over the
requisite service period for each separately vesting portion of the award as if the award were, in substance, multiple awards. For
retirement-eligible participants, compensation costs for certain share-based payment awards are recognized immediately at the
date of grant. Refer to Note 11 for additional information.
s) Chubb integration expenses
Direct costs related to the Chubb Corp acquisition were expensed as incurred. Chubb integration expenses were $59 million,
$310 million, and $492 million for the years ended December 31, 2018, 2017 and 2016, respectively, and include all
internal and external costs directly related to the integration activities of the Chubb Corp acquisition. These expenses principally
consisted of personnel-related expenses, consulting fees, and rebranding.
t) New accounting pronouncements
Adopted in 2018
Revenue from Contracts with Customers
Effective January 2018, we adopted new accounting guidance on "Revenue from Contracts with Customers" on a prospective
basis. The standard excludes from its scope the accounting for insurance contracts, leases, financial instruments, and certain
other agreements that are governed under other GAAP guidance, but could affect the revenue recognition for certain of our
claims management and risk control services. The updated guidance requires an entity to recognize revenue as performance
obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the
consideration the entity is entitled to receive for those goods or services. The adoption of this guidance did not have a material
impact on our financial condition or results of operations given that the majority of our business is outside the scope of this
guidance.
Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities
Effective January 2018, we adopted new accounting guidance on "Recognition and Measurement of Financial Assets and
Financial Liabilities" on a modified-retrospective basis. The guidance requires equity investments, other than those accounted for
under the equity method of accounting, to be measured at fair value with changes in fair value recognized through net income.
The guidance impacts our public equities and cost-method private equities. As a result, we recorded a cumulative-effect
adjustment to increase beginning Retained earnings by $417 million after tax ($454 million pre-tax), representing the
unrealized appreciation on our equity investments as of December 31, 2017 with an offsetting adjustment to decrease
beginning Accumulated other comprehensive income. All subsequent changes in fair value of our equity investments are
recognized within realized gains (losses) on the Consolidated statement of operations. Prior period amounts have not been
adjusted and continue to be reported in accordance with the previous accounting guidance.
Income Tax Accounting Implications of the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (2017 Tax Act) was enacted in December 2017. Among other things, the 2017 Tax Act reduced the
U.S. Federal income tax rate to 21 percent from 35 percent effective in 2018, and instituted a dividends received deduction for
foreign earnings with a related tax for the deemed repatriation of unremitted foreign earnings. The 2017 Tax Act also included
provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes may be imposed on income of foreign subsidiaries,
and for a Base Erosion and Anti-Abuse Tax (BEAT) under which taxes may be imposed on certain payments to affiliated foreign
companies.
The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (SAB 118), Income Tax Accounting
Implications of the Tax Cuts and Jobs Act, which provided guidance for the application of the 2017 Tax Act and allowed
companies up to one year to complete their accounting. In connection with the 2017 Tax Act, we recorded a $450 million
income tax provisional benefit in the fourth quarter of 2017. In 2018, we recorded an additional benefit of $25 million as a
measurement period adjustment, resulting in a final transition benefit of $475 million. This change reflected the favorable
impact of changes to certain tax only accounting methods offset by updates to provisional amounts recorded related to foreign
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
tax credits and withholding taxes as a result of additional guidance issued during 2018. Refer to Note 7 for additional
information.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued guidance that allows the optional reclassification from Accumulated other comprehensive
income (AOCI) to Retained earnings of the stranded tax effects resulting from the 2017 Tax Act for all items accounted for in
AOCI. We adopted the standard in 2018 and elected to reclassify $146 million of stranded tax effects from beginning AOCI to
beginning Retained earnings. The stranded tax effects included $121 million of tax expense related to Net unrealized
appreciation of investments, $47 million of tax expense related to Postretirement benefit liability, and a tax benefit of $22
million related to Cumulative foreign currency translation losses as of December 31, 2017.
Intra-Entity Transfers of Assets Other than Inventory
Effective January 2018, we adopted new accounting guidance on “Intra-Entity Transfers of Assets Other Than Inventory” on a
modified-retrospective basis. Under the new guidance, we will no longer defer taxes on intra-company asset transfers and will
recognize any related income tax expense (benefit) immediately through the Consolidated statement of operations. As a result,
we recorded a cumulative-effect adjustment to decrease beginning Retained earnings by $7 million, representing the removal of
the deferred tax assets for previous intra-company asset transfer transactions not yet recognized through earnings.
Changes to the Disclosure Requirements for Fair Value Measurements
In August 2018, the FASB issued amendments to modify the disclosure requirements on fair value measurements. The
amendments allow for the removal of (1) the amount and reasons for transfer between Level 1 and Level 2 of the fair value
hierarchy; (2) the policy for transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. This
update also requires the expanded discussion on unobservable inputs that are significant to the fair value measurement. We
have early adopted the amendments that allow the removal of certain disclosures and deferred the adoption of the additional
disclosure until the effective date in the first quarter of 2020, as permitted. The guidance changes disclosure only and did not
have an impact on our financial condition or results of operations.
Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued amendments to allow for the removal and addition of various disclosure requirements related
to defined benefit pension or other postretirement plans. We elected to early adopt this guidance in the fourth quarter of 2018,
as permitted. The guidance changes disclosures only and did not have an impact on our financial condition or results of
operations.
Adopted in 2019
Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB issued guidance on the amortization period for purchased callable debt securities held at a premium.
The guidance requires the premium to be amortized to the earliest call date. Under current guidance, premiums generally are
amortized over the contracted life of the security. We adopted this guidance on January 1, 2019 on a modified retrospective
basis through a cumulative effect adjustment which decreased beginning retained earnings by approximately $15 million pre-
tax, or $11 million after-tax. Securities held at a discount do not require an accounting change.
Lease Accounting
In February 2016, the FASB issued accounting guidance requiring leases with lease terms of more than 12 months to recognize
a right of use asset and a corresponding lease liability on the balance sheets. We adopted this guidance on January 1, 2019 on
a modified retrospective basis and recognized a right of use asset and a corresponding lease liability for our real estate leases of
approximately $800 million. The adoption of this guidance did not have a material effect on our results of operations, financial
condition or liquidity.
Accounting guidance not yet adopted
Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued guidance on the accounting for credit losses of financial instruments that are measured at
amortized cost, including held to maturity securities and reinsurance recoverables, by applying an approach based on the
current expected credit losses (CECL). The estimate of expected credit losses should consider historical information, current
information, as well as reasonable and supportable forecasts, including estimates of prepayments. The allowance for credit
losses is a valuation account that is deducted from the amortized cost basis of the financial asset in order to present the net
carrying value at the amount expected to be collected on the financial asset on the Consolidated balance sheet.
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The guidance also amends the current debt security other-than-temporary impairment model by requiring an estimate of the
expected credit loss (ECL) only when the fair value is below the amortized cost of the asset. The length of time the fair value of
an AFS debt security has been below the amortized cost will no longer impact the determination of whether a potential credit
loss exists. The AFS debt security model will also require the use of a valuation allowance as compared to the current practice
of writing down the asset.
The standard is effective for us in the first quarter of 2020 with early adoption permitted. We will be able to assess the effect of
adopting this guidance on our financial condition and results of operations closer to the date of adoption.
Targeted Improvements to the Accounting for Long-Duration Contracts
In August 2018, the FASB issued guidance to improve the existing recognition, measurement, presentation, and disclosure
requirements for long-duration contracts issued by an insurance entity. The amendments in this update require more frequent
updating of assumptions and a standardized discount rate for the future policy benefit liability, a requirement to use the fair
value measurement model for policies with market risk benefits, simplified amortization of deferred acquisition costs, and
enhanced disclosures.
This standard will be effective for us in the first quarter of 2021 with early adoption permitted. We are currently assessing the
effect of adopting this guidance on our financial condition and results of operations. We will be better able to quantify the effect
of adopting this standard as we progress in our implementation process and draw nearer to the date of adoption.
2. Investments
a) Fixed maturities
December 31, 2018
(in millions of U.S. dollars)
Available for sale
U.S. Treasury and agency
Foreign
Corporate securities
Mortgage-backed securities
States, municipalities, and political subdivisions
Held to maturity
U.S. Treasury and agency
Foreign
Corporate securities
Mortgage-backed securities
States, municipalities, and political subdivisions
Amortized
Cost
Gross
Unrealized
Appreciation
Gross
Unrealized
Depreciation
Fair
Value
OTTI
Recognized
in AOCI
$
4,158 $
30 $
(43) $
4,145 $
$
$
21,370
27,183
15,758
10,854
395
150
66
49
(349)
(750)
(284)
(117)
21,416
26,583
15,540
10,786
79,323 $
690 $
(1,543) $
78,470 $
1,185 $
8 $
(11) $
1,182 $
1,549
2,601
2,524
5,576
11
11
5
16
(18)
(104)
(43)
(51)
1,542
2,508
2,486
5,541
$
13,435 $
51 $
(227) $
13,259 $
—
—
(6)
(1)
—
(7)
—
—
—
—
—
—
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
December 31, 2017
(in millions of U.S. dollars)
Available for sale
U.S. Treasury and agency
Foreign
Corporate securities
Mortgage-backed securities
States, municipalities, and political subdivisions
Held to maturity
U.S. Treasury and agency
Foreign
Corporate securities
Mortgage-backed securities
States, municipalities, and political subdivisions
Amortized
Cost
Gross
Unrealized
Appreciation
Gross
Unrealized
Depreciation
Fair
Value
OTTI
Recognized
in AOCI
$
3,701 $
32 $
(35) $
3,698 $
$
$
20,514
23,453
15,279
14,888
622
638
111
125
(106)
(95)
(100)
(88)
21,030
23,996
15,290
14,925
77,835 $
1,528 $
(424) $
78,939 $
908 $
12 $
(5) $
915 $
1,738
3,159
2,724
5,806
27
67
23
50
(8)
(7)
(5)
(15)
1,757
3,219
2,742
5,841
$
14,335 $
179 $
(40) $
14,474 $
—
(1)
(4)
(1)
—
(6)
—
—
—
—
—
—
As discussed in Note 2 c), if a credit loss is incurred on an impaired fixed maturity, an OTTI is considered to have occurred and
the portion of the impairment not related to credit losses (non-credit OTTI) is recognized in OCI. Included in the “OTTI
Recognized in AOCI” columns above are the cumulative amounts of non-credit OTTI recognized in OCI adjusted for subsequent
sales, maturities, and redemptions. OTTI recognized in AOCI does not include the impact of subsequent changes in fair value of
the related securities. In periods subsequent to a recognition of OTTI in OCI, changes in the fair value of the related fixed
maturities are reflected in Net unrealized appreciation on investments in the Consolidated statements of shareholders' equity.
For the years ended December 31, 2018 and 2017, net unrealized depreciation of $4 million and $2 million, respectively,
related to such securities are included in OCI. At December 31, 2018 and 2017, AOCI included cumulative net unrealized
appreciation of $1 million and $7 million, respectively, related to securities remaining in the investment portfolio for which a
non-credit OTTI was recognized.
Mortgage-backed securities (MBS) issued by U.S. government agencies are combined with all other to be announced mortgage-
backed securities held (refer to Note 9 b) (iv)) and are included in the category, “Mortgage-backed securities”. Approximately 81
percent and 83 percent of the total mortgage-backed securities at December 31, 2018 and 2017, respectively, are represented
by investments in U.S. government agency bonds. The remainder of the mortgage exposure consists of collateralized mortgage
obligations and non-government mortgage-backed securities, the majority of which provide a planned structure for principal and
interest payments and carry a rating of AAA by the major credit rating agencies.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following table presents fixed maturities by contractual maturity:
(in millions of U.S. dollars)
Available for sale
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Mortgage-backed securities
Held to maturity
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Mortgage-backed securities
December 31
2018
December 31
2017
Amortized Cost
Fair Value
Amortized Cost
Fair Value
$
3,569 $
3,568 $
3,164 $
$
$
27,134
24,095
8,767
63,565
15,758
27,005
23,543
8,814
62,930
15,540
24,749
25,388
9,255
62,556
15,279
79,323 $
78,470 $
77,835 $
536 $
537 $
743 $
3,122
4,468
2,785
10,911
2,524
3,106
4,407
2,723
10,773
2,486
2,669
4,744
3,455
11,611
2,724
$
13,435 $
13,259 $
14,335 $
3,182
25,068
25,704
9,695
63,649
15,290
78,939
746
2,688
4,756
3,542
11,732
2,742
14,474
Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations,
with or without call or prepayment penalties.
b) Equity securities and Other investments
Effective January 1, 2018, we adopted new accounting guidance that requires any changes in fair value of equity securities and
other investments that are accounted for under the cost-method to be recognized immediately in realized gains and losses in net
income. As a result, beginning on January 1, 2018, realized gains and losses from these investments include both sales of
securities and unrealized gains and losses as follows:
(in millions of U.S. dollars)
Net losses recognized during the period
Less: Net gains recognized from sales of securities
Unrealized losses recognized for securities still held at reporting date
Year Ended December 31, 2018
Equity
Securities
Other
Investments
$
$
(59) $
70
(5) $
121
(129) $
(126) $
Total
(64)
191
(255)
At December 31, 2017, the cost, gross unrealized appreciation, gross unrealized depreciation, and fair value of equity securities
was $737 million, $212 million, $12 million, and $937 million, respectively. At December 31, 2017, the net unrealized
appreciation (depreciation) was recorded within accumulated other comprehensive income on the balance sheet.
c) Net realized gains (losses)
In accordance with guidance related to the recognition and presentation of OTTI, when an impairment related to a fixed
maturity has occurred, OTTI is required to be recorded in Net income if management has the intent to sell the security or it is
more likely than not that we will be required to sell the security before the recovery of its amortized cost. Further, in cases
where we do not intend to sell the security and it is more likely than not that we will not be required to sell the security, we
must evaluate the security to determine the portion of the impairment, if any, related to credit losses. If a credit loss is incurred,
an OTTI is considered to have occurred and any portion of the OTTI related to credit losses must be reflected in Net income
while the portion of OTTI related to all other factors is recognized in OCI. For fixed maturities held to maturity, OTTI recognized
in OCI is accreted from AOCI to the amortized cost of the fixed maturity prospectively over the remaining term of the securities.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Each quarter, securities in an unrealized loss position (impaired securities), including fixed maturities and securities lending
collateral are reviewed to identify impaired securities to be specifically evaluated for a potential OTTI.
Evaluation of potential credit losses related to fixed maturities
We review each fixed maturity in an unrealized loss position to assess whether the security is a candidate for credit loss.
Specifically, we consider credit rating, market price, and issuer-specific financial information, among other factors, to assess the
likelihood of collection of all principal and interest as contractually due. Securities, for which we determine that credit loss is
likely, are subjected to further analysis to estimate the credit loss recognized in Net income, if any. In general, credit loss
recognized in Net income equals the difference between the security’s amortized cost and the net present value of its projected
future cash flows discounted at the effective interest rate implicit in the debt security. All significant assumptions used in
determining credit losses are subject to change as market conditions evolve.
U.S. Treasury and agency obligations (including agency mortgage-backed securities); foreign government obligations; and states,
municipalities, and political subdivisions obligations
U.S. Treasury and agency obligations (including agency mortgage-backed securities); foreign government obligations; and
states, municipalities, and political subdivisions obligations represent $630 million of gross unrealized loss at December 31,
2018. These securities were evaluated for credit loss primarily using qualitative assessments of the likelihood of credit loss
considering credit rating of the issuers and level of credit enhancement, if any. We concluded that the high level of
creditworthiness of the issuers coupled with credit enhancement, where applicable, supports recognizing no credit loss in Net
income.
Corporate securities
Projected cash flows for corporate securities (principally senior unsecured bonds) are driven primarily by assumptions regarding
probability of default and also the timing and amount of recoveries associated with defaults. Chubb developed projected cash
flows for corporate securities using market observable data, issuer-specific information, and credit ratings. We use historical
default data by Moody’s Investors Service (Moody’s) rating category to calculate a 1-in-100 year probability of default, which
results in a default assumption in excess of the historical mean default rate. Consistent with management's approach, Chubb
assumed a 32 percent recovery rate (the par value of a defaulted security that will be recovered) across all rating categories,
rather than using Moody's historical mean recovery rate of 42 percent. We believe that use of a default assumption, in excess of
the historical mean is conservative.
The following table presents default assumptions by Moody's rating category (historical mean default rate provided for comparison):
Moody's Rating Category
Investment Grade:
Aaa-Baa
Below Investment Grade:
Ba
B
Caa-C
1-in-100 Year
Default Rate
Historical Mean
Default Rate
0.0 - 1.3%
0.0 - 0.3%
4.8%
12.0%
36.6%
1.0%
3.2%
10.5%
Application of the methodology and assumptions described above resulted in credit losses recognized in Net income for
corporate securities of $25 million, $5 million, and $30 million for the years ended December 31, 2018, 2017, and 2016,
respectively.
Mortgage-backed securities
For mortgage-backed securities, credit impairment is assessed using a cash flow model that estimates the cash flows on the
underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the
underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction
structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual
cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a
number of assumptions, including default rates, prepayment rates, and loss severity rates (the par value of a defaulted security
that will not be recovered) on foreclosed properties.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
We develop specific assumptions using market data, where available, and include internal estimates as well as estimates published
by rating agencies and other third-party sources. We project default rates by mortgage sector considering current underlying
mortgage loan performance, generally assuming lower loss severity for Prime sector bonds versus ALT-A and Sub-prime bonds.
These estimates are extrapolated along a default timing curve to estimate the total lifetime pool default rate. Other assumptions
used contemplate the actual collateral attributes, including geographic concentrations, rating agency loss projections, rating
actions, and current market prices. If cash flow projections indicate that losses will exceed the credit enhancement for a given
tranche, then we do not expect to recover our amortized cost basis, and we recognize an estimated credit loss in Net income.
For the years ended December 31, 2018 and 2017, there were no credit losses recognized in Net income for mortgage-backed
securities. For the year ended December 31, 2016, there was $1 million of credit losses recognized in Net income for
mortgage-backed securities.
The following table presents the components of Net realized gains (losses) and the change in net unrealized appreciation
(depreciation) of investments:
(in millions of U.S. dollars)
Fixed maturities:
OTTI on fixed maturities, gross
OTTI on fixed maturities recognized in OCI (pre-tax)
OTTI on fixed maturities, net
Gross realized gains excluding OTTI
Gross realized losses excluding OTTI
Total fixed maturities
Equity securities:
OTTI on equity securities
Gross realized gains excluding OTTI
Gross realized losses excluding OTTI
Total equity securities
OTTI on other investments
Other investments
Foreign exchange gains
Investment and embedded derivative instruments
Fair value adjustments on insurance derivative
S&P put options and futures
Other derivative instruments
Other
Net realized gains (losses) (pre-tax)
Change in net unrealized appreciation (depreciation) on investments (pre-tax):
Fixed maturities available for sale
Fixed maturities held to maturity
Equity securities
Other
Income tax (expense) benefit
Change in net unrealized appreciation (depreciation) on investments (after-tax)
Year Ended December 31
2018
2017
2016
$
(52) $
(24) $
3
(49)
334
(587)
(302)
—
74
(133)
(59)
—
(5)
131
(75)
(248)
(4)
(3)
(87)
1
(23)
149
(157)
(31)
(10)
28
(2)
16
(12)
—
36
(11)
364
(261)
(5)
(12)
$
$
(652) $
84 $
(1,958) $
519 $
(38)
—
—
297
18
88
8
(241)
$
(1,699) $
392 $
(89)
8
(81)
183
(265)
(163)
(8)
65
(13)
44
(14)
—
118
(33)
53
(136)
(10)
(4)
(145)
142
(59)
52
(51)
100
184
Other net realized gains (losses) for the year ended December 31, 2018, included a $36 million loss from the extinguishment
of debt as discussed in Note 8 to the Consolidated Financial Statements, a $24 million loss related to lease impairments, and a
$23 million loss related to the impairment of fixed assets.
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following table presents a roll-forward of pre-tax credit losses related to fixed maturities for which a portion of OTTI was
recognized in OCI:
(in millions of U.S. dollars)
Balance of credit losses related to securities still held – beginning of year
Additions where no OTTI was previously recorded
Additions where an OTTI was previously recorded
Reductions for securities sold during the period
Balance of credit losses related to securities still held – end of year
Year Ended December 31
2018
2017
2016
$
$
22 $
35 $
20
5
(13)
34 $
4
2
(19)
22 $
53
17
14
(49)
35
d) Other investments
(in millions of U.S. dollars)
Partially-owned investment companies
Limited partnerships
Investment funds
Other
Life insurance policies
Policy loans
Non-qualified separate account assets
Other
Total
December 31
2018
Cost
Fair Value
December 31
2017
Cost
Fair Value
$
3,623 $
3,623 $
2,803 $
2,803
538
83
304
243
252
234
538
83
304
243
252
234
549
270
305
244
333
168
441
123
305
244
333
168
$
5,277 $
5,277 $
4,672 $
4,417
Included in limited partnerships and partially-owned investment companies are 145 individual limited partnerships covering a
broad range of investment strategies including large cap buyouts, specialist buyouts, growth capital, distressed, mezzanine, real
estate, and co-investments. The underlying portfolio consists of various public and private debt and equity securities of publicly
traded and privately held companies and real estate assets. The underlying investments across various partnerships,
geographies, industries, asset types, and investment strategies provide risk diversification within the limited partnership
portfolio and the overall investment portfolio. Investment funds include one highly diversified fund investment as well as several
direct funds that employ a variety of investment styles such as long/short equity and arbitrage/distressed. Non-qualified separate
account assets are comprised of mutual funds, supported by assets that do not qualify for separate account reporting under
GAAP.
During 2018, we converted a $28 million loan into additional ownership interest in an investment classified within Other in the
table above. This was a non-cash transaction and therefore excluded from our Consolidated statements of cash flows.
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
e) Investments in partially-owned insurance companies
The following table presents Investments in partially-owned insurance companies:
(in millions of U.S. dollars, except for percentages)
Huatai Group
Huatai Life Insurance Company
Freisenbruch-Meyer
Chubb Arabia Cooperative Insurance Company
Russian Reinsurance Company
ABR Reinsurance Ltd.
Total
December 31, 2018
December 31, 2017
Issued
Share
Capital
Ownership
Percentage
Carrying
Value
Issued
Share
Capital
Ownership
Percentage
587
472
—
27
4
774
20% $
438
$
20%
40%
30%
23%
12%
105
9
15
2
93
616
495
—
27
4
800
20%
20%
40%
30%
23%
11%
Carrying
Value
$
452 $
106
9
18
2
91
$
678 $ 1,864
$
662
$ 1,942
Domicile
China
China
Bermuda
Saudi Arabia
Russia
Bermuda
Huatai Group and Huatai Life Insurance Company provide a range of P&C, life, and investment products.
f) Gross unrealized loss
At December 31, 2018, there were 19,606 fixed maturities out of a total of 31,054 fixed maturities in an unrealized loss
position. The largest single unrealized loss in the fixed maturities was $10 million. Fixed maturities in an unrealized loss
position at December 31, 2018, comprised both investment grade and below investment grade securities for which fair value
declined primarily due to widening credit spreads since the date of purchase.
The following tables present, for all securities in an unrealized loss position (including securities on loan), the aggregate fair
value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
December 31, 2018
(in millions of U.S. dollars)
Fair Value
0 – 12 Months
Over 12 Months
Gross
Unrealized
Loss
Fair Value
Gross
Unrealized
Loss
Fair Value
U.S. Treasury and agency
$
523 $
(4) $
2,859 $
(50) $
3,382 $
Foreign
Corporate securities
Mortgage-backed securities
States, municipalities, and
political subdivisions
Total fixed maturities
6,764
16,538
6,103
(208)
(599)
(98)
5,349
4,873
6,913
(159)
(255)
(229)
12,113
21,411
13,016
5,024
(44)
7,768
(124)
12,792
$
34,952 $
(953) $
27,762 $
(817) $
62,714 $
(1,770)
Total
Gross
Unrealized
Loss
(54)
(367)
(854)
(327)
(168)
December 31, 2017
(in millions of U.S. dollars)
Fair Value
Gross
Unrealized
Loss
Fair Value
Gross
Unrealized
Loss
Fair Value
U.S. Treasury and agency
$
2,172 $
(14) $
1,249 $
(26) $
3,421 $
0 – 12 Months
Over 12 Months
Foreign
Corporate securities
Mortgage-backed securities
States, municipalities, and
political subdivisions
Total fixed maturities
Equity securities
Other investments
Total
F-27
5,657
5,210
6,194
9,259
28,492
115
78
(65)
(56)
(31)
(71)
(237)
(12)
(8)
1,693
1,332
3,209
1,402
8,885
—
—
(49)
(46)
(74)
(32)
(227)
—
—
7,350
6,542
9,403
10,661
37,377
115
78
$
28,685 $
(257) $
8,885 $
(227) $
37,570 $
Total
Gross
Unrealized
Loss
(40)
(114)
(102)
(105)
(103)
(464)
(12)
(8)
(484)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
g) Net investment income
(in millions of U.S. dollars)
Fixed maturities
Short-term investments
Other interest income
Equity securities
Other investments
Gross investment income (1)
Investment expenses
Net investment income (1)
(1) Includes amortization expense related to fair value adjustment of acquired invested assets
related to the Chub Corp acquisition
$
$
Year Ended December 31
2018
2017
2016
$
3,128 $
2,987 $
2,779
90
118
33
104
3,473
(168)
56
75
38
133
3,289
(164)
58
35
36
98
3,006
(141)
3,305 $
3,125 $
2,865
(248) $
(332) $
(393)
h) Restricted assets
Chubb is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance
operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets
on deposit are available to settle insurance and reinsurance liabilities. Chubb is also required to restrict assets pledged under
repurchase agreements, which represent Chubb's agreement to sell securities and repurchase them at a future date for a
predetermined price. We use trust funds in certain large reinsurance transactions where the trust funds are set up for the benefit
of the ceding companies and generally take the place of letter of credit (LOC) requirements. We have investments in segregated
portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at
December 31, 2018 and 2017, are investments, primarily fixed maturities, totaling $21.0 billion and $23.3 billion, and cash
of $93 million and $123 million, respectively.
The following table presents the components of restricted assets:
(in millions of U.S. dollars)
Trust funds
Deposits with U.S. regulatory authorities
Deposits with non-U.S. regulatory authorities
Assets pledged under repurchase agreements
Other pledged assets
Total
December 31
December 31
2018
2017
$
13,988 $
17,011
2,405
2,531
1,468
692
2,345
2,250
1,434
414
$
21,084 $
23,454
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
3. Fair value measurements
a) Fair value hierarchy
Fair value of financial assets and financial liabilities is estimated based on the framework established in the fair value
accounting guidance. The guidance defines fair value as the price to sell an asset or transfer a liability (an exit price) in an
orderly transaction between market participants and establishes a three-level valuation hierarchy based on the reliability of the
inputs. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to
unobservable data.
The three levels of the hierarchy are as follows:
• Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;
• Level 2 – Includes, among other items, inputs other than quoted prices that are observable for the asset or liability such as
interest rates and yield curves, quoted prices for similar assets and liabilities in active markets, and quoted prices
for identical or similar assets and liabilities in markets that are not active; and
• Level 3 – Inputs that are unobservable and reflect management’s judgments about assumptions that market participants
would use in pricing an asset or liability.
We categorize financial instruments within the valuation hierarchy at the balance sheet date based upon the lowest level of
inputs that are significant to the fair value measurement.
We use pricing services to obtain fair value measurements for the majority of our investment securities. Based on management’s
understanding of the methodologies used, these pricing services only produce an estimate of fair value if there is observable
market information that would allow them to make a fair value estimate. Based on our understanding of the market inputs used
by the pricing services, all applicable investments have been valued in accordance with GAAP. We do not adjust prices obtained
from pricing services. The following is a description of the valuation techniques and inputs used to determine fair values for
financial instruments carried at fair value, as well as the general classification of such financial instruments pursuant to the
valuation hierarchy.
Fixed maturities
We use pricing services to estimate fair value measurements for the majority of our fixed maturities. The pricing services use
market quotations for fixed maturities that have quoted prices in active markets; such securities are classified within Level 1.
For fixed maturities other than U.S. Treasury securities that generally do not trade on a daily basis, the pricing services prepare
estimates of fair value measurements using their pricing applications, which include available relevant market information,
benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Additional valuation factors that can
be taken into account are nominal spreads, dollar basis, and liquidity adjustments. The pricing services evaluate each asset
class based on relevant market and credit information, perceived market movements, and sector news. The market inputs used
in the pricing evaluation, listed in the approximate order of priority include: benchmark yields, reported trades, broker/dealer
quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic
events. The extent of the use of each input is dependent on the asset class and the market conditions. Given the asset class,
the priority of the use of inputs may change, or some market inputs may not be relevant. Additionally, fixed maturities valuation
is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing), which may increase
the potential that an investment's estimated fair value is not reflective of the price at which an actual transaction would occur.
The overwhelming majority of fixed maturities are classified within Level 2 because the most significant inputs used in the
pricing techniques are observable. For a small number of fixed maturities, we obtain a single broker quote (typically from a
market maker). Due to the disclaimers on the quotes that indicate that the price is indicative only, we include these fair value
estimates in Level 3.
Equity securities
Equity securities with active markets are classified within Level 1 as fair values are based on quoted market prices. For equity
securities in markets which are less active, fair values are based on market valuations and are classified within Level 2. Equity
securities for which pricing is unobservable are classified within Level 3.
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Short-term investments
Short-term investments, which comprise securities due to mature within one year of the date of purchase that are traded in
active markets, are classified within Level 1 as fair values are based on quoted market prices. Securities such as commercial
paper and discount notes are classified within Level 2 because these securities are typically not actively traded due to their
approaching maturity, and as such, their cost approximates fair value. Short-term investments for which pricing is unobservable
are classified within Level 3.
Other investments
Fair values for the majority of Other investments including investments in partially-owned investment companies, investment
funds, and limited partnerships are based on their respective net asset values or equivalent (NAV) and are excluded from the
fair value hierarchy table below. Certain of our long-duration contracts are supported by assets that do not qualify for separate
account reporting under GAAP. These assets comprise mutual funds, classified within Level 1 in the valuation hierarchy on the
same basis as other equity securities traded in active markets. Other investments also include equity securities, classified within
Level 1 and fixed maturities, classified within Level 2, held in rabbi trusts maintained by Chubb for deferred compensation and
supplemental retirement plans and are classified within the valuation hierarchy on the same basis as other equity securities and
fixed maturities. Other investments for which pricing is unobservable are classified within Level 3.
Securities lending collateral
The underlying assets included in Securities lending collateral in the Consolidated balance sheets are fixed maturities which are
classified in the valuation hierarchy on the same basis as other fixed maturities. Excluded from the valuation hierarchy is the
corresponding liability related to Chubb’s obligation to return the collateral plus interest as it is reported at contract value and
not fair value in the Consolidated balance sheets.
Investment derivative instruments
Actively traded investment derivative instruments, including futures, options, and forward contracts are classified within Level 1
as fair values are based on quoted market prices. The fair value of cross-currency swaps and interest rate swaps is based on
market valuations and is classified within Level 2. Investment derivative instruments are recorded in either Other assets or
Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets.
Other derivative instruments
We maintain positions in exchange-traded equity futures contracts designed to limit exposure to a severe equity market decline,
which would cause an increase in expected claims and, therefore, an increase in reserves for our guaranteed minimum death
benefits (GMDB) and guaranteed living benefits (GLB) reinsurance business. Our positions in exchange-traded equity futures
contracts are classified within Level 1. The fair value of the majority of the remaining positions in other derivative instruments is
based on significant observable inputs including equity security and interest rate indices. Accordingly, these are classified within
Level 2. Other derivative instruments based on unobservable inputs are classified within Level 3. Other derivative instruments
are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the Consolidated balance
sheets.
Separate account assets
Separate account assets represent segregated funds where investment risks are borne by the customers, except to the extent of
certain guarantees made by Chubb. Separate account assets comprise mutual funds classified within Level 1 in the valuation
hierarchy on the same basis as other equity securities traded in active markets. Separate account assets also include fixed
maturities classified within Level 2 because the most significant inputs used in the pricing techniques are observable. Excluded
from the valuation hierarchy are the corresponding liabilities as they are reported at contract value and not fair value in the
Consolidated balance sheets. Separate account assets are recorded in Other assets in the Consolidated balance sheets.
Guaranteed living benefits
The GLB arises from life reinsurance programs covering living benefit guarantees whereby we assume the risk of guaranteed
minimum income benefits (GMIB) associated with variable annuity contracts. GLB’s are recorded in Accounts payable, accrued
expenses, and other liabilities and Future policy benefits in the Consolidated balance sheets. For GLB reinsurance, Chubb
estimates fair value using an internal valuation model which includes current market information and estimates of policyholder
behavior. All of the treaties contain claim limits, which are factored into the valuation model. The fair value depends on a
number of factors, including interest rates, equity markets, credit risk, current account value, market volatility, expected
annuitization rates and other policyholder behavior, and changes in policyholder mortality.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The most significant policyholder behavior assumptions include lapse rates and the GMIB annuitization rates. Assumptions
regarding lapse rates and GMIB annuitization rates differ by treaty, but the underlying methodologies to determine rates applied
to each treaty are comparable.
A lapse rate is the percentage of in-force policies surrendered in a given calendar year. All else equal, as lapse rates increase,
ultimate claim payments will decrease. In general, the base lapse function assumes low lapse rates (ranging from about 3
percent to 9 percent per annum) during the surrender charge period of the GMIB contract, followed by a “spike” lapse rate
(ranging from about 9 percent to 33 percent per annum) in the year immediately following the surrender charge period, and
then reverting to an ultimate lapse rate (generally around 10 percent per annum), typically over a 2-year period. This base rate
is adjusted downward for policies with more valuable guarantees (policies with guaranteed values far in excess of their account
values) by multiplying the base lapse rate by a factor ranging from 15 percent to 75 percent. Partial withdrawals and the
impact of older policyholders with tax-qualified contracts (due to required minimum distributions) are also reflected in our
modeling.
The GMIB annuitization rate is the percentage of policies for which the policyholder will elect to annuitize using the guaranteed
benefit provided under the GMIB. All else equal, as GMIB annuitization rates increase, ultimate claim payments will increase,
subject to treaty claim limits. All GMIB reinsurance treaties include claim limits to protect Chubb in the event that actual
annuitization behavior is significantly higher than expected. In general, Chubb assumes that GMIB annuitization rates will be
higher for policies with more valuable guarantees (policies with guaranteed values far in excess of their account values). Chubb
also assumes that GMIB annuitization rates increase as policyholders get older. In addition, we also assume that GMIB
annuitization rates are higher in the first year immediately following the waiting period (the first year the policies are eligible to
annuitize using the GMIB) in comparison to all subsequent years. We do not yet have fully credible annuitization experience for
all clients.
The level of annuitization assumptions at December 31, 2018 are as follows:
% of total GMIB guaranteed value
Policyholder age
Maximum annuitization rate(s) (per year)
19%
81%
Under 65 years old
Over 65 years old
1% - 21%
3% - 42%
The effect of changes in key market factors on assumed lapse and annuitization rates reflect emerging trends using data
available from cedants. For treaties with limited experience, rates are established in line with data received from other ceding
companies adjusted, as appropriate, with industry estimates. The model and related assumptions are regularly re-evaluated by
management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and
availability of updated information such as market conditions, market participant assumptions, and demographics of in-force
annuities. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified
within Level 3.
In the fourth quarter of 2018, we completed a review of policyholder behavior related to annuitizations, partial withdrawals,
lapses, and mortality for our variable annuity reinsurance business.
• As annuitization experience continued to emerge, we refined our annuitization assumptions including age-based behavior.
The change in annuitization assumptions had an insignificant impact on the fair value of GLB liabilities.
• We also refined our lapse assumptions based on additional emerging experience, with a focus on underlying policies eligible
for annuitization. These refinements resulted in a net increase to the fair value of GLB liabilities generating a realized loss of
approximately $20 million.
• Reinsured policies allow for policyholders to make periodic withdrawals from their account values without lapsing the
policy. The partial withdrawal results in a reduction to the associated guaranteed value that is either equal or proportional
to the amount of the reduction in account value. We further refined our assumptions around the types of partial
withdrawals according to their impact on guaranteed value. This resulted in an increase to the fair value of GLB liabilities
generating a realized loss of approximately $11 million.
• After having performed a mortality study for the first time in 2017, we performed a second study this year and enhanced
our analysis by increasing the weight given to emerging experience, which resulted in lower mortality assumptions. The
updated mortality rates increased the fair value of GLB liabilities generating a realized loss of approximately $28 million.
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
During the year ended December 31, 2018, we also made minor model refinements to the internal valuation model which
resulted in no material impact on income.
Financial instruments measured at fair value on a recurring basis, by valuation hierarchy
December 31, 2018
(in millions of U.S. dollars)
Assets:
Fixed maturities available for sale
U.S. Treasury and agency
Foreign
Corporate securities
Mortgage-backed securities
States, municipalities, and political subdivisions
Equity securities
Short-term investments
Other investments (1)
Securities lending collateral
Investment derivative instruments
Other derivative instruments
Separate account assets
Total assets measured at fair value (1)
Liabilities:
Investment derivative instruments
GLB (2)
Total liabilities measured at fair value
Level 1
Level 2
Level 3
Total
$
3,400 $
745 $
— $
—
—
—
—
3,400
713
1,575
381
—
28
25
2,686
21,071
25,284
15,479
10,786
73,365
—
1,440
303
1,926
—
—
137
345
1,299
61
—
1,705
57
1
11
—
—
—
—
4,145
21,416
26,583
15,540
10,786
78,470
770
3,016
695
1,926
28
25
2,823
$
$
$
8,808 $
77,171 $
1,774 $
87,753
38 $
—
38 $
115 $
— $
—
452
115 $
452 $
153
452
605
(1)
(2)
Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $4,244 million and other investments of $95 million at
December 31, 2018 measured using NAV as a practical expedient.
Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above
is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. Refer to Note 4 c) for additional information.
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
December 31, 2017
(in millions of U.S. dollars)
Assets:
Fixed maturities available for sale
U.S. Treasury and agency
Foreign
Corporate securities
Mortgage-backed securities
States, municipalities, and political subdivisions
Equity securities
Short-term investments
Other investments (1)
Securities lending collateral
Investment derivative instruments
Other derivative instruments
Separate account assets
Total assets measured at fair value (1)
Liabilities:
Investment derivative instruments
Other derivative instruments
GLB (2)
Total liabilities measured at fair value
Level 1
Level 2
Level 3
Total
$
3,129 $
569 $
— $
—
—
—
—
3,129
893
2,309
466
—
18
1
2,635
20,937
22,959
15,212
14,925
74,602
—
1,252
305
1,737
—
—
99
93
1,037
78
—
1,208
44
—
263
—
—
—
—
3,698
21,030
23,996
15,290
14,925
78,939
937
3,561
1,034
1,737
18
1
2,734
$
$
$
9,451 $
77,995 $
1,515 $
88,961
30 $
— $
— $
21
—
—
—
2
204
51 $
— $
206 $
30
23
204
257
(1)
(2)
Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $3,623 million and other investments of $15 million at
December 31, 2017 measured using NAV as a practical expedient.
Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above
is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. Refer to Note 4 c) for additional information.
Fair value of alternative investments
Alternative investments include investment funds, limited partnerships, and partially-owned investment companies measured at
fair value using NAV as a practical expedient. The following table presents, by investment category, the expected liquidation
period, fair value, and maximum future funding commitments of alternative investments:
(in millions of U.S. dollars)
Financial
Real Assets
Distressed
Private Credit
Traditional
Vintage
Investment funds
Expected Liquidation
Period of
Underlying Assets
Fair Value
December 31
2018
Maximum
Future Funding
Commitments
December 31
2017
Maximum
Future Funding
Commitments
Fair Value
2 to 9 Years $
596 $
193 $
540 $
2 to 11 Years
2 to 7 Years
3 to 8 Years
704
296
147
362
105
310
651
289
187
330
114
141
327
2 to 14 Years
2,362
2,735
1,656
3,149
1 to 2 Years
Not Applicable
56
83
—
—
30
270
—
—
$
4,244 $
3,705 $
3,623 $
4,061
Included in all categories in the above table, except for Investment funds, are investments for which Chubb will never have the
contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Further, for all
categories except for Investment funds, Chubb does not have the ability to sell or transfer the investments without the consent
from the general partner of individual funds.
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Investment Category
Consists of investments in private equity funds:
Financial
Real Assets
Distressed
Private Credit
Traditional
Vintage
targeting financial services companies, such as financial institutions and insurance services
worldwide
targeting investments related to hard physical assets, such as real estate, infrastructure, and natural
resources
targeting distressed corporate debt/credit and equity opportunities in the U.S.
targeting privately originated corporate debt investments, including senior secured loans and
subordinated bonds
employing traditional private equity investment strategies such as buyout and growth equity globally
made before 2002 or where the funds’ commitment periods have already expired
Investment funds
Chubb’s investment funds employ various investment strategies such as long/short equity and arbitrage/distressed. Included in
this category are investments for which Chubb has the option to redeem at agreed upon value as described in each investment
fund’s subscription agreement. Depending on the terms of the various subscription agreements, investment fund investments
may be redeemed monthly, quarterly, semi-annually, or annually. If Chubb wishes to redeem an investment fund investment, it
must first determine if the investment fund is still in a lock-up period (a time when Chubb cannot redeem its investment so that
the investment fund manager has time to build the portfolio). If the investment fund is no longer in its lock-up period, Chubb
must then notify the investment fund manager of its intention to redeem by the notification date prescribed by the subscription
agreement. Subsequent to notification, the investment fund can redeem Chubb’s investment within several months of the
notification. Notice periods for redemption of the investment funds range between 5 and 120 days. Chubb can redeem its
investment funds without consent from the investment fund managers.
Level 3 financial instruments
The following table presents the significant unobservable inputs used in the Level 3 liability valuations. Excluded from the table
below are inputs used to determine the fair value of Level 3 assets which are based on single broker quotes and contain no
quantitative unobservable inputs developed by management. The majority of our fixed maturities classified as Level 3 used
external pricing when markets are less liquid due to the lack of market inputs (i.e., stale pricing, broker quotes).
(in millions of U.S. dollars, except for percentages)
Fair Value at
December 31, 2018
Valuation
Technique
Significant
Unobservable Inputs
Ranges
GLB(1)
$
452
Actuarial model
Lapse rate
3% – 32%
Annuitization rate
0% – 42%
(1)
Discussion of the most significant inputs used in the fair value measurement of GLB and the sensitivity of those assumptions is included within Note 3 a) Guaranteed living
benefits.
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following tables present a reconciliation of the beginning and ending balances of financial instruments measured at fair
value using significant unobservable inputs (Level 3):
Available-for-Sale Debt Securities
Year Ended December 31, 2018
(in millions of U.S. dollars)
Foreign
Corporate
securities
MBS
Equity
securities
Short-term
investments
Other
investments
Other
derivative
instruments
GLB (1)
Balance, beginning of year
$
93 $
1,037 $
78 $
44 $
— $
263 $
2 $
204
Assets
Liabilities
Transfers into Level 3
Transfers out of Level 3
Change in Net Unrealized
Gains/Losses included in
OCI
Net Realized Gains/Losses
Purchases
Sales
Settlements
Balance, end of year
Net Realized Gains/Losses
Attributable to Changes in
Fair Value at the Balance
Sheet Date
13
(2)
(12)
(3)
334
(69)
(9)
24
(31)
(4)
(5)
672
(164)
(230)
1
(3)
—
—
5
—
(20)
—
—
(2)
6
37
(28)
—
5
—
—
—
9
—
(13)
—
(252)
(2)
1
50
—
(49)
—
—
—
(2)
—
—
—
—
—
—
248
—
—
—
$
345 $
1,299 $
61 $
57 $
1 $
11 $
— $
452
$
(1) $
(7) $
— $
(1) $
— $
1 $
— $
248
(1)
Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above
is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. Refer to Note 4 c) for additional information.
Available-for-Sale Debt Securities
Year Ended December 31, 2017
(in millions of U.S. dollars)
Foreign
Corporate
securities (1)
MBS
Equity
securities
Short-term
investments
Other
investments
Other
derivative
instruments
GLB (2)
Balance, beginning of year $
74 $
681 $
45 $
41 $
25 $
225 $
13 $
559
Assets
Liabilities
Transfers into Level 3
Transfers out of Level 3
Change in Net Unrealized
Gains/Losses included in
OCI
Net Realized Gains/Losses
Purchases
Sales
Settlements
Balance, end of year
Net Realized Gains/Losses
Attributable to Changes in
Fair Value at the Balance
Sheet Date
$
$
—
(3)
3
—
84
(59)
(6)
231
(93)
(12)
—
521
(111)
(180)
50
—
—
—
8
(1)
(24)
—
—
(1)
2
24
(22)
—
—
—
—
—
16
—
—
—
6
—
56
—
(41)
(24)
—
(9)
—
(2)
—
—
—
9
—
—
(364)
—
—
—
93 $
1,037 $
78 $
44 $
— $
263 $
2 $
204
(1) $
(2) $
— $
(1) $
— $
— $
(2) $
(364)
(1)
(2)
Transfers into and Purchases in Level 3 primarily consist of privately-placed fixed income securities.
Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above
is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. The liability for GLB reinsurance was $550 million at
December 31, 2017 and $853 million at December 31, 2016, which includes a fair value derivative adjustment of $204 million and $559 million, respectively.
F-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Available-for-Sale Debt Securities
Year Ended December 31, 2016
(in millions of U.S. dollars)
Foreign
Corporate
securities
MBS
Equity
securities
Short-term
investments
Other
investments
Other
derivative
instruments
GLB(1)
Balance, beginning of year $
57 $
174 $
53 $
16 $
— $
212 $
6 $
609
Assets
Liabilities
Transfers into Level 3
Transfers out of Level 3
Change in Net Unrealized
Gains/Losses included
in OCI
Net Realized Gains/Losses
Purchases (2)
Sales
Settlements
Balance, end of year
Net Realized Gains/Losses
Attributable to Changes in
Fair Value at the Balance
Sheet Date
$
$
9
(24)
1
(6)
70
(17)
(16)
53
(10)
15
(13)
566
(59)
(45)
—
—
(1)
—
1
(8)
—
—
—
2
1
27
(5)
—
—
(50)
—
—
75
—
—
—
—
(2)
1
33
—
(19)
—
—
—
5
2
—
—
—
—
—
(50)
—
—
—
74 $
681 $
45 $
41 $
25 $
225 $
13 $
559
(5) $
(11) $
— $
— $
— $
1 $
5 $
(50)
(1)
(2)
Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value. Excluded from the table above
is the portion of the GLB derivative liability classified as Future policy benefits in the Consolidated balance sheets. The liability for GLB reinsurance was $853 million at
December 31, 2016 and $888 million at December 31, 2015, which includes a fair value derivative adjustment of $559 million and $609 million, respectively.
Includes acquired invested assets as a result of the Chubb Corp acquisition.
b) Financial instruments disclosed, but not measured, at fair value
Chubb uses various financial instruments in the normal course of its business. Our insurance contracts are excluded from fair
value of financial instruments accounting guidance, and therefore, are not included in the amounts discussed below.
The carrying values of cash, other assets, other liabilities, and other financial instruments not included below approximated
their fair values.
Investments in partially-owned insurance companies
Fair values for investments in partially-owned insurance companies are based on Chubb’s share of the net assets based on the
financial statements provided by those companies and are excluded from the valuation hierarchy tables below.
Short- and long-term debt, repurchase agreements, and trust preferred securities
Where practical, fair values for short-term debt, long-term debt, repurchase agreements, and trust preferred securities are
estimated using discounted cash flow calculations based principally on observable inputs including incremental borrowing rates,
which reflect Chubb’s credit rating, for similar types of borrowings with maturities consistent with those remaining for the debt
being valued.
F-36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following tables present fair value, by valuation hierarchy, and carrying value of the financial instruments not measured at
fair value:
December 31, 2018
(in millions of U.S. dollars)
Assets:
Fixed maturities held to maturity
U.S. Treasury and agency
Foreign
Corporate securities
Mortgage-backed securities
States, municipalities, and political subdivisions
Total assets
Liabilities:
Repurchase agreements
Short-term debt
Long-term debt
Trust preferred securities
Total liabilities
December 31, 2017
(in millions of U.S. dollars)
Assets:
Fixed maturities held to maturity
U.S. Treasury and agency
Foreign
Corporate securities
Mortgage-backed securities
States, municipalities, and political subdivisions
Total assets
Liabilities:
Repurchase agreements
Short-term debt
Long-term debt
Trust preferred securities
Total liabilities
Level 1
Level 2
Level 3
Total
Carrying Value
Fair Value
$
1,128 $
54 $
— $
1,182 $
—
—
—
—
1,542
2,477
2,486
5,541
—
31
—
—
1,542
2,508
2,486
5,541
1,185
1,549
2,601
2,524
5,576
$
$
$
1,128 $
12,100 $
31 $
13,259 $
13,435
— $
1,418 $
— $
1,418 $
—
—
—
516
12,181
409
—
—
—
516
12,181
409
1,418
509
12,087
308
— $
14,524 $
— $
14,524 $
14,322
Level 1
Level 2
Level 3
Total
Carrying Value
Fair Value
$
857 $
58 $
— $
915 $
—
—
—
—
1,757
3,184
2,742
5,841
—
35
—
—
1,757
3,219
2,742
5,841
908
1,738
3,159
2,724
5,806
$
$
$
857 $
13,582 $
35 $
14,474 $
14,335
— $
1,408 $
— $
1,408 $
—
—
—
1,013
12,332
468
—
—
—
1,013
12,332
468
1,408
1,013
11,556
308
— $
15,221 $
— $
15,221 $
14,285
F-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
4. Reinsurance
a) Consolidated reinsurance
Chubb purchases reinsurance to manage various exposures including catastrophe risks. Although reinsurance agreements
contractually obligate Chubb's reinsurers to reimburse it for the agreed-upon portion of its gross paid losses, they do not
discharge Chubb's primary liability. The amounts for net premiums written and net premiums earned in the Consolidated
statements of operations are net of reinsurance. The following table presents direct, assumed, and ceded premiums:
(in millions of U.S. dollars)
Premiums written
Direct
Assumed
Ceded
Net
Premiums earned
Direct
Assumed
Ceded
Net
Year Ended December 31
2018
2017
2016
$
$
$
$
34,782 $
33,137 $
31,543
3,186
(7,389)
3,239
(7,132)
3,440
(6,838)
30,579 $
29,244 $
28,145
34,108 $
32,782 $
31,811
3,175
(7,219)
3,332
(7,080)
3,744
(6,806)
30,064 $
29,034 $
28,749
Ceded losses and loss expenses incurred were $5.6 billion, $5.5 billion, and $4.1 billion for the years ended December 31,
2018, 2017, and 2016, respectively.
b) Reinsurance recoverable on ceded reinsurance
(in millions of U.S. dollars)
December 31, 2018
December 31, 2017
Net Reinsurance
Recoverable (1)
Provision for
Uncollectible
Net Reinsurance
Recoverable (1)
Provision for
Uncollectible
Reinsurance recoverable on unpaid losses and loss expenses $
14,689 $
251 $
14,014 $
Reinsurance recoverable on paid losses and loss expenses
1,304
72
1,020
Reinsurance recoverable on losses and loss expenses
Reinsurance recoverable on policy benefits
(1) Net of provision for uncollectible reinsurance.
$
$
15,993 $
323 $
15,034 $
202 $
4 $
184 $
247
74
321
4
The increase in reinsurance recoverable on loss and loss expenses was principally related to an increase in catastrophe loss
recoveries and favorable reinsurance settlements that were not collected as of December 31, 2018.
We evaluate the financial condition of our reinsurers and potential reinsurers on a regular basis and also monitor concentrations
of credit risk with reinsurers. The provision for uncollectible reinsurance is required principally due to the potential failure of
reinsurers to indemnify Chubb, primarily because of disputes under reinsurance contracts and insolvencies. We have
established provisions for amounts estimated to be uncollectible on both unpaid and paid losses as well as future policy
benefits.
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following tables present a listing, at December 31, 2018, of the categories of Chubb's reinsurers:
December 31, 2018
(in millions of U.S. dollars, except for percentages)
Categories
Largest reinsurers
Other reinsurers rated A- or better
Other reinsurers with ratings lower than A- or not rated
Pools
Structured settlements
Captives
Other
Total
Gross Reinsurance
Recoverable on
Loss and Loss
Expenses
Provision for
Uncollectible
Reinsurance
% of Gross
Reinsurance
Recoverable
$
6,578 $
5,339
558
429
548
2,590
274
70
63
68
16
18
16
72
$
16,316 $
323
1.1%
1.2%
12.2%
3.7%
3.3%
0.6%
26.3%
2.0%
Largest Reinsurers
ABR Reinsurance Capital Holdings
Berkshire Hathaway Insurance Group
HDI Group (Hannover Re)
Lloyd's of London
Munich Re Group
Starr International Group
Swiss Re Group
Categories of Chubb's reinsurers
Largest reinsurers
Other reinsurers rated A- or
better
Other reinsurers rated lower
than A- or not rated
Pools
Structured settlements
Captives
Other
Comprises:
• All groups of reinsurers or captives where the gross recoverable exceeds one
percent of Chubb's total shareholders' equity.
• All reinsurers rated A- or better that were not included in the largest reinsurer
category.
• All reinsurers rated lower than A- or not rated that were not included in the largest
reinsurer category.
• Related to Chubb's voluntary pool participation and Chubb's mandatory pool
participation required by law in certain states.
• Annuities purchased from life insurance companies to settle claims. Since we retain
ultimate liability in the event that the life company fails to pay, we reflect the
amounts as both a liability and a recoverable/receivable for GAAP purposes.
• Companies established and owned by our insurance clients to assume a significant
portion of their direct insurance risk from Chubb; structured to allow clients to self-
insure a portion of their reinsurance risk. It generally is our policy to obtain
collateral equal to expected losses. Where appropriate, exceptions are granted but
only with review and approval at a senior officer level. Excludes captives included
in the largest reinsurer category.
• Amounts recoverable that are in dispute or are from companies that are in
supervision, rehabilitation, or liquidation.
The provision for uncollectible reinsurance is principally based on an analysis of the credit quality of the reinsurer and collateral
balances. We establish the provision for uncollectible reinsurance for the Other category based on a case-by-case analysis of
individual situations including the merits of the underlying matter, credit and collateral analysis, and consideration of our
collection experience in similar situations.
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
c) Assumed life reinsurance programs involving minimum benefit guarantees under variable annuity contracts
The following table presents income and expenses relating to GMDB and GLB reinsurance. GLBs include GMIBs.
(in millions of U.S. dollars)
GMDB
Net premiums earned
Policy benefits and other reserve adjustments
GLB
Net premiums earned
Policy benefits and other reserve adjustments
Net realized gains (losses)
Gain (loss) recognized in Net income
Net cash received and other
Net decrease (increase) in liability
Year Ended December 31
2018
2017
2016
$
$
$
$
$
47 $
20 $
49 $
40 $
96 $
110 $
110
(250)
105
363
(264) $
368 $
47
65
(311) $
303 $
55
45
118
52
48
114
79
35
Net realized gains (losses) in the table above include gains (losses) related to foreign exchange and fair value adjustments on
insurance derivatives and exclude gains (losses) on S&P futures used to partially offset the risk in the GLB reinsurance portfolio.
Refer to Note 9 for additional information.
At December 31, 2018 and 2017, the reported liability for GMDB reinsurance was $117 million and $129 million,
respectively. At December 31, 2018 and 2017, the reported liability for GLB reinsurance was $861 million and $550 million,
respectively, which includes a fair value derivative adjustment of $452 million and $204 million, respectively. Reported
liabilities for both GMDB and GLB reinsurance are determined using internal valuation models. Such valuations require
considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations
arising from, among other factors, changes in interest rates, changes in equity markets, changes in credit markets, changes in
the allocation of the investments underlying annuitants’ account values, and assumptions regarding future policyholder behavior.
These models and the related assumptions are regularly reviewed by management and enhanced, as appropriate, based upon
improvements in modeling assumptions and availability of updated information, such as market conditions and demographics of
in-force annuities.
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Variable Annuity Net Amount at Risk
The net amount at risk is defined as the present value of future claim payments assuming policy account values and guaranteed
values are fixed at the valuation date (December 31, 2018 and 2017, respectively) and reinsurance coverage ends at the
earlier of the maturity of the underlying variable annuity policy or the reinsurance treaty. In addition, the following assumptions
were used:
(in millions of U.S. dollars,
except for percentages)
Net amount at risk
December 31
2018
December 31
2017
2018
Future claims
discount rate Other assumptions
Total claims at
100% mortality at
December 31, 2018(1)
Reinsurance covering
GMDB Risk Only
GLB Risk Only
$
$
408 $
279
3.3% - 3.5% No lapses or withdrawals
$
1,233 $
691
4.0% - 4.3% No deaths, lapses or withdrawals
Mortality according to 100% of
the Annuity 2000 mortality table
Annuitization at a frequency most
disadvantageous to Chubb(2)
Claim calculated using interest
rates in line with rates used to
calculate reserve
Both Risks: (3)
GMDB $
103 $
81
4.0% - 4.3% No lapses or withdrawals
$
GLB
$
517 $
392
4.0% - 4.3% Annuitization at a frequency most
disadvantageous to Chubb(2)
Mortality according to 100% of
the Annuity 2000 mortality table
Claim calculated using interest
rates in line with rates used to
calculate reserve
Takes into account all applicable reinsurance treaty claim limits.
(1)
(2) Annuitization at a level that maximizes claims taking into account the treaty limits.
(3) Covering both the GMDB and GLB risks on the same underlying policyholders.
177
N/A
18
N/A
The average attained age of all policyholders for all risk categories above, weighted by the guaranteed value of each reinsured
policy, is approximately 71 years.
5. Goodwill and Other intangible assets
At December 31, 2018 and 2017, Goodwill was $15.3 billion and $15.5 billion, respectively, and Other intangible assets were
$6.1 billion and $6.5 billion, respectively.
a) Goodwill
The following table presents a roll-forward of Goodwill by segment:
(in millions of U.S. dollars)
Balance at December 31, 2016
Foreign exchange revaluation and other
Balance at December 31, 2017
Foreign exchange revaluation and other
Balance at December 31, 2018
North
America
Commercial
P&C
Insurance
North
America
Personal
P&C
Insurance
North
America
Agricultural
Insurance
Overseas
General
Insurance
Global
Reinsurance
Life
Insurance
Chubb
Consolidated
$
$
$
6,961 $
2,235 $
134 $
4,817 $
365 $
820 $
15,332
15
5
—
187
—
2
209
6,976 $
2,240 $
134 $
5,004 $
365 $
822 $
15,541
(30)
(10)
—
(234)
6
(2)
(270)
6,946 $
2,230 $
134 $
4,770 $
371 $
820 $
15,271
F-41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
b) Other intangible assets
The majority of the Other intangible assets balance at December 31, 2018 relates to the Chubb Corp acquisition and
comprised of $3.2 billion that are subject to amortization, principally Agency distribution relationships and renewal rights, and
$2.9 billion that are not subject to amortization, principally trademarks. This compares to $3.5 billion and $3.0 billion at
December 31, 2017, respectively.
Amortization of purchased intangibles
Amortization expense related to purchased intangibles were $339 million, $260 million, and $19 million for the years ended
December 31, 2018, 2017, and 2016, respectively. The increase in amortization expense of purchased intangibles in 2018
and 2017 compared to 2016, primarily reflects a lower amortization benefit from the fair value adjustment on acquired Unpaid
losses and loss expenses related to the Chubb Corp acquisition.
The following table presents, as of December 31, 2018, the expected estimated pre-tax amortization expense (benefit) of
purchased intangibles, at current foreign currency exchange rates, for the next five years:
For the Year Ending
December 31
(in millions of U.S. dollars)
2019
2020
2021
2022
2023
Total
Associated with the Chubb Corp Acquisition
Agency
distribution
relationships and
renewal rights
Fair value
adjustment on
Unpaid losses and
loss expense (1)
280 $
(62) $
239
216
196
177
(35)
(20)
(14)
(7)
Other
intangible assets
Total Amortization
of purchased
intangibles
80 $
76
70
64
62
298
280
266
246
232
Total
218 $
204
196
182
170
1,108 $
(138) $
970 $
352 $
1,322
$
$
(1)
In connection with the Chubb Corp acquisition, we recorded an increase to Unpaid losses and loss expenses acquired to adjust the carrying value of Chubb Corp's historical
Unpaid losses and loss expenses to fair value as of the acquisition date. This fair value adjustment amortizes through Amortization of purchased intangibles on the
Consolidated statements of operations through the year 2032. The balance of the fair value adjustment on Unpaid losses and loss expense was $207 million and $309
million at December 31, 2018 and 2017, respectively. Refer to Note 1(h) for additional information.
c) VOBA
The following table presents a roll-forward of VOBA:
(in millions of U.S. dollars)
Balance, beginning of year
Amortization of VOBA (1)
Foreign exchange revaluation
Balance, end of year
(1)
Recognized in Policy acquisition costs in the Consolidated statements of operations.
2018
2017
326 $
355 $
(25)
(6)
(35)
6
295 $
326 $
2016
395
(41)
1
355
$
$
The following table presents, as of December 31, 2018, the expected estimated pre-tax amortization expense related to VOBA for
the next five years:
For the Year Ending December 31
(in millions of U.S. dollars)
2019
2020
2021
2022
2023
Total
$
VOBA
26
24
22
20
18
$
110
F-42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
6. Unpaid losses and loss expenses
Chubb establishes reserves for the estimated unpaid ultimate liability for losses and loss expenses under the terms of its policies
and agreements. Reserves include estimates for both claims that have been reported and for IBNR claims, and include
estimates of expenses associated with processing and settling these claims. Reserves are recorded in Unpaid losses and loss
expenses in the consolidated balance sheets. While we believe that our reserves for unpaid losses and loss expenses at
December 31, 2018 are adequate, new information or trends may lead to future developments in incurred loss and loss
expenses significantly greater or less than the reserves provided. Any such revisions could result in future changes in estimates
of losses or reinsurance recoverable and would be reflected in our results of operations in the period in which the estimates are
changed.
The following table presents a reconciliation of beginning and ending Unpaid losses and loss expenses:
(in millions of U.S. dollars)
Gross unpaid losses and loss expenses, beginning of year
Reinsurance recoverable on unpaid losses (1)
Net unpaid losses and loss expenses, beginning of year
Acquisition of subsidiaries
Total
Net losses and loss expenses incurred in respect of losses occurring in:
Current year
Prior years (2)
Total
Net losses and loss expenses paid in respect of losses occurring in:
Current year
Prior years
Total
Foreign currency revaluation and other
Net unpaid losses and loss expenses, end of year
Reinsurance recoverable on unpaid losses (1)
Gross unpaid losses and loss expenses, end of year
Year Ended December 31
2018
2017
2016
$
63,179 $
60,540 $
37,303
(14,014)
49,165
—
(12,708)
47,832
—
49,165
47,832
19,048
(981)
18,067
7,544
10,796
18,340
(621)
48,271
14,689
19,391
(937)
18,454
6,575
10,873
17,448
327
49,165
14,014
$
62,960 $
63,179 $
(10,741)
26,562
21,402
47,964
17,256
(1,204)
16,052
5,899
9,816
15,715
(469)
47,832
12,708
60,540
(1) Net of provision for uncollectible reinsurance.
(2)
Relates to prior period loss reserve development only and excludes prior period development related to reinstatement premiums, expense adjustments and earned premiums
totaling $85 million, $108 million and $69 million for 2018, 2017, and 2016, respectively.
The decrease in gross and net unpaid losses and loss expenses in 2018 was primarily driven by payments related to the
2017 catastrophic events, favorable prior period development and foreign exchange movement, partially offset by catastrophic
events in 2018.
The increase in gross and net unpaid losses and loss expenses in 2017 primarily reflects the significant catastrophic events,
principally from California wildfires, hurricanes Harvey, Irma, and Maria and the earthquakes in Mexico.
The loss development tables under section c) below, present Chubb’s historical incurred and paid claims development by broad
product line through December 31, 2018, net of reinsurance, as well as the cumulative number of reported claims, IBNR
balances, and other supplementary information.
F-43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following table presents a reconciliation of the loss development tables to the liability for unpaid losses and loss expenses in
the consolidated balance sheet:
Reconciliation of Reserve Balances to Liability for Unpaid Loss and Loss Expenses
(in millions of U.S. dollars)
Presented in the loss development tables:
North America Commercial P&C Insurance — Workers' Compensation
North America Commercial P&C Insurance — Liability
North America Commercial P&C Insurance — Other Casualty
North America Commercial P&C Insurance — Non-Casualty
North America Personal P&C Insurance
Overseas General Insurance — Casualty
Overseas General Insurance — Non-Casualty
Global Reinsurance — Casualty
Global Reinsurance — Non-Casualty
Excluded from the loss development tables:
Other
Net unpaid loss and allocated loss adjustment expense
Ceded unpaid loss and allocated loss adjustment expense:
North America Commercial P&C Insurance — Workers' Compensation
North America Commercial P&C Insurance — Liability
North America Commercial P&C Insurance — Other Casualty
North America Commercial P&C Insurance — Non-Casualty
North America Personal P&C Insurance
Overseas General Insurance — Casualty
Overseas General Insurance — Non-Casualty
Global Reinsurance — Casualty
Global Reinsurance — Non-Casualty
Other
Ceded unpaid loss and allocated loss adjustment expense
Unpaid loss and loss expense on other than short-duration contracts (1)
Unpaid unallocated loss adjustment expenses
Unpaid losses and loss expenses
(1) Primarily includes the claims reserve of our International A&H business and Life Insurance segment reserves.
$
$
December 31
2018
9,183
16,485
1,884
1,871
2,319
5,833
2,265
1,218
390
4,399
45,847
1,766
4,812
544
1,531
895
2,070
1,208
58
99
1,874
14,857
831
1,425
$
62,960
F-44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Business excluded from the loss development tables
“Other” shown in the reconciliation table above comprises businesses excluded from the loss development tables below:
• North America Agricultural Insurance segment business, which is short-tailed with the majority of the liabilities expected to
be resolved in the ensuing twelve months;
• Corporate segment business, which includes run-off liabilities such as asbestos and environmental and other mass tort
exposures and which impact accident years older than those shown in the exhibits below;
• Life Insurance segment business, which is generally written using long-duration contracts; and
• Certain subsets of our business due to data limitations or unsuitability to the development table presentation, including:
We underwrite loss portfolio transfers at various times; by convention, all premium and losses associated with
these transactions are recorded to the policy period of the transaction, even though the accident dates of the
claims covered may be a decade or more in the past. We also underwrite certain high attachment, high limit,
multiple-line and excess of aggregate coverages for large commercial clients. Changes in incurred loss and cash
flow patterns are volatile and sufficiently different from those of typical insureds. This category includes the loss
portfolio transfer of Fireman’s Fund personal lines run-off liabilities and Alternative Risk Solutions business within
the North America Commercial P&C segment;
2015 and prior paid history on a subset of previously acquired international businesses, within the Overseas
General Insurance segment, due to limitations on the data prior to the acquisition;
Reinsurance recoverable bad debt;
Purchase accounting adjustments related to unpaid losses and loss expenses for Chubb Corp.
a) Description of Reserving Methodologies
Our recorded reserves represent management's best estimate of the provision for unpaid claims as of the balance sheet date.
Management's best estimate is developed after collaboration with actuarial, underwriting, claims, legal, and finance
departments and culminates with the input of reserve committees. Each business unit reserve committee includes the
participation of the relevant parties from actuarial, finance, claims, and unit senior management and has the responsibility for
finalizing, recommending and approving the estimate to be used as management's best estimate. Reserves are further reviewed
by Chubb's Chief Actuary and senior management. The objective of such a process is to determine a single estimate that we
believe represents a better estimate than any other and which is viewed by management to be the best estimate of ultimate
loss settlements.
This estimate is based on a combination of exposure and experience-based actuarial methods (described below) and other
considerations such as claims reviews, reinsurance recovery assumptions and/or input from other knowledgeable parties such as
underwriting. Exposure-based methods are most commonly used on relatively immature origin years (i.e., the year in which the
losses were incurred — “accident year” or “report year”), while experience-based methods provide a view based on the
projection of loss experience that has emerged as of the valuation date. Greater reliance is placed upon experience-based
methods as the pool of emerging loss experience grows and where it is deemed sufficiently credible and reliable as the basis for
the estimate. In comparing the held reserve for any given origin year to the actuarial projections, judgment is required as to the
credibility, uncertainty and inherent limitations of applying actuarial techniques to historical data to project future loss
experience. Examples of factors that impact such judgments include, but are not limited to, the following:
segmentation of data to provide sufficient homogeneity and credibility for loss projection methods;
• nature and complexity of underlying coverage provided and net limits of exposure provided;
•
• extent of credible internal historical loss data and reliance upon industry information as required;
• historical variability of actual loss emergence compared with expected loss emergence;
• extent of emerged loss experience relative to the remaining expected period of loss emergence;
•
•
•
• nature and extent of underlying assumptions.
rate monitor information for new and renewal business;
facts and circumstances of large claims;
impact of applicable reinsurance recoveries; and
We have actuarial staff within each of our business units who analyze loss reserves (including loss expenses) and regularly
project estimates of ultimate losses and the corresponding indications of the required IBNR reserve. Our reserving approach is a
comprehensive ground-up process using data at a detailed level that reflects the specific types and coverages of the diverse
products written by our various operations. The data presented in this disclosure was prepared on a more aggregated basis and
with a focus on changes in incurred loss estimates over time as well as associated cash flows. We note that data prepared on
this basis may not demonstrate the full spectrum of characteristics that are evident in the more detailed level studied internally.
F-45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
We perform an actuarial reserve review for each product line at least once a year. For most product lines, one or more standard
actuarial reserving methods may be used to determine estimates of ultimate losses and loss expenses, and from these
estimates, a single actuarial central estimate is selected. The actuarial central estimate is an input to the reserve committee
process described above. For the few product lines that do not lend themselves to standard actuarial reserving methods,
appropriate techniques are applied to produce the actuarial central estimates. For example, run-off asbestos and environmental
liability estimates are better suited to the application of account-specific exposure-based analyses to best evaluate their
associated aggregate reserve levels.
b) Standard actuarial reserving methods
Standard actuarial reserving methods include, but are not limited to, expected loss ratio, paid and reported loss development,
and Bornhuetter-Ferguson methods. A general description of these methods is provided below. In addition to these standard
methods, depending upon the product line characteristics and available data, we may use other recognized actuarial methods
and approaches. Implicit in the standard actuarial methods that we generally utilize is the need for two fundamental
assumptions: first, the pattern by which losses are expected to emerge over time for each origin year, and second the expected
loss ratio for each origin year.
The expected loss ratio for any particular origin year is selected after consideration of a number of factors, including historical
loss ratios adjusted for rate changes, premium and loss trends, industry benchmarks, the results of policy level loss modeling at
the time of underwriting, and/or other more subjective considerations for the product line (e.g., terms and conditions) and
external environment as noted above. The expected loss ratio for a given origin year is initially established at the start of the
origin year as part of the planning process. This analysis is performed in conjunction with underwriters and management. The
expected loss ratio method arrives at an ultimate loss estimate by multiplying the expected ultimate loss ratio by the
corresponding premium base. This method is most commonly used as the basis for the actuarial central estimate for immature
origin periods on product lines where the actual paid or reported loss experience is not yet deemed sufficiently credible to serve
as the principal basis for the selection of ultimate losses. The expected loss ratio for a given origin year may be modified over
time if the underlying assumptions differ from the original assumptions (e.g., the assessment of prior year loss ratios, loss trend,
rate changes, actual claims, or other information).
Our selected paid and reported development patterns provide a benchmark against which the actual emerging loss experience
can be monitored. Where possible, development patterns are selected based on historical loss emergence by origin year. For
product lines where the historical data is viewed to have low statistical credibility, the selected development patterns also reflect
relevant industry benchmarks and/or experience from similar product lines written elsewhere within Chubb. This most
commonly occurs for relatively new product lines that have limited historical data or for high severity/low frequency portfolios
where our historical experience exhibits considerable volatility and/or lacks credibility. The paid and reported loss development
methods convert the selected loss emergence pattern to a set of multiplicative factors which are then applied to actual paid or
reported losses to arrive at an estimate of ultimate losses for each period. Due to their multiplicative nature, the paid and
reported loss development methods will leverage differences between actual and expected loss emergence. These methods tend
to be utilized for more mature origin periods and for those portfolios where the loss emergence has been relatively consistent
over time.
The Bornhuetter-Ferguson method is a combination of the expected loss ratio method and the loss development method, where
the loss development method is given more weight as the origin year matures. This approach allows a logical transition between
the expected loss ratio method which is generally utilized at earlier maturities and the loss development methods which are
typically utilized at later maturities. We usually apply this method using reported loss data although paid data may also be
used.
Short-tail business
Short-tail business generally describes product lines for which losses are typically known and paid shortly after the loss actually
occurs. This would include, for example, most property, personal accident, and automobile physical damage policies that we
write. Due to the short reporting and development pattern for these product lines, the uncertainty associated with our estimate
of ultimate losses for any particular accident period diminishes relatively quickly as actual loss experience emerges. We typically
assign credibility to methods that incorporate actual loss emergence, such as the paid and reported loss development and
Bornhuetter-Ferguson methods, sooner than would be the case for long-tail lines at a similar stage of development for a given
origin year. The reserving process for short-tail losses arising from catastrophic events typically involves an assessment by the
claims department, in conjunction with underwriters and actuaries, of our exposure and estimated losses immediately following
an event and then subsequent revisions of the estimated losses as our insureds provide updated actual loss information.
F-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Long-tail business
Long-tail business describes lines of business for which specific losses may not be known/reported for some period and for
which claims can take significant time to settle/close. This includes most casualty lines such as general liability, D&O, and
workers' compensation. There are various factors contributing to the uncertainty and volatility of long-tail business. Among these
are:
• The nature and complexity of underlying coverage provided and net limits of exposure provided;
• Our historical loss data and experience is sometimes too immature and lacking in credibility to rely upon for reserving
purposes. Where this is the case, in our reserve analysis we may utilize industry loss ratios or industry benchmark
development patterns that we believe reflect the nature and coverage of the underwritten business and its future
development, where available. For such product lines, actual loss experience may differ from industry loss statistics as well
as loss experience for previous underwriting years;
• The difficulty in estimating loss trends, claims inflation (e.g., medical and judicial) and underlying economic conditions;
• The need for professional judgment to estimate loss development patterns beyond that represented by historical data using
supplemental internal or industry data, extrapolation, or a blend of both;
• The need to address shifts in mix over time when applying historical paid and reported loss development patterns from
older origin years to more recent origin years. For example, changes over time in the processes and procedures for
establishing case reserves can distort reported loss development patterns or changes in ceded reinsurance structures by
origin year can alter the development of paid and reported losses;
• Loss reserve analyses typically require loss or other data be grouped by common characteristics in some manner. If data
from two combined lines of business exhibit different characteristics, such as loss payment patterns, the credibility of the
reserve estimate could be affected. Additionally, since casualty lines of business can have significant intricacies in the terms
and conditions afforded to the insured, there is an inherent risk as to the homogeneity of the underlying data used in
performing reserve analyses; and
• The applicability of the price change data used to estimate ultimate loss ratios for most recent origin years.
As described above, various factors are considered when determining appropriate data, assumptions, and methods used to
establish the loss reserve estimates for long-tail product lines. These factors may also vary by origin year for given product lines.
The derivation of loss development patterns from data and the selection of a tail factor to project ultimate losses from actual
loss emergence require considerable judgment, particularly with respect to the extent to which historical loss experience is relied
upon to support changes in key reserving assumptions.
c) Loss Development Tables
The tables were designed to present business with similar risk characteristics which exhibit like development patterns and
generally similar trends, in order to provide insight into the nature, amount, timing and uncertainty of cash flows related to our
claims liabilities.
Each table follows a similar format and reflects the following:
• The incurred loss triangle includes both reported case reserves and IBNR liabilities.
• Both the incurred and paid loss triangles include allocated loss adjustment expense (i.e., defense and investigative costs
particular to individual claims) but exclude unallocated loss adjustment expense (i.e., the costs associated with internal
claims staff and third-party administrators).
• The amounts in both triangles for the years ended December 31, 2009, to December 31, 2017 and average historical claim
duration as of December 31, 2018, are presented as supplementary information.
• All data presented in the triangles is net of reinsurance recoverables.
• The IBNR reserves shown to the right of each incurred loss development exhibit reflect the net IBNR recorded as of
December 31, 2018.
• The tables are presented retrospectively with respect to acquisitions where these are material and doing so is practicable.
Most notably, the Chubb Corp acquisition is presented retrospectively. The unaudited consolidated data is presented solely
for informational purposes and is not necessarily indicative of the consolidated data that might have been observed had the
transactions been completed prior to the date indicated.
Historical dollar amounts are presented in this footnote on a constant-dollar basis, which is achieved by assuming constant
foreign exchange rates for all periods in the loss triangles, translating prior period amounts using the same local currency
exchange rates as the current year end. The impact of this conversion is to show the change between periods exclusive of the
effect of fluctuations in exchange rates, which would otherwise distort the change in incurred loss and cash flow patterns
F-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
shown. The change in incurred loss shown will differ from other GAAP disclosures of incurred prior period reserve development
amounts, which include the effect of fluctuations in exchanges rates.
We provided guidance above on key assumptions that should be considered when reviewing this disclosure and information
relating to how loss reserve estimates are developed. We believe the information provided in the “Loss Development Tables”
section of the disclosure is of limited use for independent analysis or application of standard actuarial estimations.
In 2018, we further refined prior year information in our loss development triangles to better align results by line of business
and accident year. The most significant refinement is a reclassification of $63 million from North America Commercial P&C
Insurance - Liability - Long-tail to North America Commercial P&C Insurance - Non-Casualty - Short tail.
Cumulative Number of Reported Claims
Reported claim counts, on a cumulative basis, are provided to the far right of each paid loss development table. We generally
consider a reported claim to be one claim per coverage per claimant. We exclude claims closed without payment. Use of the
presented claim counts in analysis of company experience has significant limitations, including:
• High deductible workers' compensation claim counts include claims below the applicable policy deductible.
• Professional liability and certain other lines have a high proportion of claims reported which will be closed without any
payment; shifts in total reported counts may not meaningfully impact reported and ultimate loss experience.
• Claims for certain events and/or product lines, such as portions of assumed reinsurance and A&H business, are not reported
on an individual basis, but rather in bulk and thus not available for inclusion in this disclosure. For certain A&H business,
where bulk reporting affected only the oldest few accident years, presented claim counts for these years were estimated.
• Each of the segments below typically has a mixture of primary and excess experience which has shifted over time.
Reported claim counts include open claims which have case reserves and exclude claims that have been incurred but not reported.
As such the reported claims are consistent with reported losses, which can be calculated by subtracting incurred but not reported
losses from incurred losses. Reported claim counts are inconsistent with losses in the incurred loss triangle, which include incurred
but not reported losses, and are also inconsistent with losses in the paid loss triangle, which exclude case reserves.
North America Commercial P&C Insurance — Workers' Compensation — Long-tail
This product line has a substantial geographic spread and a broad mix across industries. Types of coverage include risk management
business predominantly with high deductible policies, loss sensitive business (i.e., retrospectively-rated policies), business fronted
for captives, as well as excess and primary guaranteed cost coverages.
The triangle below shows all loss and allocated expense development for the workers' compensation product line. In our prior
period development disclosure, we exclude any loss development where there is a directly related premium adjustment. For
workers' compensation, changes in the exposure base due to payroll audits will drive changes in ultimate losses. In addition, we
record involuntary pool assumptions (premiums and losses) on a lagged basis. Both of these items will influence the
development in the triangle, particularly the first prior accident year, and are included in the reconciliation table presented on
page F-61.
F-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
North America Commercial P&C Insurance — Workers' Compensation — Long-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Net IBNR
Reserves
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 1,029 $ 998 $ 997 $ 990 $ 980 $ 977 $ 966 $ 972 $ 965 $
964 $
1,049
1,037
1,037
1,050
1,030
1,050
1,065
1,046
1,011
1,109
1,064
1,049
1,030
1,108
1,207
1,052
1,053
1,040
1,122
1,201
1,282
1,028
1,022
1,011
1,127
1,217
1,259
1,366
1,020
1,012
989
1,086
1,215
1,276
1,361
1,412
1,018
1,008
986
1,073
1,163
1,279
1,383
1,380
1,359
$ 11,613
218
248
271
292
358
465
594
743
831
995
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Reported Claims
(in thousands)
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 107 $ 258 $ 348 $ 416 $ 475 $ 519 $ 550 $ 597 $ 617 $
123
300
119
411
294
111
493
411
271
107
551
484
365
286
113
592
533
436
422
295
116
617
567
486
506
410
301
122
641
595
532
553
484
418
326
120
633
666
616
574
587
532
501
452
313
130
282
303
286
287
299
336
334
304
338
321
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
F-49
$ 5,004
December 31, 2018
2,574
9,183
December 31, 2018
(73)
(155)
$
$
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
North America Commercial P&C Insurance — Workers' Compensation — Long-tail (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years
Percentage
1
2
3
10%
16%
10%
4
7%
5
5%
6
4%
7
3%
8
3%
9
2%
10
2%
North America Commercial P&C Insurance — Liability — Long-tail
This line consists of primary and excess liability exposures, including medical liability and professional lines, including directors
and officers (D&O) liability, errors and omissions (E&O) liability, employment practices liability (EPL), fidelity bonds, and
fiduciary liability.
The primary and excess liability business represents the largest part of these exposures. The former includes both monoline and
commercial package liability. The latter includes a substantial proportion of commercial umbrella, excess and high excess
business, where loss activity can produce significant volatility in the loss triangles at later ages within an accident year (and
sometimes across years) due to the size of the limits afforded and the complex nature of the underlying losses.
This line includes management and professional liability products provided to a wide variety of clients, from national accounts to
small firms along with private and not-for-profit organizations, distributed through brokers, agents, wholesalers and MGAs.
Many of these coverages, particularly D&O and E&O, are typically written on a claims-made form. While most of the coverages
are underwritten on a primary basis, there are significant amounts of excess exposure with large policy limits.
Net Incurred Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Net IBNR
Reserves
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 3,791 $ 3,777 $ 3,764 $ 3,737 $ 3,636 $ 3,386 $ 3,309 $ 3,237 $ 3,096 $ 3,082 $
3,571
3,576
3,494
3,594
3,579
3,546
3,554
3,623
3,622
3,541
3,413
3,658
3,606
3,536
3,529
3,245
3,588
3,557
3,536
3,580
3,553
3,123
3,492
3,517
3,526
3,668
3,702
3,528
3,103
3,377
3,419
3,423
3,711
3,812
3,589
3,317
2,991
3,309
3,323
3,209
3,649
3,968
3,686
3,492
3,369
$ 34,078
221
234
473
626
748
1,148
1,570
1,726
2,442
2,950
F-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
North America Commercial P&C Insurance — Liability — Long-tail (continued)
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Reported Claims
(in thousands)
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 134 $ 587 $1,159 $ 1,670 $ 2,017 $2,354 $ 2,541 $ 2,673 $2,725 $ 2,766
126
611
160
1,107
651
166
1,557
1,207
654
129
1,891
1,802
1,170
547
164
2,257
2,211
1,677
1,190
679
138
2,423
2,473
2,089
1,594
1,249
604
171
2,523
2,655
2,322
2,004
1,802
1,204
662
161
2,658
2,736
2,497
2,229
2,200
1,853
1,335
616
189
$19,079
20
19
20
20
19
19
21
21
21
24
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
December 31, 2018
$
$
1,486
16,485
December 31, 2018
$
$
(3)
(141)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years
Percentage
1
5%
2
3
4
5
14%
17%
16%
12%
6
9%
7
6%
8
3%
9
3%
10
1%
North America Commercial P&C Insurance — Other Casualty — Long-tail
This product line consists of the remaining commercial casualty coverages such as automobile liability and aviation. There is
also a small portion of commercial multi-peril (CMP) business in accident years 2014 and prior. The paid and reported data are
impacted by some catastrophe loss activity primarily on the CMP exposures just noted.
F-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
North America Commercial P&C Insurance — Other-Casualty — Long-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Net IBNR
Reserves
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 599 $ 589 $ 555 $ 535 $ 492 $ 458 $ 452 $ 450 $ 445 $
452 $
613
607
580
600
589
633
545
580
605
526
506
548
576
530
594
478
532
560
522
582
486
480
524
519
515
580
469
503
492
516
518
468
596
501
501
531
483
510
508
461
554
514
527
565
535
$ 5,109
12
8
17
17
27
68
148
196
265
383
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Reported Claims
(in thousands)
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$
70 $ 206 $ 287 $ 336 $ 373 $ 401 $ 413 $ 422 $ 427 $
97
236
86
321
235
69
363
341
222
68
392
400
319
196
80
433
436
386
270
220
47
443
460
435
348
317
137
52
448
465
470
385
391
214
145
66
431
452
479
486
411
454
304
246
175
74
15
15
16
16
18
17
15
15
16
14
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
$ 3,512
$
$
$
$
December 31, 2018
287
1,884
December 31, 2018
14
20
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
North America Commercial P&C Insurance — Other-Casualty — Long-tail (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years
Percentage
1
2
3
4
14%
25%
18%
13%
5
8%
6
6%
7
2%
8
2%
9
1%
10
1%
North America Commercial P&C Insurance — Non-Casualty — Short-tail
This product line represents first party commercial product lines that are short-tailed in nature, such as property, inland marine,
ocean marine, surety and A&H. There is a wide diversity of products, primary and excess coverages, and policy sizes. During
this ten-year period, this product line was also impacted by natural catastrophes mainly in the 2012, 2017, and 2018 accident
years.
Net Incurred Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Net IBNR
Reserves
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 1,302 $ 1,298 $ 1,243 $ 1,213 $ 1,196 $ 1,189 $ 1,189 $ 1,186 $ 1,185 $ 1,183 $
1,500
1,535
1,956
1,459
1,930
2,029
1,423
1,873
1,911
1,428
1,421
1,852
1,878
1,418
1,640
1,413
1,831
1,860
1,331
1,656
1,732
1,409
1,835
1,854
1,354
1,574
1,741
1,906
1,403
1,831
1,842
1,335
1,554
1,646
1,885
2,700
1,393
1,831
1,840
1,334
1,544
1,634
1,795
2,604
2,048
$ 17,206
1
—
11
10
13
20
39
68
207
474
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Reported Claims
(in thousands)
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
$ 618 $ 1,032 $ 1,122 $ 1,146 $ 1,160 $ 1,168 $ 1,176 $ 1,178 $ 1,178 $ 1,178
722
1,221
938
1,319
1,570
713
1,356
1,714
1,573
648
1,381
1,773
1,694
1,134
817
1,389
1,783
1,762
1,233
1,369
725
1,393
1,807
1,790
1,280
1,479
1,340
844
1,393
1,812
1,817
1,306
1,501
1,485
1,500
977
1,390
1,817
1,812
1,319
1,527
1,553
1,651
2,084
1,026
$ 15,357
2018
1,124
1,058
1,052
1,036
1,073
1,101
1,170
1,291
1,372
1,326
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
F-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
North America Commercial P&C Insurance — Non-Casualty — Short-tail (continued)
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
December 31, 2018
$
$
22
1,871
December 31, 2018
$
$
(1)
(224)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years
Percentage
1
2
47%
38%
3
8%
4
3%
5
1%
6
1%
7
—%
8
9
10
—%
— %
— %
North America Personal P&C Insurance — Short-tail
Chubb provides personal lines coverages for high-net-worth individuals and families in North America including homeowners,
automobile, valuable articles (including fine art), umbrella liability, and recreational marine insurance offered through
independent regional agents and brokers. A portfolio acquired from Fireman’s Fund is presented on a prospective basis
beginning in May of accident year 2015. Reserves associated with prior accident periods were acquired through a loss portfolio
transfer, which does not allow for a retrospective presentation. During this ten-year period, this segment was also impacted by
natural catastrophes, mainly in 2012, 2017 and 2018 accident years.
Net Incurred Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Net IBNR
Reserves
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$1,606 $1,593 $1,563 $1,549 $ 1,541 $ 1,534 $ 1,534 $1,530 $1,529 $ 1,527 $
1,866
1,875
2,203
1,852
2,205
2,181
1,834
2,181
2,179
1,851
1,830
2,169
2,179
1,879
2,199
1,827
2,160
2,187
1,887
2,201
2,489
1,821
2,156
2,182
1,890
2,187
2,544
2,434
1,819
2,155
2,182
1,915
2,140
2,555
2,530
3,029
1,820
2,154
2,185
1,927
2,154
2,538
2,539
3,064
3,003
$22,911
5
8
9
10
16
35
48
190
291
428
(1)
(1) At December 31, 2018, ceded reinsurance recoveries on aggregate catastrophe treaties of approximately $200 million on reported losses have been reflected as a reduction
to net IBNR.
F-54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
North America Personal P&C Insurance — Short-tail (continued)
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Unaudited
Years Ended December 31
December 31
2018
Reported Claims
(in thousands)
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 884 $1,233 $1,343 $1,435 $1,482 $1,499 $1,509 $1,517 $1,519 $ 1,520
1,151
1,519
1,357
1,667
1,831
1,174
1,726
1,968
1,803
1,038
1,768
2,048
1,954
1,496
1,307
1,790
2,101
2,059
1,679
1,760
1,495
1,801
2,125
2,113
1,778
1,921
2,079
1,450
1,807
2,134
2,146
1,834
2,029
2,266
2,047
1,694
1,809
2,141
2,160
1,876
2,074
2,386
2,206
2,515
1,923 (1)
$20,610
125
149
168
173
126
135
139
140
144
129
(1) At December 31, 2018, ceded reinsurance recoveries on aggregate catastrophe treaties of approximately $200 million on reported losses have been reflected as a reduction
to net IBNR.
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
December 31, 2018
18
2,319
December 31, 2018
(7)
47
$
$
$
$
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years
Percentage
1
59%
2
24%
3
7%
4
5%
5
3%
6
1%
7
1%
8
—%
9
—%
10
—%
Overseas General Insurance — Casualty — Long-tail
This product line is comprised of D&O liability, E&O liability, financial institutions (including crime/fidelity coverages), and non-
U.S. general liability as well as aviation and political risk. Exposures are located around the world, including Europe, Latin
America, and Asia. Approximately 45 percent of Chubb Overseas General business is generated by European accounts,
exclusive of Lloyd's market. There is some U.S. exposure in Casualty from multinational accounts and in financial lines for
Lloyd's market. The financial lines coverages are typically written on a claims-made form, while general liability coverages are
typically on an occurrence basis and comprised of a mix of primary and excess businesses.
F-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Overseas General Insurance — Casualty — Long-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Net IBNR
Reserves
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 1,231 $ 1,367 $ 1,414 $ 1,421 $ 1,422 $ 1,309 $ 1,205 $ 1,204 $ 1,152 $ 1,138 $
1,180
1,259
1,210
1,304
1,216
1,252
1,375
1,209
1,220
1,247
1,312
1,199
1,283
1,243
1,248
1,260
1,116
1,301
1,240
1,318
1,170
1,138
1,052
1,297
1,283
1,327
1,267
1,179
1,134
1,038
1,278
1,227
1,337
1,293
1,278
1,186
1,139
988
1,258
1,192
1,253
1,314
1,345
1,287
1,287
$12,201
29
83
62
166
221
333
387
555
676
989
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Reported Claims
(in thousands)
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 117 $ 327 $ 502 $ 641 $ 733 $ 791 $ 861 $ 952 $ 978 $ 1,007
102
264
87
461
239
73
603
382
244
85
709
511
424
260
112
797
610
572
414
287
86
847
688
683
559
462
282
123
899
760
818
695
591
482
316
96
942
811
888
796
704
659
521
314
109
$ 6,751
38
40
41
43
44
44
46
46
44
32
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
$
$
$
$
December 31, 2018
383
5,833
December 31, 2018
(55)
(64)
F-56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Overseas General Insurance — Casualty — Long-tail (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years
Percentage
1
8%
2
3
4
15%
15%
12%
5
9%
6
8%
7
6%
8
6%
9
3%
10
3%
Overseas General Insurance — Non-Casualty — Short-tail
This product line is comprised of commercial fire, marine (predominantly cargo), surety, personal automobile (in Latin America,
Asia Pacific and Japan), personal cell phones, personal residential (including high net worth), energy and construction. In
general, these lines have relatively stable payment and reporting patterns although they are impacted by natural catastrophes
mainly in the 2010, 2011, 2017, and 2018 accident years. Latin America and Europe each make up about 30 percent of the
Chubb Overseas General non-casualty book.
Net Incurred Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Net IBNR
Reserves
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 1,492 $ 1,464 $ 1,380 $ 1,350 $ 1,331 $ 1,313 $ 1,313 $ 1,302 $ 1,301 $ 1,303 $
1,638
1,660
1,861
1,635
1,951
1,694
1,623
1,894
1,683
1,780
1,617
1,855
1,644
1,773
1,868
1,603
1,838
1,590
1,705
1,938
1,992
1,590
1,826
1,583
1,659
1,879
2,117
2,032
1,573
1,818
1,572
1,649
1,852
2,071
2,009
2,199
1,575
1,808
1,557
1,619
1,814
2,036
1,998
2,236
2,161
$18,107
—
13
2
15
42
29
63
24
29
437
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Reported Claims
(in thousands)
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 572 $ 1,043 $ 1,177 $ 1,241 $ 1,265 $ 1,275 $ 1,281 $ 1,284 $ 1,283 $ 1,287
664
1,218
753
1,415
1,453
676
1,477
1,654
1,220
695
1,515
1,709
1,407
1,271
755
1,528
1,739
1,465
1,464
1,421
850
1,534
1,754
1,488
1,495
1,630
1,548
1,016
1,535
1,762
1,497
1,531
1,693
1,772
1,654
1,040
1,541
1,766
1,509
1,550
1,724
1,853
1,851
1,822
987
$15,890
516
560
578
599
620
591
621
619
659
627
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
F-57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Overseas General Insurance — Non-Casualty — Short-tail (continued)
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
December 31, 2018
48
2,265
December 31, 2018
(11)
(109)
$
$
$
$
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years
Percentage
1
44%
2
35%
3
11%
4
4%
5
2%
6
1%
7
1%
8
—%
9
—%
10
—%
Global Reinsurance
Chubb analyzes its Global Reinsurance business on a treaty year basis rather than on an accident year basis. Treaty year data
was converted to an accident year basis for the purposes of this disclosure. Mix shifts are an important consideration in these
product line groupings. As proportional business and excess of loss business have different earning and loss reporting and
payment patterns, this change in mix will affect the cash flow patterns across the accident years. In addition, the shift from
excess to proportional business over time will make the cash flow patterns of older and more recent years difficult to compare.
In general, the proportional business will pay out more quickly than the excess of loss business, as such, using older years
development patterns may overstate the ultimate loss estimates in more recent years.
Global Reinsurance — Casualty — Long-tail
This product line includes proportional and excess coverages in general, automobile liability, professional liability, medical
malpractice, workers' compensation and aviation, with exposures located around the world. In general, reinsurance exhibits less
stable development patterns than primary business. In particular general casualty reinsurance and excess coverages are long-
tailed and can be very volatile.
Net Incurred Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Net IBNR
Reserves
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 316 $ 348 $ 360 $ 367 $ 363 $ 344 $ 328 $ 318 $ 313 $
303 $
398
418
404
429
411
383
440
426
380
318
429
430
388
324
330
423
425
391
327
331
281
413
416
376
327
336
286
219
399
412
369
328
339
296
223
210
386
406
368
321
341
297
231
211
239
$ 3,103
11
39
34
15
30
36
30
38
65
139
F-58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Global Reinsurance — Casualty — Long-tail (continued)
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Reported Claims
(in thousands)
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
$
34 $
79 $ 116 $ 154 $ 187 $ 208 $ 226 $ 239 $ 255 $
56
124
70
179
145
76
220
195
166
64
249
235
220
142
91
273
266
259
185
183
89
291
290
290
221
216
157
57
306
310
306
240
247
190
111
46
262
314
323
321
258
263
215
141
99
40
2018
0.864
0.796
0.668
0.464
0.342
0.389
0.316
0.324
0.401
0.196
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
$ 2,236
December 31, 2018
351
1,218
December 31, 2018
(48)
(73)
$
$
$
$
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years
Percentage
1
20%
2
22%
3
13%
4
10%
5
7%
6
6%
7
5%
8
4%
9
3%
10
3%
Global Reinsurance — Non-Casualty — Short-tail
This product line includes property, property catastrophe, marine, credit/surety, A&H and energy. This product line is impacted
by natural catastrophes, particularly in the 2011, 2017 and 2018 accident years. Of the non-catastrophe book, the mixture of
business varies by year with approximately 69 percent of loss on proportional treaties in treaty year 2009 and after. This
percentage has increased over time with the proportion being approximately 54 percent for treaty years 2009 to 2012 growing
to an average of 80 percent for treaty years 2013 to 2018, with the remainder being written on an excess of loss basis.
F-59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Global Reinsurance — Non-Casualty — Short-tail (continued)
Net Incurred Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Net IBNR
Reserves
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018
$ 139 $ 170 $ 150 $ 149 $ 142 $ 140 $ 138 $ 138 $ 138 $
137 $
197
232
271
221
272
230
215
270
210
160
219
260
200
158
162
221
261
190
146
178
145
222
262
189
141
178
153
179
223
261
187
142
181
160
185
396
222
261
184
140
180
160
187
422
283
$ 2,176
3
6
2
1
1
6
8
13
32
93
Net Cumulative Paid Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Years Ended December 31
Unaudited
December 31
2018
Reported Claims
(in thousands)
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
$
52 $ 105 $ 121 $ 128 $ 130 $ 132 $ 133 $ 133 $ 133 $
56
160
85
186
174
44
197
205
129
46
203
230
155
102
64
213
248
165
119
128
56
211
253
171
129
151
103
56
214
255
176
132
161
132
130
191
133
214
257
179
134
167
142
157
322
94
2018
0.113
0.102
0.131
0.112
0.119
0.100
0.114
0.177
0.290
0.151
Net Liabilities for Loss and Allocated Loss Adjustment Expenses
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
Supplementary Information: (Favorable)/ Adverse Prior Period Development
(in millions of U.S. dollars)
Accident years prior to 2009
All Accident years
$ 1,799
$
$
$
$
December 31, 2018
13
390
December 31, 2018
(2)
18
F-60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Global Reinsurance — Non-Casualty — Short-tail (continued)
Supplementary Information: Average Annual Percentage Payout of Net Incurred Claims by Age, as of December 31, 2018
Age in Years
Percentage
1
2
3
34%
37%
13%
4
7%
5
4%
6
3%
7
1%
8
1%
9
— %
10
—%
Prior Period Development — Supplementary Information
The following table presents a reconciliation of the loss development triangles above to prior period development:
Components of PPD
Year Ended December 31, 2018
(in millions of U.S. dollars)
(favorable)/unfavorable
Accident
years prior
to 2009
2009 - 2017
accident years
(implied PPD
per loss
triangles)
Other (1)
PPD on loss
reserves
RIPs,
Expense
adjustments
, and earned
premiums
North America Commercial P&C Insurance
Long-tail
Short-tail
North America Personal P&C Insurance
(Short-tail)
Overseas General Insurance
Long-tail
Short-tail
Global Reinsurance
Long-tail
Short-tail
Subtotal
North America Agricultural Insurance
(Short-tail)
Corporate (Long-tail)
Consolidated PPD
Total
(395)
(215)
(610)
41
(67)
(145)
(212)
(69)
19
(50)
$
(214) $
(62) $
(149)
$
(425) $
30 $
(223)
(437)
(1)
(63)
(4)
(153) (2)
(228)
(653)
54
(7)
(7)
40
(9)
(98)
(107)
(25)
20
(5)
(55)
(11)
(66)
(48)
(2)
(50)
(3)
(40)
(43) (3)
(1)
(1)
(2)
(67)
(149)
(216)
(74)
17
(57)
13
43
1
—
4
4
5
2
7
$
(495) $
(186) $
(205)
$
$
$
(886) $
55 $
(831)
(140) $
30 $
(110)
45
—
45
(981) $
85 $
(896)
(1) Other includes the impact of foreign exchange.
(2)
Includes favorable development of $81 million related to our Alternative Risk Solutions business (U.S. and Bermuda) and an adjustment to exclude $42 million in
unfavorable development in the workers' compensation line associated with an increase in exposure for which additional premiums were collected; the remaining difference
relates to a number of other items, none of which are individually material.
(3)
Includes favorable development of $31 million related to International A&H business; the remaining difference relates to a number of other items, none of which are
individually material.
Prior Period Development
Prior period development arises from changes to loss estimates recognized in the current year that relate to loss events that
occurred in previous calendar years and excludes the effect of losses from the development of earned premium from previous
accident years. Long-tail lines include lines such as workers' compensation, general liability, and professional liability; while
short-tail lines include lines such as most property lines, energy, personal accident, and agriculture.
F-61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following table summarizes (favorable) and adverse prior period development (PPD) by segment.
Years Ended December 31
(in millions of U.S. dollars, except for percentages)
Long-tail
Short-tail
Total
% of beginning
net unpaid
reserves (1)
$
$
—
—
—
41
41
45
45
19
(69)
(67)
(50)
(145)
(110)
(610)
(110)
(212)
(395) $
(486) $
(215) $
(410) $
2018
North America Commercial P&C Insurance
North America Personal P&C Insurance
North America Agricultural Insurance
Overseas General Insurance
Global Reinsurance
Corporate
Total
2017
North America Commercial P&C Insurance
North America Personal P&C Insurance
North America Agricultural Insurance
Overseas General Insurance
Global Reinsurance
Corporate
Total
2016
North America Commercial P&C Insurance
North America Personal P&C Insurance
North America Agricultural Insurance
Overseas General Insurance
Global Reinsurance
Corporate
Total
(1) Calculated based on the beginning of period consolidated net unpaid losses and loss expenses. For 2016, the percent of beginning net unpaid reserves is calculated
(562) $
(423) $
(693) $
(817) $
(184) $
(406) $
(318) $
(1,135)
(85) $
(896)
(181)
(119)
(236)
(187)
(252)
(119)
(746)
(829)
(423)
(778)
(59)
(68)
(71)
(72)
(72)
(77)
(78)
278
278
189
189
(1)
69
69
27
27
—
—
—
—
—
—
9
$
$
$
$
1.2%
0.1%
0.2%
0.4%
0.1%
0.1%
1.8%
1.6%
0.1%
0.2%
0.5%
0.1%
0.6%
1.7%
1.6%
0.1%
0.2%
0.9%
0.2%
0.4%
2.4%
inclusive of the net unpaid losses and loss expenses acquired in the Chubb Corp acquisition of $21.4 billion.
Significant prior period movements by segment, principally driven by reserve reviews completed during each respective period,
are discussed in more detail below. The remaining net development for long-tail lines and short-tail business for each segment
and Corporate comprises numerous favorable and adverse movements across a number of lines and accident years, none of
which is significant individually or in the aggregate.
North America Commercial P&C Insurance
2018
North America Commercial P&C Insurance experienced net favorable PPD of $610 million, which was the net result of several
underlying favorable and adverse movements, and was driven by the following principal changes:
• Net favorable development of $395 million in long-tail business, primarily from:
• Net favorable development of $199 million in our management liability portfolios, favorably impacting accident years
2013 and prior where paid and reported loss activity was lower than expected, partially offset by adverse development
in the 2014 through 2017 accident years, mostly as a result of higher severity claim costs compared to prior
expectations in certain lines or coverages, particularly in our Directors and Officers (D&O) portfolio;
• Net favorable development of $194 million in workers’ compensation lines with favorable development of $56 million
in the 2017 accident year mainly related to our annual assessment of multi-claimant events including industrial
accidents. Consistent with prior years, we reviewed these potential exposures after the close of the accident year to
allow for late reporting or identification of significant losses. The net remaining favorable development of $138 million
was principally due to lower than expected loss experience, mainly impacting accident years 2014 and prior;
F-62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
• Net favorable development of $100 million in our commercial excess and umbrella portfolios, primarily in accident
years 2012 and prior. This was driven by lower than expected reported loss activity, and an increase in weighting
towards experience-based methods, partly offset by higher than expected claim activity in the 2014, 2015 and 2017
accident years which led to reserve strengthening in those years;
• Favorable development of $33 million in a runoff professional liability portfolio, impacting accident years 2002 and
prior, owing mainly to the favorable disposition of a specific claim;
• Net favorable development of $28 million in our foreign casualty lines, primarily impacting accident years 2014 and
prior, driven by reported loss activity that was generally lower than expected;
• Favorable development of $23 million in our political risk and trade credit portfolios, mainly impacting the 2014
accident year, primarily due to favorable reported experience and an increased in weighting towards experience-based
methods;
• Net favorable development of $3 million on several lines of business due to favorable claim development on the 2017
natural catastrophes;
• Net adverse development of $91 million in our medical portfolios, mainly impacting accident years 2015, 2016 and
2017. The increase was driven by a combination of several large claims and generally higher than expected paid and
reported case incurred activity; and
• Net adverse development of $109 million, mainly in our automobile liability, commercial-multi peril (CMP) liability,
products and general liability lines, driven by adverse paid and reported loss activity relative to prior expectations in
accident years 2015 through 2017, partly offset by favorable emergence in older accident years.
• Net favorable development of $215 million in short-tail business, primarily from:
• Net favorable development of $155 million in our commercial property and marine businesses due to favorable claim
development, including $129 million net favorable development on the 2017 natural catastrophes; and
• Net favorable development of $60 million in other short-tail business, including $19 million in surety and also
including several smaller net favorable movements from lower than expected case activity in other classes, such as
accident and commercial automobile physical damage, none of which were significant individually or in the aggregate.
2017
North America Commercial P&C Insurance experienced net favorable PPD of $746 million, which was the net result of several
underlying favorable and adverse movements, and was driven by the following principal changes:
• Net favorable development of $562 million in long-tail business, primarily from:
• Net favorable development of $184 million in our commercial excess and umbrella portfolios, primarily in accident
years 2011 and prior, driven by lower than expected case activity and an increase in weighting towards experience-
based methods. Large loss activity in accident year 2015 led to adverse development in that year, partially offsetting
the favorable development in the older years;
• Net favorable development of $181 million in our management liability portfolios, favorably impacting accident years
2012 and prior where paid and reported loss activity was lower than expected, partially offset by adverse development
in accident years 2014 through 2016, mostly as a result of higher severity claim costs compared to prior expectations
in certain lines or coverages;
• Net favorable development of $123 million in our workers’ compensation businesses (including excess workers'
compensation) with favorable development of $57 million in the 2016 accident year related to our annual assessment
of multi-claimant events including industrial accidents. Consistent with prior years, we reviewed these potential
exposures after the close of the accident year to allow for late reporting or identification of significant losses. Net
favorable development of $65 million was principally due to lower than expected loss experience and updates to
F-63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
development patterns used in our loss projection methods, mainly impacting accident years 2013 and prior, and
partially offset by smaller adverse development in the more recent prior accident years;
• Net favorable development of $32 million in our professional Errors and Omissions (E&O) portfolios, primarily in the
2012 and 2013 accident years, arising from lower than expected reported loss activity, partially offset by claim-specific
adverse development in other years;
• Net favorable development of $28 million on several large multi-line prospective deals primarily impacting the 2012
and 2013 accident years, due to lower than expected reported loss activity. These structured deals typically cover large
clients for multiple product lines and with varying loss limitations; this development is net of premium adjustments of
$26 million tied to the loss performance of the particular deals;
• Net favorable development of $21 million in our political risk portfolio, primarily impacting the 2013 accident year,
principally due to reported experience below expectations and an increase in weighting towards experience-based
methods; and
• Net adverse development of $21 million in our auto liability lines, primarily in the 2012 through 2015 accident years,
driven by higher than expected paid and reported experience.
• Net favorable development of $184 million in short-tail business, primarily from:
• Net favorable development of $98 million in our property and inland marine portfolios, impacting the 2012 through
2016 accident years, resulting from lower than expected loss emergence;
• Net favorable development of $45 million in our surety business, primarily due to lower than expected claims severity
in the 2015 accident year; and
• Net favorable development of $20 million in our accident & health (A&H) business, primarily due to lower than
expected loss emergence in the 2015 and 2016 accident years.
2016
North America Commercial P&C Insurance experienced net favorable PPD of $778 million, representing 1.6 percent of the
beginning consolidated net unpaid losses and loss expense reserves.
North America Personal P&C Insurance
2018
North America Personal P&C Insurance incurred net adverse PPD of $41 million, which was the net result of several underlying
favorable and adverse movements, and was driven by the following principal changes:
• Net adverse development of $63 million in our homeowners and valuables lines, primarily impacting the 2017 accident
year. Overall, non-catastrophe losses were $136 million higher than expected, partially offset by favorable claim
development of $73 million on the 2017 natural catastrophes. The higher than expected non-catastrophe homeowners
losses were primarily severity driven and included water-related claims, large fire losses, and non-catastrophe weather
claims;
• Net favorable development of $24 million in our personal excess lines primarily impacting the 2015 accident year, due to
lower than expected loss emergence and an increase in weighting towards experience-based methods; and
• Favorable development of $10 million from claim development on the 2017 natural catastrophes from other personal lines.
2017
North America Personal P&C Insurance incurred net adverse PPD of $69 million, which was the net result of several underlying
favorable and adverse movements, and was driven by the following principal changes:
• Net adverse development of $105 million in our homeowners lines, primarily impacting the 2013 and 2016 accident
years, due to higher than expected loss severity; and
F-64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
• Net favorable development of $58 million in our personal excess lines primarily impacting the 2014 accident year, due to
lower than expected loss experience and an increased weighting towards experience-based methods.
2016
North America Personal P&C Insurance incurred net adverse PPD of $27 million, representing 0.1 percent of the beginning
consolidated net unpaid losses and loss expense reserves.
North America Agricultural Insurance
North America Agricultural Insurance experienced net favorable PPD of $110 million, $119 million, and $72 million in 2018,
2017, and 2016, respectively. Actual claim development relates to our Multiple Peril Crop Insurance business and was
favorable due to better than expected crop yield results in certain states at the prior year-end period (i.e., 2018 results based on
crop yield results at year-end 2017). 2018 also included $1 million of favorable claim development on the 2017 natural
catastrophes.
Overseas General Insurance
2018
Overseas General Insurance experienced net favorable PPD of $212 million, which was the net result of several underlying
favorable and adverse movements, and was driven by the following principal changes:
• Net favorable development of $67 million in long-tail business, primarily from:
• Net favorable development of $70 million in casualty lines, with net favorable development of $107 million in accident
years 2014 and prior, resulting from lower than expected loss emergence across primary and excess lines, partially
offset by adverse development of $38 million in accident years 2015 through 2017, primarily due to large loss
experience in U.K. excess lines and wholesale business;
• Favorable development of $32 million, primarily including $12 million in political risks, $10 million in aviation and
$10 million in environmental; and
• Net adverse development of $38 million in financial lines, with net favorable development of $93 million in accident
years 2014 and prior, resulting from lower than expected loss emergence including favorable development due to
specific large claim reductions in Asia financial institutions including wholesale bankers D&O and bankers professional
indemnity, and adverse development of $131 million in accident years 2015 through 2017, primarily due to adverse
large loss experience in specific D&O and financial institutions portfolios in Australia, Continental Europe and the U.K.
• Net favorable development of $145 million in short-tail business, primarily from:
• Net favorable development of $99 million in property and marine (excluding technical lines), primarily in accident years
2013 through 2016, driven mainly by favorable loss emergence across all regions, including favorable claim-specific
loss settlements and salvage/subrogation recoveries;
• Net favorable development of $33 million in A&H, primarily in accident years 2015 through 2017, driven by favorable
development across Asia Pacific direct marketing and Continental Europe corporate lines; and
• Adverse development of $1 million from claim development on the 2017 natural catastrophes.
2017
Overseas General Insurance experienced net favorable PPD of $252 million, which was the net result of several underlying
favorable and adverse movements, and was driven by the following principal changes:
• Net favorable development of $71 million in long-tail business, primarily from:
• Net favorable development of $34 million in financial lines, with favorable development of $124 million in accident
years 2013 and prior, resulting from lower than expected loss emergence including favorable development on specific,
litigated claims, partially offset by adverse development of $90 million in accident years 2014 through 2016, primarily
due to large loss experience in specific D&O portfolios within the U.K., Continental Europe, and Australia and Financial
Institutions lines in the U.K. and Continental Europe; and
F-65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
• Net favorable development of $10 million in casualty lines, with favorable development of $69 million in accident
years 2013 and prior, resulting from lower than expected loss emergence, partially offset by adverse development
of $32 million driven by a change in the discount rate in the U.K. (Ogden rate) impacting the 2016 and prior accident
years and adverse development of $27 million in accident years 2014 to 2016, primarily due to large loss experience
in U.K. excess lines and wholesale business.
• Net favorable development of $181 million in short-tail business, primarily from:
• Net favorable development of $48 million in A&H lines, primarily from favorable loss emergence in Asia Pacific and
Continental Europe in accident years 2014 through 2016;
• Net favorable development of $43 million in technical and energy lines, primarily from favorable loss emergence in
accident years 2014 through 2016 primarily in offshore and power generation where experience has been better than
expected;
• Favorable development of $42 million in marine, primarily in accident years 2015 and 2016, driven mainly by
favorable cargo loss emergence, including favorable claim-specific loss settlements and recoveries; and
• Favorable development of $25 million in property (excluding technical lines), primarily in accident years 2013 through
2015, driven mainly by favorable loss emergence, including claim-specific loss settlements in all regions except Asia
Pacific, partially offset by adverse Asia Pacific large loss experience in accident year 2016.
2016
Overseas General Insurance experienced net favorable PPD of $423 million, representing 0.9 percent of the beginning
consolidated net unpaid losses and loss expense reserves.
Global Reinsurance
2018
Global Reinsurance experienced net favorable PPD of $50 million, which was the net result of several underlying favorable and
adverse movements, and was driven by the following principal changes:
• Net favorable development of $69 million in long-tail business, primarily in our casualty, professional liability, medical
malpractice, and workers' compensation lines primarily from treaty years 2013 and prior principally resulting from lower
than expected loss emergence; and
• Net adverse development of $19 million in short-tail business, which included $18 million of net adverse claim
development on the 2017 natural catastrophes.
2017
Global Reinsurance experienced net favorable PPD of $59 million, which was the net result of several underlying favorable and
adverse movements, and was driven by the following principal changes:
• Net favorable development of $68 million on long-tail lines of business, primarily from:
• Net favorable development of $67 million in our casualty (excluding motor), professional liability, and medical
malpractice lines, primarily from treaty years 2013 and prior, principally resulting from lower than expected loss
emergence in the U.S. portfolios; and
• Net adverse development of $10 million in our motor and excess liability lines, primarily due to adverse development of
$9 million driven by a change in the discount rate in the U.K. (Ogden rate) primarily impacting the 2015 and prior
treaty years.
• Net adverse development of $9 million in our short-tail business, none of which was significant individually or in the
aggregate.
F-66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
2016
Global Reinsurance experienced net favorable PPD of $78 million, representing 0.2 percent of the beginning consolidated net
unpaid losses and loss expense reserves.
Corporate
2018
Corporate incurred adverse development of $45 million in long-tail lines, driven by the following principal changes:
• Adverse development of $216 million in run-off liabilities, driven primarily by increased exposure on a limited number of
direct asbestos claims and environmental sites, somewhat greater than expected defense cost spending and increases in
reported claims and settlements with respect to molestation exposures;
• Adverse development of $35 million on unallocated loss adjustment expenses due to run-off operating expenses paid and
incurred in 2018; and
• Favorable development of $205 million as a result of the settlements of certain previously disputed reinsurance balances.
2017
Corporate incurred adverse development of $278 million in long-tail lines, driven by the following principal changes:
• Adverse development of $239 million in asbestos, environmental, and other run-off liabilities, driven primarily by resolution
of a limited number of direct cases, increases in severity trends, somewhat greater than expected defense spending and
increases in reported claims for certain assumed reinsurance portfolios; and
• Adverse development of $39 million on unallocated loss adjustment expenses due to run-off operating expenses paid and
incurred in 2017.
2016
Corporate incurred adverse PPD of $189 million, representing 0.4 percent of the beginning consolidated net unpaid losses and
loss expense reserves.
Asbestos and environmental (A&E)
Chubb's exposure to A&E claims principally arises out of liabilities acquired when it purchased Westchester Specialty in 1998,
CIGNA's P&C business in 1999, and Chubb Corp in 2016. The following table presents a roll-forward of consolidated A&E loss
reserves including allocated loss expense reserves for A&E exposures, and the provision for uncollectible paid and unpaid
reinsurance recoverables:
(in millions of U.S. dollars)
Balance at December 31, 2017
Incurred activity
Paid activity
Asbestos
Environmental
Gross
Net
Gross
Net
Gross
Total
Net
$
1,621 $
1,051 $
607 $
476 $
2,228 $
1,527
136
(265)
75
(162)
101
(83)
(97)
104
237
(348)
(22) (1)
(58)
Balance at December 31, 2018
$
1,492 $
964 $
625 $
483 $
2,117 $
1,447
(1) Excludes unallocated loss expenses and the net activity reflects third-party reinsurance other than the aggregate excess of loss reinsurance provided by National Indemnity
Company (NICO) to Westchester Specialty (see Westchester Specialty section below).
The positive development of $22 million in 2018 principally reflects favorable reinsurance settlements.
F-67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The A&E net loss reserves including allocated loss expense reserves and provision for uncollectible reinsurance at December 31,
2018 and 2017 shown in the table above is comprised of:
(in millions of U.S. dollars)
Brandywine operations
Westchester Specialty
Chubb Corp
Other, mainly Overseas General Insurance
Total
December 31
2018
2017
$
807 $
120
442
78
849
113
486
79
$
1,447 $
1,527
Brandywine Run-off entities – The Restructuring Plan and uncertainties relating to Chubb's ultimate Brandywine exposure
In 1996, the Pennsylvania Insurance Commissioner approved a plan to restructure INA Financial Corporation and its
subsidiaries (the Restructuring) which included the division of Insurance Company of North America (INA) into two separate
corporations:
(1) An active insurance company that retained the INA name and continued to write P&C business; and
(2) An inactive run-off company, now called Century Indemnity Company (Century).
As a result of the division, predominantly all A&E and certain other liabilities of INA were ascribed to Century and extinguished,
as a matter of Pennsylvania law, as liabilities of INA.
As part of the Restructuring, most A&E liabilities of various U.S. affiliates of INA were reinsured to Century. Century and certain
other run-off companies having A&E and other liabilities were contributed to Brandywine Holdings.
The U.S.-based Chubb INA companies assumed two contractual obligations in respect of the Brandywine operations in
connection with the Restructuring: a surplus maintenance obligation in the form of the excess of loss (XOL) agreement and a
dividend retention fund obligation.
XOL Agreement
In 1996, in connection with the Restructuring, a Chubb INA insurance subsidiary provided reinsurance coverage to Century in
the amount of $800 million under an Aggregate Excess of Loss Reinsurance Agreement (XOL Agreement), triggerable if the
statutory capital and surplus of Century falls below $25 million or if Century lacks liquid assets with which to pay claims as
they become due.
Dividend Retention Fund
INA Financial Corporation established and funded a dividend retention fund (the Dividend Retention Fund) consisting of $50
million plus investment earnings. The full balance of the Dividend Retention Fund was contributed to Century as of
December 31, 2002. Under the Restructuring Order, while any obligation to maintain the Dividend Retention Fund is in effect,
to the extent dividends are paid by INA Holdings Corporation to its parent, INA Financial Corporation, and to the extent INA
Financial Corporation then pays such dividends to INA Corporation, a portion of those dividends must be withheld to replenish
the principal of the Dividend Retention Fund to $50 million. During 2018, 2011 and 2010, $50 million, $35 million and $15
million, respectively, were withheld from such dividends and deposited into the Dividend Retention Fund as a result of dividends
paid up to the INA Corporation. Pursuant to a 2011 amendment to the Restructuring Order, capital contributions from the
Dividend Retention Fund to Century are not required until the XOL Agreement has less than $200 million of capacity remaining
on an incurred basis for statutory reporting purposes. The amount of the capital contribution shall be the lesser of the amount
necessary to restore the XOL Agreement remaining capacity to $200 million or the Dividend Retention Fund balance. In 2018
and 2017, the Pennsylvania Department of Insurance approved a capital contribution of $39 million and $49 million,
respectively, from the Dividend Retention Fund to Century in order to restore the XOL capacity to $200 million. The Dividend
Retention Fund may not be terminated without prior written approval from the Pennsylvania Insurance Commissioner.
Effective December 31, 2004, Chubb INA contributed $100 million to Century in exchange for a surplus note. After giving
effect to the contribution and issuance of the surplus note, the statutory surplus of Century at December 31, 2018 was $25
million and $634 million in statutory-basis losses have been ceded to the XOL Agreement on an inception-to-date basis.
F-68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Century reports the amount ceded under the XOL Agreement in accordance with statutory accounting principles, which differ
from GAAP by, among other things, allowing Century to discount its liabilities, including certain asbestos related and
environmental pollution liabilities and Century's reinsurance payable to active companies. For GAAP reporting purposes,
intercompany reinsurance recoverables related to the XOL are eliminated upon consolidation.
While Chubb believes it has no legal obligation to fund Century losses above the XOL limit of coverage, Chubb's consolidated
results would nevertheless continue to include any losses above the limit of coverage for so long as the Brandywine companies
remain consolidated subsidiaries of Chubb.
Certain active Chubb companies are primarily liable for asbestos, environmental, and other exposures that they have reinsured
to Century. Accordingly, if Century were to become insolvent and placed into rehabilitation or liquidation, some or all of the
recoverables due to these active Chubb companies from Century could become uncollectible. At December 31, 2018 and
2017, the aggregate reinsurance recoverables owed by Century to certain active Chubb companies were approximately $1.5
billion and $1.4 billion, on an undiscounted basis, respectively. Chubb believes the active company intercompany reinsurance
recoverables, which relate to direct liabilities payable over many years, are not impaired. At December 31, 2018 and 2017,
Century's carried gross reserves (including reserves assumed from the active Chubb companies) were $2.0 billion. Should
Century's loss reserves experience adverse development in the future and should Century be placed into rehabilitation or
liquidation, the reinsurance recoverables due from Century to certain active Chubb companies would be payable only after the
payment in full of certain expenses and liabilities, including administrative expenses and direct policy liabilities. Thus, the
intercompany reinsurance recoverables would be at risk to the extent of the shortage of assets remaining to pay these
recoverables.
Westchester Specialty – impact of NICO contracts on Chubb’s run-off entities
As part of the Westchester Specialty acquisition in 1998, NICO provided a 75 percent pro-rata share of $1.0 billion of
reinsurance protection on losses and loss adjustment expenses incurred on or before December 31, 1996, in excess of a
retention of $721 million. At December 31, 2018, the remaining unused incurred limit under the Westchester NICO agreement
was $395 million.
7. Taxation
Under current Swiss law, a resident company is subject to income tax at the federal, cantonal, and communal levels that is
levied on net worldwide income. Income attributable to permanent establishments or real estate located abroad is excluded
from the Swiss tax base. Chubb Limited is a holding company and, therefore, is exempt from cantonal and communal income
tax. As a result, Chubb Limited is subject to Swiss income tax only at the federal level. Furthermore, participation relief (i.e., tax
relief) is granted to Chubb Limited at the federal level for qualifying dividend income and capital gains related to the sale of
qualifying participations (i.e., subsidiaries). It is expected that the participation relief will result in a full exemption of
participation income from federal income tax. Chubb Limited is subject to an annual cantonal and communal capital tax on the
taxable equity of Chubb Limited in Switzerland.
Chubb has two Swiss operating subsidiaries, an insurance company, Chubb Insurance (Switzerland) Limited and a reinsurance
company, Chubb Reinsurance (Switzerland) Limited. Both are subject to federal, cantonal, and communal income tax and to
annual cantonal and communal capital tax.
Under current Bermuda law, Chubb Limited and its Bermuda subsidiaries are not required to pay any taxes on income or capital
gains. If a Bermuda law were enacted that would impose taxes on income or capital gains, Chubb Limited and the Bermuda
subsidiaries have received an undertaking from the Minister of Finance in Bermuda that would exempt such companies from
Bermudian taxation until March 2035.
Income from Chubb's operations at Lloyd's is subject to United Kingdom (U.K.) corporation taxes. Lloyd's is required to pay U.S.
income tax on U.S. connected income (U.S. income) written by Lloyd's syndicates. Lloyd's has a closing agreement with the
Internal Revenue Service (IRS) whereby the amount of tax due on this business is calculated by Lloyd's and remitted directly to
the IRS. These amounts are then charged to the accounts of Chubb's Corporate Members in proportion to their participation in
the relevant syndicates. Chubb's Corporate Members are subject to this arrangement but, as U.K. domiciled companies, will
receive U.K. corporation tax credits for any U.S. income tax incurred up to the value of the equivalent U.K. corporation income
tax charge on the U.S. income.
F-69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Chubb Group Holdings and its respective subsidiaries are subject to income taxes imposed by U.S. authorities and file a
consolidated U.S. Federal income tax return. Should Chubb Group Holdings pay a dividend to Chubb Limited, withholding taxes
would apply. Currently, however, no withholding taxes are accrued with respect to such un-remitted earnings as management
has no intention of remitting these earnings. Similarly, no taxes have been provided on the un-remitted earnings of certain
foreign subsidiaries (Hong Kong and Korea life companies) as management has no intention of remitting these earnings. The
cumulative amount that would be subject to withholding tax, if distributed, as well as the determination of the associated tax
liability are not practicable to compute; however, such amount would be material. Certain international operations of Chubb are
also subject to income taxes imposed by the jurisdictions in which they operate.
Chubb's domestic operations are in Switzerland, the jurisdiction where we are legally organized, incorporated, and registered.
The following table presents pre-tax income and the related provision for income taxes:
(in millions of U.S. dollars)
Pre-tax income:
Switzerland
Outside Switzerland
Total pre-tax income
Provision for income taxes
Current tax expense:
Switzerland
Outside Switzerland
Total current tax expense
Deferred tax expense (benefit):
Switzerland
Outside Switzerland
Total deferred tax expense (benefit)
Provision for income taxes
$
$
$
Year Ended December 31
2018
2017
2016
950 $
527 $
3,707
3,195
4,657 $
3,722 $
766
4,184
4,950
89 $
46 $
563
652
3
40
43
313
359
2
(500)
(498)
$
695 $
(139) $
97
727
824
(27)
18
(9)
815
The most significant jurisdictions contributing to the overall taxation of Chubb are calculated using the following rates in 2018:
Switzerland 7.83 percent, Bermuda 0.0 percent, U.S. 21.0 percent, and U.K. 19.0 percent.
The following table presents a reconciliation of the difference between the provision for income taxes and the expected tax
provision at the Swiss statutory income tax rate:
(in millions of U.S. dollars)
Expected tax provision at Swiss statutory tax rate
Permanent differences:
Taxes on earnings subject to rate other than Swiss statutory rate
Tax-exempt interest and dividends received deduction, net of proration
Net withholding taxes
Excess tax benefit on share-based compensation
Impact of 2017 Tax Act
Corporate owned life insurance
Other
Provision for income taxes
Year Ended December 31
2018
2017
$
365 $
291 $
372
(75)
33
(19)
(25)
2
42
263
(199)
30
(48)
(450)
(37)
11
2016
388
582
(200)
20
—
—
—
25
$
695 $
(139) $
815
F-70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following table presents the components of net deferred tax assets and liabilities:
(in millions of U.S. dollars)
Deferred tax assets:
Loss reserve discount
Unearned premiums reserve
Foreign tax credits
Provision for uncollectible balances
Loss carry-forwards
Debt related amounts
Compensation related amounts
Cumulative translation adjustments
Unrealized depreciation on investments
Other, net
Total deferred tax assets
Deferred tax liabilities:
Deferred policy acquisition costs
Other intangible assets, including VOBA
Un-remitted foreign earnings
Investments
Unrealized appreciation on investments
Depreciation
Total deferred tax liabilities
Valuation allowance
Net deferred tax liabilities
December 31
2018
December 31
2017
$
584 $
471
262
37
137
71
263
43
102
95
715
231
340
45
90
77
260
30
—
70
2,065
1,858
621
1,440
47
59
—
123
2,290
79
635
1,437
66
53
184
83
2,458
99
$
(304) $
(699)
The 2017 Tax Act, enacted in December 2017, among other things, reduced the U.S. Federal income tax rate from 35 percent to
21 percent effective in 2018. In the fourth quarter of 2017, we recorded a $450 million income tax benefit on a provisional basis,
and an additional $25 million in 2018, principally reflecting this reduction in the U.S. corporate tax rate from 35 percent to 21
percent. Our final $475 million income tax benefit was comprised of a $743 million reduction in the deferred tax liabilities principally
related to certain intangible assets, a $250 million reduction in net deferred tax assets related to other net assets, a net charge of
$18 million related to the impact of excess foreign tax credits, withholding taxes associated with unremitted earnings and the
impact of the reduced rate on our foreign branches. The 2018 change reflected the favorable impact of changes to certain tax only
accounting methods offset by updates to provisional amounts recorded related to foreign tax credits and withholding taxes as a
result of additional guidance issued during 2018.
The 2017 Tax Act also included provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes may be imposed on
income of foreign subsidiaries and for a Base Erosion and Anti-Abuse Tax (BEAT) under which taxes may be imposed on certain
payments to affiliated foreign companies. We have evaluated the accounting policy election required with regard to the BEAT and
GILTI provisions, and have concluded we will treat both as a period cost. As a result, we have recorded no related deferred taxes.
The valuation allowance of $79 million at December 31, 2018, and $99 million at December 31, 2017, reflects
management's assessment, based on available information, that it is more likely than not that a portion of the deferred tax
assets will not be realized due to the inability of certain foreign subsidiaries to generate sufficient taxable income. Adjustments
to the valuation allowance are made when there is a change in management's assessment of the amount of deferred tax assets
that are realizable.
At December 31, 2018, Chubb has net operating loss carry-forwards of $491 million which, if unused, will expire starting in
2019, and a foreign tax credit carry-forward in the amount of $262 million which, if unused, will expire starting in 2025.
F-71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following table presents a reconciliation of the beginning and ending amount of gross unrecognized tax benefits:
(in millions of U.S. dollars)
Balance, beginning of year
Additions based on tax positions related to the current year
Additions based on tax positions related to prior years
Reductions for tax positions of prior years
Reductions for the lapse of the applicable statutes of limitations
Balance, end of year
December 31
2018
December 31
2017
17
13 $
1
—
—
—
14 $
3
—
(4)
(3)
13
$
$
At December 31, 2018 and 2017, the total amount of unrecognized tax benefits that would affect the effective tax rate, if
recognized, were $14 million and $13 million, respectively.
Chubb recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in income tax expense in the
Consolidated statements of operations. Tax-related interest expense (income) and penalties reported in the Consolidated
statements of operations were immaterial for December 31, 2018, 2017, and 2016. Liabilities for tax-related interest and
penalties in our Consolidated balance sheets were $3 million at both December 31, 2018 and 2017.
In September 2016, the IRS completed its examination of Chubb Group Holdings’ (formerly ACE Group Holdings) U.S. Federal
income tax returns for the 2010-2012 tax years. No material adjustments resulted from this examination. During 2017, the IRS
commenced its field examination of Chubb Group Holdings U.S. Federal income tax returns for 2014 and 2015 and Chubb
Corp’s U.S. Federal income tax return for 2014 all of which were still ongoing at December 31, 2018. As a multinational
company, we also have examinations under way in several foreign jurisdictions. It is reasonably possible that over the next
twelve months, that the amount of unrecognized tax benefits may change resulting from the re-evaluation of unrecognized tax
benefits arising from examinations by taxing authorities and the lapsing of statutes of limitations. With few exceptions, Chubb is
no longer subject to income tax examinations for years before 2010.
F-72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
8. Debt
(in millions of U.S. dollars)
2018
2017
Early Redemption Option
Repurchase agreements (weighted average interest rate
of 2.5% in 2018 and 1.5% in 2017)
$
1,418 $
1,408
None
December 31
December 31
Short-term debt
Chubb INA senior notes:
$300 million 5.8% due March 2018
$
— $
300 Make-whole premium plus 0.35%
$600 million 5.75% due May 2018
$100 million 6.6% due August 2018
$500 million 5.9% due June 2019
Other short-term debt (7.1% due December 2019)
Total short-term debt
Long-term debt
Chubb INA senior notes:
$500 million 5.9% due June 2019
$
$
—
—
500
9
610 Make-whole premium plus 0.30%
103
None
— Make-whole premium plus 0.40%
—
None
509 $
1,013
— $
499 Make-whole premium plus 0.40%
$1,300 million 2.3% due November 2020
1,297
1,296 Make-whole premium plus 0.15%
$1,000 million 2.875% due November 2022
$475 million 2.7% due March 2023
$700 million 3.35% due May 2024
$800 million 3.15% due March 2025
$1,500 million 3.35% due May 2026
€900 million 1.55% due March 2028
$100 million 8.875% due August 2029
$200 million 6.8% due November 2031
$300 million 6.7% due May 2036
$800 million 6.0% due May 2037
€900 million 2.5% due March 2038
$600 million 6.5% due May 2038
$475 million 4.15% due March 2043
996
473
696
796
1,491
1,008
100
250
297
962
1,008
759
470
995 Make-whole premium plus 0.20%
472 Make-whole premium plus 0.10%
695 Make-whole premium plus 0.15%
795 Make-whole premium plus 0.15%
1,489 Make-whole premium plus 0.20%
— Make-whole premium plus 0.15%
100
None
254 Make-whole premium plus 0.25%
297 Make-whole premium plus 0.20%
971 Make-whole premium plus 0.20%
— Make-whole premium plus 0.25%
768 Make-whole premium plus 0.30%
469 Make-whole premium plus 0.15%
$1,500 million 4.35% due November 2045
1,483
1,482 Make-whole premium plus 0.25%
Chubb INA $1,000 million 6.375% capital securities
due March 2067(1)
Other long-term debt (2.75% to 7.1%
due December 2019 to September 2020)
Total long-term debt
Trust preferred securities
Chubb INA capital securities due April 2030
$
$
—
1
964
10
12,087 $
11,556
Make-whole premium plus
0.25%-0.50%
None
308 $
308
Redemption prices(2)
(1)
(2)
6.375% interest rate through April 14, 2017; interest rate equal to three-month LIBOR rate plus 2.25% thereafter.
Redemption prices are equal to accrued and unpaid interest to the redemption date plus the greater of (i) 100 percent of the principal amount thereof, or (ii) sum of present
value of scheduled payments of principal and interest on the capital securities from the redemption date to April 1, 2030.
F-73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
a) Repurchase agreements
Chubb has executed repurchase agreements with certain counterparties under which Chubb agreed to sell securities and
repurchase them at a future date for a predetermined price.
b) Short-term debt
Short-term debt comprises the current maturities of our long-term debt instruments described below. These short-term debt
instruments were reclassified from long-term debt during 2018 and are reflected in the table above. Chubb INA Holdings Inc.'s
(Chubb INA) $300 million of 5.8 percent senior notes due March 2018, $600 million of 5.75 percent senior notes due May
2018, and $100 million of 6.6 percent senior notes due August 2018 were paid upon maturity.
c) Long-term debt
Certain of Chubb INA's senior notes and capital securities are redeemable at any time at Chubb INA's option subject to the
provisions described in the table above. A "make-whole" premium is the present value of the remaining principal and interest
discounted at the applicable U.S. Treasury rate. The senior notes and capital securities are also redeemable at par plus accrued
and unpaid interest in the event of certain changes in tax law.
The senior notes do not have the benefit of any sinking fund. These senior unsecured notes are guaranteed on a senior basis by
Chubb Limited and they rank equally with all of Chubb's other senior obligations. They also contain customary limitations on
lien provisions as well as customary events of default provisions which, if breached, could result in the accelerated maturity of
such senior debt.
In March 2018, Chubb INA issued €900 million ($1.1 billion based on the foreign exchange rate at the date of issuance) of
1.55 percent Euro denominated senior notes due March 2028 and €900 million ($1.1 billion based on the foreign exchange
rate at the date of issuance) of 2.5 percent Euro denominated senior notes due March 2038. These senior notes are
redeemable at any time at Chubb INA's option subject to a “make-whole” premium (the present value of the remaining principal
and interest discounted at the applicable comparable government bond rate plus 0.15 percent for the senior notes due 2028
and 0.25 percent for the senior notes due 2038). The notes are also redeemable at par plus accrued and unpaid interest in the
event of certain changes in tax law. These notes do not have the benefit of any sinking fund. These senior unsecured notes are
guaranteed on a senior basis by Chubb and they rank equally with all of Chubb's other senior obligations. They also contain
customary limitations on lien provisions as well as customary events of default provisions which, if breached, could result in the
accelerated maturity of such senior debt.
During April 2018, we redeemed $1.0 billion of 6.375 percent unsecured junior subordinated capital securities with the final
maturity date of March 2067 and recorded a loss of $36 million from the extinguishment of debt, which is included in Net
realized gains (losses) in the Consolidated statement of operations.
d) Trust preferred securities
In March 2000, ACE Capital Trust II, a Delaware statutory business trust, publicly issued $300 million of 9.7 percent Capital
Securities (the Capital Securities) due to mature in April 2030. At the same time, Chubb INA purchased $9.2 million of
common securities of ACE Capital Trust II. The sole assets of ACE Capital Trust II consist of $309 million principal amount of
9.7 percent Junior Subordinated Deferrable Interest Debentures (the Subordinated Debentures) issued by Chubb INA due to
mature in April 2030.
Distributions on the Capital Securities are payable semi-annually and may be deferred for up to ten consecutive semi-annual
periods (but no later than April 1, 2030). Any deferred payments would accrue interest compounded semi-annually if Chubb
INA defers interest on the Subordinated Debentures. Interest on the Subordinated Debentures is payable semi-annually. Chubb
INA may defer such interest payments (but no later than April 1, 2030), with such deferred payments accruing interest
compounded semi-annually. The Capital Securities and the ACE Capital Trust II Common Securities will be redeemed upon
repayment of the Subordinated Debentures.
Chubb Limited has guaranteed, on a subordinated basis, Chubb INA's obligations under the Subordinated Debentures, and
distributions and other payments due on the Capital Securities. These guarantees, when taken together with Chubb's
obligations under expense agreements entered into with ACE Capital Trust II, provide a full and unconditional guarantee of
amounts due on the Capital Securities.
F-74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
9. Commitments, contingencies, and guarantees
a) Derivative instruments
Foreign currency management
As a global company, Chubb entities transact business in multiple currencies. Our policy is to generally match assets, liabilities,
and required capital for each individual jurisdiction in local currency, which would include the use of derivatives discussed
below. We do not hedge our net asset non-U.S. dollar capital positions; however, we do consider economic hedging for planned
cross border transactions.
Derivative instruments employed
Chubb maintains positions in derivative instruments such as futures, options, swaps, and foreign currency forward contracts for
which the primary purposes are to manage duration and foreign currency exposure, yield enhancement, or to obtain an
exposure to a particular financial market. Chubb also maintains positions in convertible securities that contain embedded
derivatives. Investment derivative instruments are recorded in either Other assets (OA) or Accounts payable, accrued expenses,
and other liabilities (AP), convertible bonds are recorded in Fixed maturities available for sale (FM AFS), and convertible equity
securities are recorded in Equity securities (ES) in the Consolidated balance sheets. These are the most numerous and frequent
derivative transactions. In addition, Chubb purchases to be announced mortgage-backed securities (TBAs) as part of its
investing activities.
Under reinsurance programs covering GLBs, Chubb assumes the risk of GLBs, (principally GMIB) associated with variable
annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value
to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum
level of monthly income. The GLB reinsurance product meets the definition of a derivative instrument. Benefit reserves in
respect of GLBs are classified as Future policy benefits (FPB) while the fair value derivative adjustment is classified within AP.
Chubb also generally maintains positions in exchange-traded equity futures contracts on equity market indices to limit equity
exposure in the GMDB and GLB books of business. All derivative instruments are carried at fair value with changes in fair value
recorded in Net realized gains (losses) in the Consolidated statements of operations. None of the derivative instruments are
designated as hedges for accounting purposes. The following table presents the balance sheet locations, fair values of derivative
instruments in an asset or (liability) position, and notional values/payment provisions of our derivative instruments:
(in millions of U.S. dollars)
Investment and embedded derivative
instruments:
Foreign currency forward contracts
Cross-currency swaps
Interest rate swaps
Options/Futures contracts on notes,
bonds, and equities
Convertible securities (1)
TBAs
Other derivative instruments:
Futures contracts on equities (2)
Other
GLB (3)
December 31, 2018
December 31, 2017
Consolidated
Balance
Sheet
Location
Fair Value
Derivative
Asset
Derivative
(Liability)
Notional
Value/
Payment
Provision
Fair Value
Derivative
Asset
Derivative
(Liability)
Notional
Value/
Payment
Provision
OA / (AP) $
15 $
(19) $
2,185
$
14 $
(27) $
2,064
OA / (AP)
OA / (AP)
OA / (AP)
FM AFS / ES
FM AFS
—
—
13
9
6
—
45
(115)
5,250
(19)
1,046
—
—
11
6
$
43 $
(153) $
8,543
OA / (AP) $
23 $
— $
OA / (AP)
2
—
$
25 $
— $
507
74
581
(AP) / (FPB) $
— $
(861) $
1,750
—
—
4
5
—
—
—
(3)
—
—
45
—
1,007
6
—
$
$
$
$
23 $
(30) $
3,122
— $
(21) $
1,553
1
(2)
75
1 $
(23) $
1,628
— $
(550) $
1,083
(1)
(2)
(3)
Includes fair value of embedded derivatives.
Related to GMDB and GLB blocks of business.
Includes both future policy benefits reserves and fair value derivative adjustment. Refer to Note 4 c) for additional information. Note that the payment provision related to
GLB is the net amount at risk. The concept of a notional value does not apply to the GLB reinsurance contracts.
F-75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
At December 31, 2018 and 2017, derivative liabilities of $95 million and $24 million, respectively, included in the table above
were subject to a master netting agreement. The remaining derivatives included in the table above were not subject to a master
netting agreement.
b) Derivative instrument objectives
(i) Foreign currency exposure management
A foreign currency forward contract (forward) is an agreement between participants to exchange specific foreign currencies at a
future date. Chubb uses forwards to minimize the effect of fluctuating foreign currencies as discussed above.
(ii) Duration management and market exposure
Futures
Futures contracts give the holder the right and obligation to participate in market movements, determined by the index or
underlying security on which the futures contract is based. Settlement is made daily in cash by an amount equal to the change
in value of the futures contract times a multiplier that scales the size of the contract. Exchange-traded futures contracts on
money market instruments, notes and bonds are used in fixed maturity portfolios to more efficiently manage duration, as
substitutes for ownership of the money market instruments, bonds and notes without significantly increasing the risk in the
portfolio. Investments in futures contracts may be made only to the extent that there are assets under management not
otherwise committed.
Exchange-traded equity futures contracts are used to limit exposure to a severe equity market decline, which would cause an
increase in expected claims and therefore, an increase in reserves for GMDB and GLB reinsurance business.
Options
An option contract conveys to the holder the right, but not the obligation, to purchase or sell a specified amount or value of an
underlying security at a fixed price. Option contracts are used in our investment portfolio as protection against unexpected shifts
in interest rates, which would affect the duration of the fixed maturity portfolio. By using options in the portfolio, the overall
interest rate sensitivity of the portfolio can be reduced. Option contracts may also be used as an alternative to futures contracts
in the synthetic strategy as described above.
The price of an option is influenced by the underlying security, expected volatility, time to expiration, and supply and demand.
The credit risk associated with the above derivative financial instruments relates to the potential for non-performance by
counterparties. Although non-performance is not anticipated, in order to minimize the risk of loss, management monitors the
creditworthiness of its counterparties and obtains collateral. The performance of exchange-traded instruments is guaranteed by
the exchange on which they trade. For non-exchange-traded instruments, the counterparties are principally banks which must
meet certain criteria according to our investment guidelines.
Interest rate swaps
An interest rate swap is a contract between two counterparties in which interest payments are made based on a notional
principal amount, which itself is never paid or received. Under the terms of an interest rate swap, one counterparty makes
interest payments based on a fixed interest rate and the other counterparty’s payments are based on a floating rate. Interest rate
swap contracts are used occasionally in our investment portfolio as protection against unexpected shifts in interest rates, which
would affect the fair value of the fixed maturity portfolio. By using interest rate swaps in the portfolio, the overall duration or
interest rate sensitivity of the portfolio can be impacted.
Cross-currency swaps
Cross-currency swaps are agreements under which two counterparties exchange interest payments and principal denominated
in different currencies at a future date. We use cross-currency swaps to reduce the foreign currency and interest rate risk by
converting cash flows back into local currency. We invest in foreign currency denominated investments to improve credit
diversification and also to obtain better duration matching to our liabilities that is limited in the local currency market.
Other
Included within Other are derivatives intended to reduce potential losses which may arise from certain exposures in our
insurance business. The economic benefit provided by these derivatives is similar to purchased reinsurance. For example,
Chubb may enter into crop derivative contracts to protect underwriting results in the event of a significant decline in commodity
prices.
F-76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
(iii) Convertible security investments
A convertible security is a debt instrument or preferred stock that can be converted into a predetermined amount of the issuer’s
equity. The convertible option is an embedded derivative within the host instruments which are classified in the investment
portfolio as either available for sale or as an equity security. Chubb purchases convertible securities for their total return and not
specifically for the conversion feature.
(iv) TBA
By acquiring TBAs, we make a commitment to purchase a future issuance of mortgage-backed securities. For the period
between purchase of the TBAs and issuance of the underlying security, we account for our position as a derivative in the
consolidated financial statements. Chubb purchases TBAs both for their total return and for the flexibility they provide related to
our mortgage-backed security strategy.
(v) GLB
Under the GLB program, as the assuming entity, Chubb is obligated to provide coverage until the expiration or maturity of the
underlying deferred annuity contracts or the expiry of the reinsurance treaty. Premiums received under the reinsurance treaties
are classified as premium. Expected losses allocated to premiums received are classified as Future policy benefits and valued
similar to GMDB reinsurance. Other changes in fair value arise principally from changes in expected losses allocated to
expected future premiums. Fair value represents management’s estimate of an exit price and thus, includes a risk margin. We
may recognize a realized loss for other changes in fair value due to adverse changes in the capital markets (e.g., declining
interest rates and/or declining U.S. and/or international equity markets) and changes in actual or estimated future policyholder
behavior (e.g., increased annuitization or decreased lapse rates) although we expect the business to be profitable.
To mitigate adverse changes in the capital markets, we maintain positions in exchange-traded equity futures contracts, as noted
under section "(ii) Futures" above. These futures increase in fair value when the S&P 500 index decreases (and decrease in fair
value when the S&P 500 index increases). The net impact of gains or losses related to changes in fair value of the GLB liability
and the exchange-traded equity futures are included in Net realized gains (losses).
c) Securities lending and secured borrowings
Chubb participates in a securities lending program operated by a third-party banking institution whereby certain assets are
loaned to qualified borrowers and from which we earn an incremental return. The securities lending collateral can only be
drawn down by Chubb in the event that the institution borrowing the securities is in default under the lending agreement. An
indemnification agreement with the lending agent protects us in the event a borrower becomes insolvent or fails to return any of
the securities on loan. The collateral is recorded in Securities lending collateral and the liability is recorded in Securities lending
payable in the Consolidated balance sheets.
The following table presents the carrying value of collateral held under securities lending agreements by investment category
and remaining contractual maturity of the underlying agreements:
(in millions of U.S. dollars)
Collateral held under securities lending agreements:
Cash
U.S. Treasury and agency
Foreign
Corporate securities
Mortgage-backed securities
Equity securities
Gross amount of recognized liability for securities lending payable
Remaining contractual maturity
December 31, 2018
December 31, 2017
Overnight and Continuous
$
$
$
756 $
64
795
15
45
251
1,926 $
1,926 $
828
36
712
—
74
87
1,737
1,737
At December 31, 2018 and 2017, our repurchase agreement obligations of $1,418 million and $1,408 million, respectively,
were fully collateralized. In contrast to securities lending programs, the use of cash received is not restricted for the repurchase
F-77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
obligations. The fair value of the underlying securities sold remains in Fixed maturities available for sale, and the repurchase
agreement obligation is recorded in Repurchase agreements in the Consolidated balance sheets.
The following table presents the carrying value of collateral pledged under repurchase agreements by investment category and
remaining contractual maturity of the underlying agreements:
(in millions of U.S. dollars)
Collateral pledged under repurchase agreements:
U.S. Treasury and agency
Mortgage-backed securities
Remaining contractual maturity
December 31, 2018
December 31, 2017
30-90
Days
Greater
than 90
Days
Total
Up to 30
Days
Greater
than 90
Days
Total
$
$
— $
259 $
259 $
9 $ 230 $
239
496
713
1,209
369
826
1,195
496 $
972 $ 1,468 $
378 $ 1,056 $ 1,434
Gross amount of recognized liabilities for repurchase agreements
Difference (1)
$ 1,418
$
50
$ 1,408
$
26
(1)
Per the repurchase agreements, the amount of collateral posted is required to exceed the amount of gross liability.
Potential risks exist in our secured borrowing transactions due to market conditions and counterparty exposure. With collateral
that we pledge, there is a risk that the collateral may not be returned at the expiration of the agreement. If the counterparty fails
to return the collateral, Chubb will have free use of the borrowed funds until our collateral is returned. In addition, we may
encounter the risk that Chubb may not be able to renew outstanding borrowings with a new term or with an existing
counterparty due to market conditions including a decrease in demand as well as more restrictive terms from banks due to
increased regulatory and capital constraints. Should this condition occur, Chubb may seek alternative borrowing sources or
reduce borrowings. Additionally, increased margins and collateral requirements due to market conditions would increase our
restricted assets as we are required to provide additional collateral to support the transaction.
The following table presents net realized gains (losses) related to derivative instrument activity in the Consolidated statements of
operations:
(in millions of U.S. dollars)
Investment and embedded derivative instruments:
Foreign currency forward contracts
Interest rate swaps
All other futures contracts, options, and equities
Convertible securities (1)
Total investment and embedded derivative instruments
GLB and other derivative instruments:
GLB (2)
Futures contracts on equities (3)
Other
Total GLB and other derivative instruments
(1)
(2)
(3)
Includes embedded derivatives.
Excludes foreign exchange gains (losses) related to GLB.
Related to GMDB and GLB blocks of business.
2018
Year Ended December 31
2016
2017
$
$
$
$
$
3 $
9 $
(115)
39
(2)
—
(21)
1
(75) $
(11) $
(248) $
364 $
(4)
(3)
(255) $
(330) $
(261)
(5)
98 $
87 $
(31)
—
(10)
8
(33)
53
(136)
(10)
(93)
(126)
F-78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
d) Concentrations of credit risk
Our investment portfolio is managed following prudent standards of diversification. Specific provisions limit the allowable
holdings of a single issue and issuer. We believe that there are no significant concentrations of credit risk associated with our
investments. Our three largest corporate exposures by issuer at December 31, 2018, were Wells Fargo & Co., Bank of America
Corp, and JP Morgan Chase & Co. Our largest exposure by industry at December 31, 2018 was financial services.
We market our insurance and reinsurance worldwide primarily through insurance and reinsurance brokers. We assume a degree
of credit risk associated with brokers with whom we transact business. For the year ended December 31, 2018, approximately
10 percent of our gross premiums written was generated from or placed by Marsh & McLennan Companies, Inc. This entity is a
large, well-established company, and there are no indications that it is financially troubled at December 31, 2018. No broker or
one insured accounted for more than 10 percent of our gross premiums written for the years ended December 31, 2017 and
2016.
e) Fixed maturities
At December 31, 2018, we have commitments to purchase fixed income securities of $711 million over the next several years.
f) Other investments
At December 31, 2018, included in Other investments in the Consolidated balance sheet are investments in limited
partnerships and partially-owned investment companies with a carrying value of $4.2 billion. In connection with these
investments, we have commitments that may require funding of up to $3.7 billion over the next several years.
g) Letters of credit
On October 25, 2017, we entered into a credit facility that provides for up to $1.0 billion of availability, all of which may be
used for the issuance of letters of credit and for revolving loans. We have the ability to increase the capacity under our existing
credit facility to $2.0 billion under certain conditions, but any such increase would not raise the sub-limit for revolving loans
above $1.0 billion. Our existing credit facility has a remaining term expiring in October 2022. At December 31, 2018, our LOC
usage was $398 million.
h) Legal proceedings
Our insurance subsidiaries are subject to claims litigation involving disputed interpretations of policy coverages and, in some
jurisdictions, direct actions by allegedly-injured persons seeking damages from policyholders. These lawsuits, involving claims
on policies issued by our subsidiaries which are typical to the insurance industry in general and in the normal course of
business, are considered in our loss and loss expense reserves. In addition to claims litigation, we are subject to lawsuits and
regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance policies. This
category of business litigation typically involves, among other things, allegations of underwriting errors or misconduct,
employment claims, regulatory activity, or disputes arising from our business ventures. In the opinion of management, our
ultimate liability for these matters could be, but we believe is not likely to be, material to our consolidated financial condition
and results of operations.
i) Lease commitments
We lease office space and equipment under operating leases which expire at various dates through 2033. Rent expense was
$169 million, $211 million, and $209 million for the years ended December 31, 2018, 2017, and 2016, respectively. Future
minimum lease payments under the leases are expected to be as follows:
For the years ending December 31
(in millions of U.S. dollars)
2019
2020
2021
2022
2023
Thereafter
Total minimum future lease commitments
F-79
$
$
173
151
126
100
86
184
820
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
10. Shareholders’ equity
a) Common Shares
All of Chubb’s Common Shares are authorized under Swiss corporate law. Though the par value of Common Shares is stated in
Swiss francs, Chubb continues to use U.S. dollars as its reporting currency for preparing the consolidated financial statements.
Under Swiss corporate law, we are generally prohibited from issuing Common Shares below their par value. If there were a need
to raise common equity at a time when the trading price of Chubb's Common Shares is below par value, we would need in
advance to obtain shareholder approval to decrease the par value of the Common Shares.
Dividend approval
At our May 2017 and 2016 annual general meetings, our shareholders approved an annual dividend for the following year of
up to $2.84 and $2.76 per share, respectively, which was paid in four quarterly installments of $0.71 per share and $0.69 per
share, respectively, at dates determined by the Board of Directors (Board) after the annual general meeting by way of a
distribution from capital contribution reserves, transferred to free reserves for payment.
At our May 2018 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.92
per share, expected to be paid in four quarterly installments of $0.73 per share after the annual general meeting by way of
distribution from capital contribution reserves, transferred to free reserves for payment. The Board will determine the record and
payment dates at which the annual dividend may be paid until the date of the 2019 annual general meeting, and is authorized
to abstain from distributing a dividend at its discretion. The first three quarterly installments each of $0.73 per share, have
been distributed by the Board as expected.
Dividend distributions
Under Swiss corporate law, dividends must be stated in Swiss francs though dividend payments are made by Chubb in U.S.
dollars. We issue dividends without subjecting them to withholding tax by way of distributions from capital contribution reserves
and payment out of free reserves.
The following table presents dividend distributions per Common Share in Swiss francs (CHF) and U.S. dollars (USD):
Total dividend distributions per common share
b) Shares issued, outstanding, authorized, and conditional
Shares issued, beginning of year
Shares issued for Chubb Corp acquisition
Shares issued, end of year
Common Shares in treasury, end of year (at cost)
Shares issued and outstanding, end of year
Year Ended December 31
CHF
2.84 $
2018
USD
2.90
CHF
2.76 $
2017
USD
2.82
CHF
2.70 $
2016
USD
2.74
Year Ended December 31
2018
2017
2016
479,783,864
479,783,864
342,832,412
—
—
136,951,452
479,783,864
479,783,864
479,783,864
(20,580,486)
(15,950,685)
(13,815,148)
459,203,378
463,833,179
465,968,716
Increases in Common Shares in treasury are due to open market repurchases of Common Shares and the surrender of Common
Shares to satisfy tax withholding obligations in connection with the vesting of restricted stock and the forfeiture of unvested
restricted stock. Decreases in Common Shares in treasury are principally due to grants of restricted stock, exercises of stock
options, and purchases under the Employee Stock Purchase Plan (ESPP).
Authorized share capital for general purposes
The Board has shareholder-approved authority as set forth in the Articles of Association to increase for general purposes Chubb's
share capital from time to time until May 17, 2020, by the issuance of up to 200,000,000 fully paid up Common Shares, with
a par value equal to the par value of Chubb's Common Shares as set forth in the Articles of Association at the time of any such
issuance.
F-80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Conditional share capital for bonds and similar debt instruments
Chubb's share capital may be increased through the issuance of a maximum of 33,000,000 fully paid up Common Shares (with
a par value of CHF 24.15 as of December 31, 2018) through the exercise of conversion and/or option or warrant rights granted
in connection with bonds, notes, or similar instruments, issued or to be issued by Chubb, including convertible debt
instruments.
Conditional share capital for employee benefit plans
Chubb's share capital may be increased through the issuance of a maximum of 25,410,929 fully paid up Common Shares (with
a par value of CHF 24.15 as of December 31, 2018) in connection with the exercise of option rights granted to any employee
of Chubb, and any consultant, director, or other person providing services to Chubb.
c) Chubb Limited securities repurchases
From time to time, we repurchase shares as part of our capital management program and to partially offset potential dilution
from the exercise of stock options and the granting of restricted stock under share-based compensation plans. Our Board of
Directors has authorized share repurchase programs as follows:
• $1.0 billion of Chubb Common Shares from November 17, 2016 through December 31, 2017
• $1.0 billion of Chubb Common Shares from January 1, 2018 through December 31, 2018
• $1.5 billion of Chubb Common Shares from December 1, 2018 through December 31, 2019
Share repurchases may be in the open market, in privately negotiated transactions, block trades, accelerated repurchases and/or
through option or other forward transactions.
The following table presents repurchases of Chubb's Common Shares conducted in a series of open market transactions under
the Board authorizations:
(in millions of U.S. dollars, except share data)
Number of shares repurchased
Cost of shares repurchased
2018
2017
7,719,035
5,866,612
2016
—
$
1,021 $
830 $
— $
February 27, 2019
1,328,754
174
Year Ended December 31 January 1, 2019 through
d) General restrictions
The holders of the Common Shares are entitled to receive dividends as approved by the shareholders. Holders of Common
Shares are allowed one vote per share provided that, if the controlled shares of any shareholder constitute ten percent or more
of the outstanding Common Shares of Chubb, only a fraction of the vote will be allowed so as not to exceed ten percent in
aggregate. Entry of acquirers of Common Shares as shareholders with voting rights in the share register may be refused if it
would confer voting rights with respect to ten percent or more of the registered share capital recorded in the commercial
register.
11. Share-based compensation
Chubb has share-based compensation plans which currently provide the Board the ability to grant awards of stock options,
restricted stock, and restricted stock units to its employees, consultants, and members of the Board.
In connection with the Chubb Corp acquisition in 2016, we assumed outstanding equity awards consisting of service-based
restricted stock units, performance-based restricted stock units, and stock options issued by Chubb Corp to employees and
directors with a fair value of $525 million, of which $323 million is attributed to purchase consideration for the acquisition.
These awards were generally granted with a 3-year vesting period, and the stock options generally have a 10-year term.
In May 2016, our shareholders approved the Chubb Limited 2016 Long-Term Incentive Plan (the 2016 LTIP), which replaced
both the ACE Limited 2004 LTIP (the 2004 LTIP) and The Chubb Corporation Long-Term Incentive Plan (2014). The 2016
LTIP is substantially similar to the 2004 LTIP in its operation and the types of awards that may be granted. Under the 2016
LTIP, Common Shares of Chubb were authorized to be issued pursuant to awards made as stock options, stock appreciation
rights, performance shares, performance units, restricted stock, and restricted stock units.
F-81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Chubb principally issues restricted stock grants and stock options on a graded vesting schedule, with equal percentages of the
award subject to vesting over a number of years (typically three or four). Chubb recognizes compensation cost for vesting of
restricted stock and stock option grants with only service conditions on a straight-line basis over the requisite service period for
each separately vesting portion of the award as if the award were, in-substance, multiple awards. We incorporate an estimate
of future forfeitures in determining compensation cost for both grants of restricted stock and stock options.
Under the 2016 LTIP, 19,500,000 Common Shares are authorized to be issued. This is in addition to any shares that have not
been delivered pursuant to the 2004 LTIP and remain available for grant pursuant to the 2004 LTIP and includes any shares
covered by awards granted under the 2004 LTIP that have forfeited, expired or canceled after the effective date of the 2016
LTIP. At December 31, 2018, a total of 14,100,867 shares remain available for future issuance under the 2016 LTIP, which
includes shares canceled or forfeited from the 2004 LTIP, in addition to common shares that were previously registered and
authorized to be issued.
Under the Employee Stock Purchase Plan (ESPP), 6,500,000 shares are authorized to be issued. At December 31, 2018, a
total of 2,104,942 shares remain available for issuance under the ESPP.
Chubb generally issues Common Shares for the exercise of stock options, restricted stock, and purchases under the ESPP from
un-issued reserved shares (conditional share capital) and Common Shares in treasury.
The following table presents pre-tax and after-tax share-based compensation expense:
(in millions of U.S. dollars)
Stock options and shares issued under ESPP:
Pre-tax
After-tax (1)
Restricted stock:
Pre-tax
After-tax
Year Ended December 31
2018
2017
2016
$
$
$
$
50 $
40 $
235 $
178 $
41 $
26 $
259 $
151 $
33
20
268
167
(1)
Excludes windfall tax benefit for share-based compensation recognized as a direct adjustment to Additional paid-in capital of $32 million for the year ended December 31,
2016. Beginning in 2017, windfall tax benefits for share-based compensation are recognized through Net income rather than Additional paid-in capital. The excess tax
benefit recorded to Income tax expense in the Consolidated statement of operations was $19 million and $48 million for the years ended December 31, 2018 and 2017,
respectively.
Unrecognized compensation expense related to the unvested portion of Chubb's employee share-based awards of restricted
stock, restricted stock units, and stock options was $458 million at December 31, 2018 and is expected to be recognized over
a weighted-average period of approximately 1 year.
Stock options
Both incentive and non-qualified stock options are principally granted at an option price per share equal to the grant date fair
value of Chubb's Common Shares. Stock options are generally granted with a 3-year vesting period and a 10-year term. Stock
options vest in equal annual installments over the respective vesting period, which is also the requisite service period.
Chubb's 2018 share-based compensation expense includes a portion of the cost related to the 2015 through 2018 stock option
grants. Stock option fair value was estimated on the grant date using the Black-Scholes option-pricing model that uses the
weighted-average assumptions noted below:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life
2018
2.0%
23.2%
2.7%
Year Ended December 31
2017
2.0%
19.7%
2.0%
2016
2.3%
23.2%
1.3%
5.7 years
5.8 years
5.6 years
F-82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life (estimated
period of time from grant to exercise date) was estimated using the historical exercise behavior of employees. Expected
volatility was calculated as a blend of (a) historical volatility based on daily closing prices over a period equal to the expected
life assumption, (b) long-term historical volatility based on daily closing prices over the period from Chubb's initial public trading
date through the most recent quarter, and (c) implied volatility derived from Chubb's publicly traded options.
The following table presents a roll-forward of Chubb's stock options:
(Intrinsic Value in millions of U.S. dollars)
Number of
Options
Weighted-Average
Exercise Price
Weighted-Average
Fair Value
Total Intrinsic
Value
Options outstanding, December 31, 2015
9,853,496 $
78.40
Assumed in Chubb Corp Acquisition
Granted
Exercised
Forfeited
Options outstanding, December 31, 2016
Granted
Exercised
Forfeited
Options outstanding, December 31, 2017
Granted
Exercised
Forfeited
Options outstanding, December 31, 2018
Options exercisable, December 31, 2018
339,896 $
77.83 $
1,929,616 $
118.39 $
36.07
21.52
(1,728,949) $
(213,339) $
10,180,720 $
66.65
110.01
87.29
2,079,522 $
139.00 $
22.97
(1,632,629) $
(194,297) $
10,433,316 $
73.53
119.44
99.20
1,842,690 $
143.07 $
29.71
(1,065,384) $
(202,900) $
11,007,722 $
7,405,354 $
73.57
133.92
108.25
93.88
$
$
$
$
$
99
111
71
274
268
The weighted-average remaining contractual term was 6.0 years for stock options outstanding and 4.8 years for stock options
exercisable at December 31, 2018. Cash received from the exercise of stock options for the year ended December 31, 2018
was $78 million.
Restricted stock and restricted stock units
Grants of restricted stock and restricted stock units awarded under both the 2004 LTIP and 2016 LTIP typically have a 4-year
vesting period, subject to vesting as to one-quarter of the award each anniversary of grant. Restricted stock and restricted stock
units are granted at market close price on the day of grant. Each restricted stock unit represents our obligation to deliver to the
holder one Common Share upon vesting.
In addition, Chubb grants performance-based restricted stock to certain executives that vest based on certain performance
criteria as compared to a defined group of peer companies. Performance-based stock awards comprise target awards and
premium awards that cliff vest at the end of a 3-year performance period based on both our tangible book value (shareholders'
equity less goodwill and intangible assets, net of tax) per share growth and P&C combined ratio compared to our peer group.
Premium awards are subject to an additional vesting provision based on total shareholder return (TSR) compared to our peer
group. Shares representing target awards and premium awards are issued when the awards are approved and are subject to
forfeiture, if applicable performance criteria are not met at the end of the 3-year performance period. Prior to January 2017,
performance-based restricted stock awards had a 4-year vesting period with the potential to vest as to a portion each year, and
excluded the P&C combined ratio and TSR additional vesting criteria.
Chubb also grants restricted stock awards to non-management directors which vest at the following year's annual general
meeting.
Chubb's 2018 share-based compensation expense includes a portion of the cost related to the restricted stock granted in the
years 2014 through 2018.
F-83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following table presents a roll-forward of our restricted stock awards. Included in the roll-forward below are 20,784
restricted stock awards, 22,013 restricted stock awards, and 23,812 restricted stock awards that were granted to non-
management directors during the years ended December 31, 2018, 2017, and 2016, respectively:
Unvested restricted stock, December 31, 2015
Assumed in Chubb Corp Acquisition
Granted
Vested
Forfeited
Unvested restricted stock, December 31, 2016
Granted
Vested
Forfeited
Unvested restricted stock, December 31, 2017
Granted
Vested
Forfeited
Unvested restricted stock, December 31, 2018
Service-based
Restricted Stock Awards
and Restricted Stock Units
Performance-based
Restricted Stock Awards
and Restricted Stock Units
Number of Shares
Value Number of Shares
Weighted-Average
Grant-Date Fair
Weighted-Average
Grant-Date Fair
Value
3,489,169 $
3,706,639 $
1,622,065 $
(2,592,622) $
(420,125) $
5,805,126 $
1,707,094 $
(2,646,084) $
(156,694) $
4,709,442 $
1,326,979 $
(2,545,090) $
(196,482) $
3,294,849 $
97.01
111.02
118.70
100.87
109.42
109.39
139.18
107.73
114.54
121.16
142.76
114.83
131.06
134.17
595,210 $
101.73
— $
517,507 $
(181,548) $
— $
931,169 $
267,282 $
(222,954) $
— $
975,497 $
180,065 $
(244,332) $
— $
—
118.96
102.43
—
111.17
138.90
113.30
—
118.28
143.07
103.03
—
911,230 $
127.27
Prior to 2009, legacy ACE granted restricted stock units with a 1-year vesting period to non-management directors. Delivery of
Common Shares on account of these restricted stock units to non-management directors is deferred until after the date of the
non-management directors' termination from the Board. Legacy Chubb Corp historically allowed directors and certain key
employees of Chubb Corp and its subsidiaries to defer a portion of their compensation earned with respect to services
performed in the form of deferred stock units. In addition, legacy Chubb Corp provided supplemental retirement benefits for
certain employees through its Defined Contribution Excess Benefit Plan in the form of deferred shares of stock. The minimum
vesting period under these legacy Chubb Corp deferred plans was 1-year and the maximum was 3-years. Employees and
directors had the option to elect to receive their awards at a future specified date or upon their termination of service with
Chubb. At December 31, 2018, there were 251,843 deferred restricted stock units.
ESPP
The ESPP gives participating employees the right to purchase Common Shares through payroll deductions during consecutive
subscription periods at a purchase price of 85 percent of the fair value of a Common Share on the exercise date (Purchase
Price). Annual purchases by participants are limited to the number of whole shares that can be purchased by an amount equal
to ten percent of the participant's compensation or $25,000, whichever is less. The ESPP has two six-month subscription
periods each year, the first of which runs between January 1 and June 30 and the second of which runs between July 1 and
December 31. Legacy Chubb Corp employees were eligible to participate in the ESPP beginning in the July 1 to December 31
subscription period of 2016. The amounts collected from participants during a subscription period are used on the exercise date
to purchase full shares of Common Shares. An exercise date is generally the last trading day of a subscription period. The
number of shares purchased is equal to the total amount, at the exercise date, collected from the participants through payroll
deductions for that subscription period, divided by the Purchase Price, rounded down to the next full share. Participants may
withdraw from an offering before the exercise date and obtain a refund of amounts withheld through payroll deductions.
Pursuant to the provisions of the ESPP, during the years ended December 31, 2018, 2017, and 2016, employees paid $37
million, $34 million, and $24 million to purchase 347,116 shares, 271,185 shares, and 211,492 shares, respectively.
F-84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
12. Postretirement benefits
Chubb provides postretirement benefits to eligible employees and their dependents through various defined benefit pension
plans, other postretirement benefit plans, and defined contribution plans sponsored by Chubb.
Defined benefit pension plans
We maintain non-contributory defined benefit pension plans that cover certain employees located in the U.S., U.K., Canada,
and various other statutorily required countries. We account for pension benefits using the accrual method. Benefits under these
plans are based on employees' years of service and compensation during final years of service. All underlying plans are subject
to periodic actuarial valuations by qualified actuarial firms using actuarial models to calculate the expense and liability for each
plan. We use December 31 as the measurement date for our defined benefit pension plans.
Under the Chubb Corp plans, prior to 2001, benefits were generally based on an employee’s years of service and average
compensation during the last five years of employment. Effective January 1, 2001, the formula for providing pension benefits
was changed from the final average pay formula to a cash balance formula. Under the cash balance formula, a notional account
is established for each employee, which is credited semi-annually with an amount equal to a percentage of eligible
compensation based on age and years of service plus interest based on the account balance. Chubb Corp employees hired prior
to 2001 will generally be eligible to receive vested benefits based on the higher of the final average pay or cash balance
formulas.
Other postretirement benefit plans
Our assumption of Chubb Corp's other postretirement benefit plans, principally healthcare and life insurance, covers retired
employees, their beneficiaries, and covered dependents. Healthcare coverage is contributory. Retiree contributions vary based
upon the retiree’s age, type of coverage, and years of service requirements. Life insurance coverage is non-contributory. Chubb
funds a portion of the healthcare benefits obligation where such funding can be accomplished on a tax-effective basis. Benefits
are paid as covered expenses are incurred.
Amendments to U.S. Qualified and Excess Pension Plans and U.S. Retiree Healthcare Plan
On October 31, 2016, we harmonized and amended several of our U.S. retirement programs to create a unified retirement
savings program. In 2020, we will transition from a traditional defined benefit pension program that had been in effect for
certain employees to a defined contribution program. Additionally, after 2025, we plan to eliminate a subsidized U.S. retiree
healthcare and life insurance plan that had been in place for certain employees. Both amendments required a remeasurement
of the plan assets and benefit obligations with updated assumptions, including discount rates and the expected return on
assets.
The plan amendments and related remeasurement of the obligation at October 31, 2016 resulted in a net decrease to the
benefit obligations of $496 million as follows:
• The amendment of the pension plan and excess pension plan resulted in a pre-tax curtailment gain of $113 million
immediately recognized in income during the fourth quarter of 2016 as it reduced expected years of future service of active
plan participants.
• The amendment of the retiree healthcare plan resulted in a reduction in the obligation of $383 million, of which $410
million will be amortized as a reduction to expense through 2021 as it relates to benefits already accrued. For the years
ended December 31, 2018, 2017, and 2016, $80 million, $89 million, and $15 million, respectively, were amortized as
a reduction to expense. Additionally, during 2017, the number of involuntary departures due to the Chubb integration met
our established threshold for recognition in income. As a result, for the years ended December 31, 2018 and 2017, we
recognized $3 million and $39 million, respectively, of accelerated amortization. At December 31, 2018, the remaining
curtailment benefit balance was $184 million which will be amortized as a reduction to expense over the next 2.5 years.
F-85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Obligations and funded status
The funded status of the pension and other postretirement benefit plans as well as the amounts recognized in Accumulated
other comprehensive income at December 31, 2018 and 2017 was as follows:
(in millions of U.S. dollars)
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Amendments
Curtailments
Settlements
Foreign currency revaluation and other
Benefit obligation, end of year
Plan assets at fair value, beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Settlements
Foreign currency revaluation and other
Plan assets at fair value, end of year
Funded status at end of year
2018
Non-U.S.
Plans
U.S. Plans
Pension Benefit Plans
Other Postretirement
Benefit Plans
2017
2018
2017
U.S. Plans
Non-U.S.
Plans
$
3,285 $
1,077 $
3,035 $
1,025
$
137 $
165
57
105
(214)
(108)
—
—
(33)
—
12
27
(71)
(26)
4
—
(27)
(54)
63
105
232
(132)
—
—
(18)
—
17
27
(4)
(28)
—
(32)
(8)
80
$
$
$
$
3,092 $
942 $
3,285 $
1,077
3,109 $
1,172 $
2,765 $
(218)
34
(108)
(33)
—
(63)
14
(26)
(27)
(62)
441
53
(132)
(18)
—
962
100
63
(28)
(8)
83
2,784 $
1,008 $
3,109 $
1,172
(308) $
66 $
(176) $
95
$
$
$
$
1
3
(20)
(15)
—
—
—
7
113 $
157 $
1
—
(15)
—
—
143 $
30 $
2
4
(2)
(14)
(23)
2
—
3
137
159
6
6
(14)
—
—
157
20
Amounts recognized in Accumulated other comprehensive
income, not yet recognized in net periodic cost (benefit):
Net actuarial loss (gain)
Prior service cost (benefit)
Total
$
$
(15) $
112 $
(227) $
82
$
— $
12
—
9
—
6
(200)
(15) $
121 $
(227) $
88
$
(200) $
(288)
(276)
For the U.S. pension plans, the $214 million actuarial gain experienced in 2018 was principally driven by the increase in the
discount rate from 2017 that was used to determine the projected benefit obligation at December 31, 2018. The $232 million
actuarial loss experienced in 2017 was largely driven by the decrease in the discount rate from 2016 that was used to
determine the projected benefit obligation at December 31, 2017.
The accumulated benefit obligation for the pension benefit plans was $4.0 billion and $4.3 billion at December 31, 2018 and
2017, respectively. The accumulated benefit obligation is the present value of pension benefits earned as of the measurement
date based on employee service and compensation prior to that date. It differs from the pension (projected) benefit obligation in
the table above in that the accumulated benefit obligation includes no assumptions regarding future compensation levels.
The net components of the funded status of the pension and other postretirement benefit plans are included in Accounts
payable, accrued expenses, and other liabilities in the Consolidated balance sheets.
Chubb’s funding policy is to contribute amounts that meet regulatory requirements plus additional amounts determined based
on actuarial valuations, market conditions and other factors. All benefit plans satisfy minimum funding requirements of the
Employee Retirement Income Security Act of 1974 (ERISA).
F-86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following table provides information on pension plans where the benefit obligation is in excess of plan assets at December
31, 2018 and 2017:
(in millions of U.S. dollars)
U.S. Plans
Plans with projected benefit obligation in excess of plan assets:
2018
Non-U.S.
Plans
U.S. Plans
2017
Non-U.S.
Plans
Projected benefit obligation
Fair value of plan assets
Net funded status
Plans with accumulated benefit obligation in excess of plan assets:
Accumulated benefit obligation
Fair value of plan assets
$
$
$
$
3,092 $
222 $
3,285 $
2,784
170
3,109
(308) $
(52) $
(176) $
3,066 $
115 $
3,223 $
2,784 $
86 $
3,109 $
216
166
(50)
152
123
For other postretirement benefit plans with an accumulated benefit obligation in excess of plan assets, the accumulated benefit
obligation was $23 million and $21 million at December 31, 2018 and 2017, respectively. These plans have no plan assets.
At December 31, 2018, we estimate that we will contribute $22 million to the pension plans and $1 million to the other
postretirement benefits plan in 2019. The estimate is subject to change due to contribution decisions that are affected by
various factors including our liquidity, market performance and management discretion.
The weighted-average assumptions used to determine the projected benefit obligation were as follows:
December 31, 2018
Discount rate
Rate of compensation increase
Interest crediting rate
December 31, 2017
Discount rate
Rate of compensation increase
Interest crediting rate
Pension Benefit Plans
U.S.
Plans
Non-U.S.
Plans
Other
Postretirement
Benefit Plans
4.20%
4.00%
4.10%
3.59%
4.00%
4.10%
3.10%
3.37%
3.78%
N/A
2.76%
3.46%
2.77%
N/A
The projected benefit cash flows were discounted using the corresponding spot rates derived from a yield curve, which resulted
in a single discount rate that would produce the same liability at the respective measurement dates. The same process was
applied to service cost cash flows to determine the discount rate associated with the service cost. In general, the discount rates
for the non-U.S. plans were developed using a similar methodology by using country-specific yield curves.
F-87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The components of net pension and other postretirement benefit costs reflected in Net income and other changes in plan assets
and benefit obligations recognized in other comprehensive income were as follows:
Year Ended December 31
(in millions of U.S. dollars)
Costs reflected in Net income:
Service cost
Non-service cost:
Interest cost
Expected return on plan assets
Amortization of net actuarial loss (gain)
Amortization of prior service cost
Curtailments
Settlements
Total non-service (benefit) cost
Net periodic (benefit) cost
Changes in plan assets and benefit
obligations recognized in other
comprehensive income
Net actuarial loss (gain)
Prior service cost (benefit)
Amortization of net actuarial loss
Amortization of prior service cost
Curtailments
Settlements
Total decrease (increase) in other
comprehensive income
Pension Benefit Plans
U.S. Plans
Non-U.S. Plans
Other Postretirement
Benefit Plans
2018
2017
2016
2018
2017
2016
2018
2017
2016
$
57 $ 63
$ 75
$ 12
$ 17
$ 18
$
105
105
103
(212)
(189)
(165)
—
—
—
2
—
—
—
—
—
—
(117)
(2)
27
(50)
1
—
—
3
(105)
(84)
(181)
(19)
27
(42)
3
—
(27)
—
(39)
30
(39)
2
(1)
—
1
(7)
1
3
(5)
—
(85)
(2)
—
$
2
4
(5)
—
(89)
(37)
—
(89)
(127)
$ (48) $ (21)
$(106)
$ (7)
$ (22)
$ 11
$ (88)
$(125)
$
$ 10
17
(8)
(1)
(15)
—
—
(7)
3
$ 214 $ (21)
$(326)
$ 34
$ (57)
$ 49
$ (11)
$ (3)
$ 17
—
—
—
—
(2)
—
—
—
—
1
—
—
—
117
2
3
(1)
—
—
(3)
—
(3)
—
(6)
—
(8)
—
—
—
(1)
—
(1)
85
3
—
(23)
(395)
—
89
39
—
—
—
—
—
$ 212 $ (20)
$(207)
$ 33
$ (66)
$ 40
$ 76
$ 102
$ (378)
The service and non-service cost components of net periodic (benefit) cost reflected in the Consolidated statements of
operations were as follows:
Year Ended December 31
(in millions of U.S. dollars)
Service Cost:
Losses and loss expenses
Administrative expenses
Total service cost
Non-Service Cost:
Losses and loss expenses
Administrative expenses
Total non-service (benefit) cost
Net periodic (benefit) cost
Pension Benefit Plans
Other Postretirement Benefit Plans
2018
2017
2016
2018
2017
2016
$
7 $
7 $
8 $
— $
— $
62
69
(10)
(114)
(124)
73
80
(8)
(115)
(123)
85
93
(18)
(170)
(188)
1
1
(9)
(80)
(89)
2
2
(13)
(114)
(127)
$
(55) $
(43) $
(95) $
(88) $
(125) $
—
10
10
—
(7)
(7)
3
F-88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The weighted-average assumptions used to determine the net periodic pension and other postretirement benefit costs were as
follows:
Year Ended December 31
2018
Discount rate in effect for determining service cost
Discount rate in effect for determining interest cost
Rate of compensation increase
Expected long-term rate of return on plan assets
Interest crediting rate
2017
Discount rate in effect for determining service cost
Discount rate in effect for determining interest cost
Rate of compensation increase
Expected long-term rate of return on plan assets
Interest crediting rate
2016
Discount rate in effect for determining service cost
Discount rate in effect for determining interest cost
Rate of compensation increase
Expected long-term rate of return on plan assets
Interest crediting rate
Pension Benefit Plans
U.S.
Plans
Non-U.S.
Plans
Other
Postretirement
Benefit Plans
3.62%
3.27%
4.00%
7.00%
4.10%
4.20%
3.53%
4.00%
7.00%
4.10%
4.38%
3.59%
4.00%
7.00%
4.10%
3.97%
2.55%
3.46%
4.32%
3.55%
2.61%
3.57%
4.23%
3.85%
3.44%
3.33%
4.79%
2.84%
2.62%
N/A
2.59%
2.84%
2.44%
N/A
3.00%
4.32%
4.02%
N/A
6.34%
The weighted-average healthcare cost trend rate assumptions used to measure the expected cost of healthcare benefits were as
follows:
Healthcare cost trend rate
Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
U.S. Plans
Non-U.S. Plans
2018
2017
2016
2018
2017
2016
6.68%
7.01%
7.28%
6.29%
6.61%
6.61%
4.50%
4.50%
4.50%
4.50%
4.50%
4.50%
2038
2038
2038
2029
2029
2029
Plan Assets
The long term objective of the pension plan is to provide sufficient funding to cover expected benefit obligations, while assuming
a prudent level of portfolio risk. The assets of the pension plan are invested, either directly or through pooled funds, in a
diversified portfolio of predominately equity securities and fixed maturities. We seek to obtain a rate of return that over time
equals or exceeds the returns of the broad markets in which the plan assets are invested. The target allocation of plan assets is
55 percent to 65 percent invested in equity securities (including certain other investments measured using NAV), with the
remainder primarily invested in fixed maturities. We rebalance our pension assets to the target allocation as market conditions
permit. We determined the expected long term rate of return assumption for each asset class based on an analysis of the
historical returns and the expectations for future returns. The expected long term rate of return for the portfolio is a weighted
aggregation of the expected returns for each asset class.
In order to minimize risk, the Plan maintains a listing of permissible and prohibited investments. In addition, the Plan has
certain concentration limits and investment quality requirements imposed on permissible investments options. Investment risk
is measured and monitored on an ongoing basis.
F-89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following tables present the fair values of the pension plan assets, by valuation hierarchy. For additional information on how
we classify these assets within the valuation hierarchy, refer to Note 3 to the Consolidated financial statements.
December 31, 2018
(in millions of U.S. dollars)
U.S. Plans:
Short-term investments
U.S. Treasury and agency
Foreign and corporate bonds
Equity securities
Total U.S. Plan assets (1)
Non-U.S. Plans:
Short-term investments
Foreign and corporate bonds
Equity securities
Total Non-U.S. Plan assets (1)
Level 1
Level 2
Level 3
Total
Pension Benefit Plans
$
$
$
$
10 $
74 $
— $
433
—
1,050
82
641
—
—
—
—
1,493 $
797 $
— $
7 $
— $
— $
—
103
418
371
—
—
110 $
789 $
— $
84
515
641
1,050
2,290
7
418
474
899
(1)
Excluded from the table above are $494 million and $109 million of other investments measured using NAV as a practical expedient related to the U.S. Plans and Non-
U.S. Plans, respectively.
December 31, 2017
(in millions of U.S. dollars)
U.S. Plans:
Short-term investments
U.S. Treasury and agency
Foreign and corporate bonds
Equity securities
Total U.S. Plan assets (1)
Non-U.S. Plans:
Short-term investments
Foreign and corporate bonds
Equity securities
Total Non-U.S. Plan assets (1)
Level 1
Level 2
Level 3
Total
Pension Benefit Plans
$
$
$
$
9 $
52 $
— $
446
—
1,154
79
692
—
—
—
—
1,609 $
823 $
— $
5 $
— $
— $
—
122
456
492
—
—
61
525
692
1,154
2,432
5
456
614
127 $
948 $
— $
1,075
(1)
Excluded from the table above are $677 million and $95 million of other investments measured using NAV as a practical expedient related to the U.S. Plans and Non-U.S.
Plans, respectively.
We had other postretirement benefit plan assets of $143 million and $157 million at December 31, 2018 and 2017,
respectively, all of which are held in equity securities and categorized as Level 1.
F-90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Benefit payments were $209 million and $200 million for the years ended December 31, 2018 and 2017, respectively.
Expected future payments are as follows:
For the years ending December 31
(in millions of U.S. dollars)
2019
2020
2021
2022
2023
2024-2028
Pension Benefit Plans
U.S.
Plans
Non-U.S.
Plans
Other
Postretirement
Benefit Plans
$
140 $
26 $
148
155
162
168
909
28
27
26
28
155
18
19
21
22
18
19
Defined contribution plans (including 401(k))
Under these plans, employees' contributions may be supplemented by Chubb matching contributions based on the level of
employee contribution. These contributions are invested at the election of each employee in one or more of several investment
portfolios offered by a third-party investment advisor. Expenses for these plans totaled $171 million, $166 million, and $150
million for the years ended December 31, 2018, 2017, and 2016, respectively.
13. Other (income) expense
(in millions of U.S. dollars)
Equity in net (income) loss of partially-owned entities
(Gains) losses from fair value changes in separate account assets (1)
One-time contribution to the Chubb Charitable Foundation
Federal excise and capital taxes
Other
Other (income) expense
Year Ended December 31
2018
2017
$
(514) $
(418) $
38
—
12
30
(97)
50
35
30
2016
(264)
(11)
—
19
34
$
(434) $
(400) $
(222)
(1)
Related to (gains) losses from fair value changes in separate account assets that do not qualify for separate account reporting under GAAP.
Other (income) expense includes equity in net (income) loss of partially-owned entities, which includes our share of net
(income) loss related to partially-owned investment companies (private equity) and partially-owned insurance companies. Also
included in Other (income) expense are (Gains) losses from fair value changes in separate account assets that do not qualify for
separate account reporting under GAAP. The offsetting movement in the separate account liabilities is included in Policy benefits
in the Consolidated statements of operations. Certain federal excise and capital taxes incurred as a result of capital management
initiatives are included in Other (income) expense as these are considered capital transactions and are excluded from
underwriting results.
F-91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
14. Segment information
Chubb operates through six business segments: North America Commercial P&C Insurance, North America Personal P&C
Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. These
segments distribute their products through various forms of brokers, agencies, and direct marketing programs. All business
segments have established relationships with reinsurance intermediaries.
• The North America Commercial P&C Insurance segment includes the business written by Chubb divisions that provide
property and casualty (P&C) insurance and services to large, middle market and small commercial businesses in the U.S.,
Canada, and Bermuda. This segment includes our retail divisions: Major Accounts, Commercial Insurance, including Small
Commercial Insurance; and our wholesale and specialty divisions: Westchester and Chubb Bermuda. These divisions write
a variety of coverages, including traditional commercial property, marine, general casualty, workers’ compensation, package
policies, and risk management; specialty categories such as professional lines, marine, construction, environmental,
medical, cyber risk, surety, and excess casualty; as well as group accident and health (A&H) insurance.
• The North America Personal P&C Insurance segment includes the business written by Chubb Personal Risk Services
division, which includes high net worth personal lines business, with operations in the U.S. and Canada. This segment
provides affluent and high net worth individuals and families with homeowners, automobile and collector cars, valuable
articles (including fine arts), personal and excess liability, travel insurance, and recreational marine insurance and services.
• The North America Agricultural Insurance segment includes the business written by Rain and Hail Insurance Service, Inc.
in the U.S. and Canada, which provides comprehensive multiple peril crop insurance (MPCI) and crop-hail insurance, and
Chubb Agribusiness, which offers farm and ranch property as well as specialty P&C coverages, including commercial
agriculture products.
• The Overseas General Insurance segment includes the business written by two Chubb divisions that provide P&C insurance
and services in the 51 countries and territories outside of North America where the company operates. Chubb International
provides commercial P&C, A&H and traditional and specialty personal lines for large corporations, middle markets and
small customers through retail brokers, agents and other channels locally around the world. Chubb Global Markets (CGM)
provides commercial P&C excess and surplus lines and A&H through wholesale brokers in the London market and through
Lloyd’s. These divisions write a variety of coverages, including traditional commercial P&C, specialty categories such as
financial lines, marine, energy, aviation, political risk and construction risk, as well as group A&H and traditional and
specialty personal lines.
• The Global Reinsurance segment primarily includes the reinsurance business written by Chubb Tempest Re. Chubb
Tempest Re provides a broad range of traditional and specialty reinsurance coverages to a diverse array of primary P&C
companies.
• The Life Insurance segment includes Chubb's international life operations written by Chubb Life, Chubb Tempest Life Re
and the North American supplemental A&H and life business of Combined Insurance.
Corporate primarily includes the results of all run-off asbestos and environmental (A&E) exposures, our run-off Brandywine
business, and our Westchester specialty operations for 1996 and prior years, and certain other run-off exposures. In addition,
Corporate includes the results of our non-insurance companies including Chubb Limited, Chubb Group Management and
Holdings Ltd., and Chubb INA Holdings Inc. Our exposure to A&E claims principally arises out of liabilities acquired when we
purchased Westchester Specialty in 1998, CIGNA’s P&C business in 1999, and the Chubb Corp run-off business in 2016.
In addition, revenue and expenses managed at the corporate level, including realized gains and losses, interest expense, the
non-operating income of our partially-owned entities, and income taxes are reported within Corporate. Chubb integration
expenses and other merger-related expenses (both included in Chubb integration expenses in the Consolidated statements of
operations), and the one-time benefit recorded in 2016 related to the harmonization of our U.S. pension plans, are also
reported within Corporate. Chubb integration expenses are one-time costs that are directly attributable to the achievement of
the annualized savings, including employee severance, third-party consulting fees, and systems integration expenses. Other
merger-related expenses are one-time costs directly attributable to the merger, including rebranding, employee retention costs
and other professional and legal fees related to the Chubb Corp acquisition. These items will not be allocated to the segment
level as they are one-time in nature and are not related to the ongoing business activities of the segment. The Chief Executive
Officer does not manage segment results or allocate resources to segments when considering these costs and they are therefore
F-92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
excluded from our definition of segment income. Therefore, segment income will only include underwriting income, net
investment income, and other operating income and expense items such as each segment's share of the operating income (loss)
related to partially-owned entities and miscellaneous income and expense items for which the segments are held accountable.
Segment income also includes amortization of purchased intangibles related to business combination intangible assets acquired
by the segment and other purchase accounting related intangible assets, including agency relationships, renewal rights, and
client lists. The amortization of intangible assets purchased as part of the Chubb Corp acquisition is considered a Corporate cost
as these are incurred by the overall company. We determined that this definition of segment income is appropriate and aligns
with how the business is managed. We continue to evaluate our segments as our business continues to evolve and may further
refine our segments and segment income measures.
For segment reporting purposes, certain items are presented in a different manner below than in the consolidated financial
statements. Management uses underwriting income as the main measures of segment performance. Chubb calculates
underwriting income by subtracting Losses and loss expenses, Policy benefits, Policy acquisition costs, and Administrative
expenses from Net premiums earned. To calculate segment income, include Net investment income, Other (income) expense,
and Amortization of purchased intangibles. For the North America Agricultural Insurance segment, management includes gains
and losses on crop derivatives as a component of underwriting income. For example, for the year ended December 31, 2018,
underwriting income in our North America Agricultural Insurance segment was $385 million. This amount includes $3 million
of realized losses related to crop derivatives which are reported in Net realized gains (losses) in the Corporate column below.
For the Life Insurance segment, management includes Net investment income and (Gains) losses from fair value changes in
separate account assets that do not qualify for separate account reporting under GAAP as components of Life Insurance
underwriting income. For example, for the year ended December 31, 2018, Life Insurance underwriting income of $298 million
includes Net investment income of $341 million and losses from fair value changes in separate account assets of $38 million.
The losses from fair value changes in separate account assets are reported in Other (income) expense in the table below.
The following tables present the Statement of Operations by segment:
North
America
Commercial
P&C
Insurance
North
America
Personal
P&C
Insurance
North
America
Agricultural
Insurance
Overseas
General
Insurance
Global
Reinsurance
Life
Insurance
Corporate
Chubb
Consolidated
$ 12,485 $ 4,674 $ 1,577 $ 8,902 $
671 $ 2,270 $
— $
30,579
12,402
8,000
4,593
3,229
1,569
1,111
—
1,829
966
1,607
2,033
(25)
—
939
269
156
236
1
—
13
—
79
(9)
388
28
2
28
8,612
4,429
—
2,346
1,014
823
619
—
41
670
479
—
162
41
(12)
257
(32)
2,218
766
590
557
310
(5)
341
26
—
53
—
—
295
(348)
(209)
(406)
30,064
18,067
590
5,912
2,886
2,609
3,305
(434)
—
2
255
339
$
3,665 $
378 $
386 $ 1,401 $
277 $
308 $ (406) $
6,009
(652)
(652)
641
59
695
641
59
695
$ (2,453) $
3,962
For the Year Ended
December 31, 2018
(in millions of U.S. dollars)
Net premiums written
Net premiums earned
Losses and loss expenses
Policy benefits
Policy acquisition costs
Administrative expenses
Underwriting income (loss)
Net investment income (loss)
Other (income) expense
Amortization expense of
purchased intangibles
Segment income (loss)
Net realized gains (losses)
including OTTI
Interest expense
Chubb integration expenses
Income tax expense
Net income (loss)
F-93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
For the Year Ended
December 31, 2017
(in millions of U.S. dollars)
Net premiums written
Net premiums earned
Losses and loss expenses
Policy benefits
Policy acquisition costs
Administrative expenses
Underwriting income (loss)
Net investment income (loss)
Other (income) expense
Amortization expense of
purchased intangibles
Segment income (loss)
Net realized gains (losses)
including OTTI
Interest expense
Chubb integration expense
Income tax benefit
Net income (loss)
For the Year Ended
December 31, 2016
(in millions of U.S. dollars)
Net premiums written
Net premiums earned
Losses and loss expenses
Policy benefits
Policy acquisition costs
Administrative expenses
Underwriting income (loss)
Net investment income (loss)
Other (income) expense
Amortization expense (benefit) of
purchased intangibles
Segment income (loss)
Net realized gains (losses)
including OTTI
Interest expense
Chubb Integration Expense
Income tax expense
Net income (loss)
North
America
Commercial
P&C
Insurance
North
America
Personal
P&C
Insurance
North
America
Agricultural
Insurance
Overseas
General
Insurance
Global
Reinsurance
Life
Insurance
Corporate
Chubb
Consolidated
$ 12,019 $ 4,533 $ 1,516 $
8,350 $
685 $ 2,141 $
— $ 29,244
12,191
8,287
—
1,873
981
1,050
1,961
1
—
4,399
3,265
1,508
1,036
—
899
264
(29)
226
4
16
—
81
(8)
399
25
2
29
8,131
4,281
—
2,221
982
647
610
(4)
45
704
561
—
177
44
(78)
273
(1)
2,101
739
676
530
303
(147)
313
(84)
—
285
—
—
267
(552)
(283)
(318)
29,034
18,454
676
5,781
2,833
1,290
3,125
(400)
—
2
168
260
$
3,010 $
177 $
393 $
1,216 $
196 $
248 $ (685) $
4,555
84
607
310
84
607
310
(139)
(139)
$ (1,379) $
3,861
North
America
Commercial
P&C
Insurance
North
America
Personal
P&C
Insurance
North
America
Agricultural
Insurance
Overseas
General
Insurance
Global
Reinsurance
Life
Insurance
Corporate
Chubb
Consolidated
$ 11,740 $ 4,153 $ 1,328 $ 8,124 $
676 $ 2,124 $
— $
28,145
12,217
7,439
—
2,023
1,125
1,630
1,860
(2)
—
4,319
2,558
1,316
893
—
966
363
432
207
6
19
—
83
(6)
346
20
1
29
8,132
4,005
—
2,136
1,057
934
600
(11)
48
710
325
—
187
52
146
263
(4)
—
2,055
663
588
509
307
(12)
283
5
3
—
169
—
—
183
(352)
(368)
(217)
28,749
16,052
588
5,904
3,081
3,124
2,865
(222)
(80)
19
$
3,492 $
614 $
336 $ 1,497 $
413 $
263 $ (423) $
6,192
(145)
(145)
605
492
815
605
492
815
$ (2,480) $
4,135
Underwriting assets are reviewed in total by management for purposes of decision-making. Other than Unpaid losses and loss
expenses, Reinsurance recoverables, Goodwill and Other intangible assets, Chubb does not allocate assets to its segments.
F-94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
The following table presents net premiums earned for each segment by line of business:
(in millions of U.S. dollars)
North America Commercial P&C Insurance
Property & other short-tail lines
Casualty & all other
A&H
Total North America Commercial P&C Insurance
North America Personal P&C Insurance
Personal automobile
Personal homeowners
Personal other
Total North America Personal P&C Insurance
North America Agricultural Insurance
Overseas General Insurance
Property & other short-tail lines
Casualty & all other
Personal lines
A&H
Total Overseas General Insurance
Global Reinsurance
Property & other short-tail lines
Property catastrophe
Casualty & all other
Total Global Reinsurance
Life Insurance
Life
A&H
Total Life Insurance
Total net premiums earned
For the Year Ended December 31
2018
2017
2016
$
1,861 $
1,899 $
9,773
768
12,402
9,554
738
12,191
803
3,127
663
4,593
1,569
2,134
2,429
1,784
2,265
8,612
123
170
377
670
1,022
1,196
2,218
742
3,014
643
4,399
1,508
2,076
2,266
1,609
2,180
8,131
132
198
374
704
980
1,121
2,101
1,963
9,552
702
12,217
699
3,007
613
4,319
1,316
2,133
2,177
1,626
2,196
8,132
118
185
407
710
1,002
1,053
2,055
$
30,064 $
29,034 $
28,749
The following table presents net premiums earned by geographic region. Allocations have been made on the basis of location of
risk:
North America
Europe (1)
Asia Pacific /
Far East
Latin America
70%
70%
70%
11%
11%
12%
12%
12%
11%
7%
7%
7%
2018
2017
2016
(1)
Europe includes Eurasia and Africa regions.
F-95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
15. Earnings per share
(in millions of U.S. dollars, except share and per share data)
2018
2017
2016
Year Ended December 31
Numerator:
Net income
Denominator:
Denominator for basic earnings per share:
Weighted-average shares outstanding
Denominator for diluted earnings per share:
Share-based compensation plans
Weighted-average shares outstanding
and assumed conversions
Basic earnings per share
Diluted earnings per share
Potential anti-dilutive share conversions
$
3,962 $
3,861 $
4,135
463,629,203
467,145,716
462,519,789
3,173,145
4,051,185
3,429,610
466,802,348
471,196,901
465,949,399
$
$
8.55 $
8.49 $
8.26 $
8.19 $
8.94
8.87
3,543,188
1,776,025
1,206,828
Excluded from weighted-average shares outstanding and assumed conversions is the impact of securities that would have been
anti-dilutive during the respective years.
16. Related party transactions
Starr Indemnity & Liability Company and its affiliates (collectively, Starr)
We have a number of agency and reinsurance agreements with Starr, the Chairman of which is related to a member of our
senior management team. Our Board has reviewed and approved our arrangements with Starr. We have agency, claims services
and underwriting services agreements with various Starr subsidiaries. Under the agency agreements, we secure the ability to
sell our insurance policies through Starr as one of our non-exclusive agents for writing policies, contracts, binders, or
agreements of insurance or reinsurance. Under the claims services agreements, Starr adjusts the claims under policies and
arranges for third party treaty and facultative agreements covering such policies. Under the underwriting services agreements,
Starr underwrites insurance policies on our behalf and we agree to reinsure such policies to Starr under one or more quota
reinsurance agreements.
Certain agency agreements also contain a profit-sharing arrangement based on loss ratios, triggered if Starr underwrites a
minimum of $20 million of annual program business net premiums written on our behalf. No profit share commission has been
payable yet under this arrangement. Another agency agreement contains a profit-sharing arrangement based on the earned
premiums for the business underwritten by Starr (excluding workers’ compensation) and the reinsurance recoveries associated
with excess of loss reinsurance agreements placed by Starr for the business underwritten. No profit share commission under
this arrangement has been payable yet. Transactions generated under Starr agreements were as follows:
(in millions of U.S. dollars)
Consolidated statement of operations
Gross premiums written
Ceded premiums written
Commissions paid
Commissions received
Losses and loss expenses incurred
Consolidated balance sheets
Reinsurance recoverable on losses and loss expenses
Ceded reinsurance premium payable
Year Ended December 31
2018
2017
2016
$
$
$
$
$
$
$
411 $
188 $
84 $
42 $
188 $
514 $
75 $
464 $
175 $
101 $
37 $
438 $
557
44
658
208
145
56
313
F-96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
ABR Re
We own 11.7 percent of the common equity of ABR Reinsurance Capital Holdings Ltd. and warrants to acquire 0.5 percent of
additional equity. ABR Reinsurance Capital Holdings Ltd., is the parent company of ABR Reinsurance Ltd. (ABR Re), an
independent reinsurance company. Through long-term arrangements, Chubb will be the sole source of reinsurance risks ceded
to ABR Re, and BlackRock, Inc. will be ABR Re’s exclusive investment management service provider. As an investor, Chubb is
expected to benefit from underwriting profit generated by ABR Re’s reinsuring a wide range of Chubb’s primary insurance
business and the income and capital appreciation BlackRock, Inc. seeks to deliver through its investment management services.
In addition, Chubb has entered into an arrangement with BlackRock, Inc. under which both Chubb and BlackRock, Inc. will be
entitled to an equal share of the aggregate amount of certain fees, including underwriting and investment management
performance related fees, in connection with their respective reinsurance and investment management arrangements with ABR
Re.
ABR Re is a variable interest entity; however, Chubb is not the primary beneficiary and does not consolidate ABR Re because
Chubb does not have the power to control and direct ABR Re’s most significant activities, including investing and underwriting.
Our minority ownership interest is accounted for under the equity method of accounting. Chubb cedes premiums to ABR Re and
recognizes the associated commissions.
Transactions generated under ABR Re agreements were as follows:
(in millions of U.S. dollars)
Consolidated statement of operations
Ceded premiums written
Commissions received
Consolidated balance sheets
Reinsurance recoverable on losses and loss expenses
Ceded reinsurance premium payable
Year Ended December 31
2018
2017
2016
$
$
$
$
329 $
96 $
557 $
47 $
342 $
94 $
288
66
365
51
F-97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
17. Statutory financial information
Our subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or permitted by
insurance regulators. Statutory accounting differs from GAAP in the reporting of certain reinsurance contracts, investments,
subsidiaries, acquisition expenses, fixed assets, deferred income taxes, and certain other items. Some jurisdictions impose
complex regulatory requirements on insurance companies while other jurisdictions impose fewer requirements. In some
jurisdictions, we must obtain licenses issued by governmental authorities to conduct local insurance business. These licenses
may be subject to reserves and minimum capital and solvency tests. Jurisdictions may impose fines, censure, and/or criminal
sanctions for violation of regulatory requirements. The 2018 amounts below are based on estimates.
Chubb's insurance and reinsurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in which they
operate. These regulations include restrictions that limit the amount of dividends or other distributions, such as loans or cash
advances, available to shareholders without prior approval of the local insurance regulatory authorities. The amount of dividends
available to be paid in 2019 without prior approval totals $6.1 billion.
The statutory capital and surplus of our insurance subsidiaries met regulatory requirements for 2018, 2017, and 2016. The
minimum amounts of statutory capital and surplus necessary to satisfy regulatory requirements was $25.9 billion and $23.9
billion for December 31, 2018 and 2017, respectively. These minimum regulatory capital requirements were significantly lower
than the corresponding amounts required by the rating agencies which review Chubb’s insurance and reinsurance subsidiaries.
The following tables present the combined statutory capital and surplus and statutory net income (loss) of our Property and
casualty and Life subsidiaries:
(in millions of U.S. dollars)
Statutory capital and surplus
Property and casualty
Life
(in millions of U.S. dollars)
Statutory net income (loss)
Property and casualty
Life
December 31
2017
2018
$
$
40,985 $
39,927
1,310 $
1,515
2018
Year Ended December 31
2016
2017
$
$
7,499 $
8,178 $
6,903
(111) $
49 $
55
Several insurance subsidiaries follow accounting practices prescribed or permitted by the jurisdiction of domicile that differ from
the applicable local statutory practice. The application of prescribed or permitted accounting practices does not have a material
impact on Chubb's statutory surplus and income. As prescribed by the Restructuring discussed previously in Note 6, certain of
our U.S. subsidiaries discount certain A&E liabilities, which increased statutory capital and surplus by approximately $160
million and $169 million at December 31, 2018 and 2017, respectively.
Federal Insurance Company (Federal), a direct subsidiary of Chubb INA Holdings Inc., has a permitted practice granted by the
Indiana Department of Insurance that relates to its investments in foreign subsidiaries and affiliates. Under Statement of
Statutory Accounting Principles No. 97, Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP
No. 88, in order for a reporting entity to admit its investments in foreign subsidiaries and affiliates, audited financial statements
of the subsidiary or affiliate must be obtained to support the carrying value. Such financial statements must be prepared in
accordance with U.S. GAAP, or alternatively, in accordance with the local statutory requirements in the subsidiary’s or affiliate’s
country of domicile, with an audited footnote reconciliation of net income and shareholder’s equity as reported to a U.S. GAAP
basis. With the explicit permission of the Indiana Department of Insurance, Federal obtains audited financial statements for its
admitted foreign subsidiaries and affiliates, which had an aggregate carrying value of approximately $183 million and $156
million at December 31, 2018 and 2017, respectively, prepared in accordance with their respective local statutory
requirements and supplemented with a separate unaudited reconciliation of shareholder’s equity as reported to a U.S. GAAP
basis.
F-98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
18. Information provided in connection with outstanding debt of subsidiaries
The following tables present condensed consolidating financial information at December 31, 2018 and December 31, 2017,
and for the years ended December 31, 2018, 2017, and 2016 for Chubb Limited (Parent Guarantor) and Chubb INA Holdings
Inc. (Subsidiary Issuer). The Subsidiary Issuer is an indirect 100 percent-owned subsidiary of the Parent Guarantor. The Parent
Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary Issuer. Condensed consolidating financial
information of the Parent Guarantor and Subsidiary Issuer are presented on the equity method of accounting. The revenues and
expenses and cash flows of the subsidiaries of the Subsidiary Issuer are presented in the Other Chubb Limited Subsidiaries
column on a combined basis.
Condensed Consolidating Balance Sheet at December 31, 2018
(in millions of U.S. dollars)
Assets
Investments
Cash (1)
Restricted Cash
Insurance and reinsurance balances
receivable
Reinsurance recoverable on losses and loss
expenses
Reinsurance recoverable on policy benefits
Value of business acquired
Goodwill and other intangible assets
Investments in subsidiaries
Due from subsidiaries and affiliates, net
Other assets
Total assets
Liabilities
Unpaid losses and loss expenses
Unearned premiums
Future policy benefits
Due to subsidiaries and affiliates, net
Affiliated notional cash pooling programs(1)
Repurchase agreements
Short-term debt
Long-term debt
Trust preferred securities
Other liabilities
Total liabilities
Total shareholders’ equity
Chubb Limited
(Parent
Guarantor)
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)
Other Chubb
Limited
Subsidiaries
Consolidating
Adjustments and
Eliminations
Chubb Limited
Consolidated
$
— $
214 $
100,754 $
— $
100,968
1
—
—
—
—
—
—
2
—
—
—
—
—
—
43,531
7,074
3
50,209
—
1,007
1,896
93
(652)
—
1,247
93
11,861
(1,786)
10,075
26,422
(10,429)
15,993
306
295
21,414
—
598
18,102
(104)
—
—
(93,740)
(7,672)
(1,628)
202
295
21,414
—
—
17,484
$
$
50,609 $
51,432 $
181,741 $
(116,011) $
167,771
— $
— $
72,857 $
(9,897) $
—
—
—
35
—
—
—
—
262
297
50,312
—
—
7,672
617
—
500
12,086
308
2,545
23,728
27,704
16,611
5,610
—
—
1,418
9
1
—
19,199
115,705
66,036
(1,079)
(104)
(7,672)
(652)
—
—
—
—
(2,867)
(22,271)
(93,740)
62,960
15,532
5,506
—
—
1,418
509
12,087
308
19,139
117,459
50,312
Total liabilities and shareholders’ equity
$
50,609 $
51,432 $
181,741 $
(116,011) $
167,771
(1)
Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2018, the cash
balance of one or more entities was negative; however, the overall Pool balances were positive.
F-99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Condensed Consolidating Balance Sheet at December 31, 2017
(in millions of U.S. dollars)
Assets
Investments
Cash (1)
Restricted Cash
Insurance and reinsurance balances
receivable
Reinsurance recoverable on losses and
loss expenses
Reinsurance recoverable on policy benefits
Value of business acquired
Goodwill and other intangible assets
Investments in subsidiaries
Due from subsidiaries and affiliates, net
Other assets
Total assets
Liabilities
Unpaid losses and loss expenses
Unearned premiums
Future policy benefits
Due to subsidiaries and affiliates, net
Affiliated notional cash pooling programs(1)
Repurchase agreements
Short-term debt
Long-term debt
Trust preferred securities
Other liabilities
Total liabilities
Total shareholders’ equity
Chubb Limited
(Parent
Guarantor)
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)
Other Chubb
Limited
Subsidiaries
Consolidating
Adjustments and
Eliminations
Chubb Limited
Consolidated
$
— $
168 $
102,276 $
— $
102,444
3
—
—
—
—
—
—
1
—
—
—
—
—
—
41,909
9,639
3
51,165
—
287
839
123
(115)
—
728
123
10,820
(1,486)
9,334
27,514
1,194
326
22,054
—
—
20,578
(12,480)
(1,010)
—
—
(93,074)
(9,639)
(4,073)
15,034
184
326
22,054
—
—
16,795
$
$
51,554 $
51,621 $
185,724 $
(121,877) $
167,022
— $
— $
74,767 $
(11,588) $
—
—
—
—
—
—
—
—
382
382
51,172
—
—
9,432
115
—
1,013
11,546
308
1,411
23,825
27,796
18,875
6,331
207
—
1,408
—
10
—
18,848
120,446
65,278
(3,659)
(1,010)
(9,639)
(115)
—
—
—
—
(2,792)
(28,803)
(93,074)
63,179
15,216
5,321
—
—
1,408
1,013
11,556
308
17,849
115,850
51,172
Total liabilities and shareholders’ equity
$
51,554 $
51,621 $
185,724 $
(121,877) $
167,022
(1)
Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2017, the cash
balance of one or more entities was negative; however, the overall Pool balances were positive.
F-100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
For the Year Ended December 31, 2018
(in millions of U.S. dollars)
Net premiums written
Net premiums earned
Net investment income
Equity in earnings of subsidiaries
Net realized gains (losses) including OTTI
Losses and loss expenses
Policy benefits
Policy acquisition costs and administrative
expenses
Interest (income) expense
Other (income) expense
Amortization of purchased intangibles
Chubb integration expenses
Income tax expense (benefit)
Net income
Comprehensive income (loss)
Chubb Limited
(Parent
Guarantor)
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)
Other Chubb
Limited
Subsidiaries
Consolidating
Adjustments and
Eliminations
Chubb Limited
Consolidated
$
— $
— $
30,579 $
— $
—
6
3,753
—
—
—
87
(299)
(24)
—
14
19
—
13
2,578
117
—
—
(58)
806
26
—
1
(148)
30,064
3,286
—
(769)
18,067
590
8,769
134
(436)
339
44
824
—
—
(6,331)
—
—
—
—
—
—
—
—
—
$
$
3,962 $
2,081 $
4,250 $
(6,331) $
1,242 $
(27) $
1,808 $
(1,781) $
30,579
30,064
3,305
—
(652)
18,067
590
8,798
641
(434)
339
59
695
3,962
1,242
Condensed Consolidating Statements of Operations and Comprehensive Income
Equity in earnings of subsidiaries
3,640
2,424
Chubb Limited
(Parent
Guarantor)
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)
Other Chubb
Limited
Subsidiaries
Consolidating
Adjustments and
Eliminations
Chubb Limited
Consolidated
$
— $
— $
29,244 $
— $
—
4
—
14
—
—
—
75
(332)
(12)
—
32
20
(25)
—
—
40
847
93
—
69
(742)
29,034
3,107
—
109
18,454
676
8,499
92
(481)
260
209
583
—
—
(6,064)
—
—
—
—
—
—
—
—
—
$
$
3,861 $
2,106 $
3,958 $
(6,064) $
4,718 $
3,075 $
4,430 $
(7,505) $
29,244
29,034
3,125
—
84
18,454
676
8,614
607
(400)
260
310
(139)
3,861
4,718
For the Year Ended December 31, 2017
(in millions of U.S. dollars)
Net premiums written
Net premiums earned
Net investment income
Net realized gains (losses) including OTTI
Losses and loss expenses
Policy benefits
Policy acquisition costs and administrative
expenses
Interest (income) expense
Other (income) expense
Amortization of purchased intangibles
Chubb integration expenses
Income tax expense (benefit)
Net income
Comprehensive income
F-101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Condensed Consolidating Statements of Operations and Comprehensive Income
Equity in earnings of subsidiaries
3,901
2,555
For the Year Ended December 31, 2016
(in millions of U.S. dollars)
Net premiums written
Net premiums earned
Net investment income
Net realized gains (losses) including OTTI
Losses and loss expenses
Policy benefits
Policy acquisition costs and administrative
expenses
Interest (income) expense
Other (income) expense
Amortization of purchased intangibles
Chubb integration expenses
Income tax expense (benefit)
Net income
Comprehensive income
Chubb Limited
(Parent
Guarantor)
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)
Other Chubb
Limited
Subsidiaries
Consolidating
Adjustments and
Eliminations
Chubb Limited
Consolidated
$
— $
— $
28,145 $
— $
—
3
—
11
—
—
—
64
(353)
(25)
—
62
21
3
—
—
82
908
35
—
126
(416)
28,749
2,851
—
(148)
16,052
588
8,839
50
(232)
19
304
1,210
—
—
(6,456)
—
—
—
—
—
—
—
—
—
$
$
4,135 $
1,834 $
4,622 $
(6,456) $
4,556 $
2,001 $
5,045 $
(7,046) $
28,145
28,749
2,865
—
(145)
16,052
588
8,985
605
(222)
19
492
815
4,135
4,556
F-102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2018
(in millions of U.S. dollars)
Chubb Limited
(Parent
Guarantor)
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)
Other Chubb
Limited
Subsidiaries
Consolidating
Adjustments
and
Eliminations
Chubb Limited
Consolidated
Net cash flows from operating activities
$
256 $
4,654 $
5,878 $
(5,308) $
5,480
(38)
(24,697)
Cash flows from investing activities
Purchases of fixed maturities available for sale
Purchases of fixed maturities held to maturity
Purchases of equity securities
Sales of fixed maturities available for sale
Sales of equity securities
Maturities and redemptions of fixed maturities
available for sale
Maturities and redemptions of fixed maturities
held to maturity
Net change in short-term investments
Net derivative instruments settlements
Private equity contribution
Private equity distribution
Capital contribution
Other
Net cash flows used for investing activities
Cash flows from financing activities
Dividends paid on Common Shares
Common Shares repurchased
Proceeds from issuance of long-term debt
Proceeds from issuance of repurchase agreements
Repayment of long-term debt
Repayment of repurchase agreements
Proceeds from share-based compensation plans
Advances (to) from affiliates
Dividends to parent company
Capital contribution
Net payments to affiliated notional cash pooling
programs(1)
Policyholder contract deposits
Policyholder contract withdrawals
—
—
—
—
—
—
—
—
—
—
—
(1,475)
—
(1,475)
(1,337)
—
—
—
—
—
—
—
—
11
—
17
—
3
(7)
—
—
(3,550)
(18)
(3,582)
—
—
2,171
—
(2,000)
—
—
2,519
(1,744)
—
—
35
—
—
—
—
502
—
—
(456)
(207)
14,019
315
7,335
1,124
513
23
(1,337)
980
—
(515)
(2,903)
—
(1,044)
—
2,029
(1)
(2,019)
115
(775)
(5,308)
5,025
—
453
(358)
(1,883)
(65)
1,027
962
—
—
—
—
—
—
—
—
—
—
—
5,025
—
5,025
—
—
—
—
—
—
—
—
5,308
(5,025)
(537)
—
—
(24,735)
(456)
(207)
14,030
315
7,352
1,124
516
16
(1,337)
980
—
(533)
(2,935)
(1,337)
(1,044)
2,171
2,029
(2,001)
(2,019)
115
—
—
—
—
453
(358)
(254)
(1,991)
—
(537)
(115)
(65)
489
851
Net cash flows from (used for) financing activities
1,217
(1,071)
Effect of foreign currency rate changes on cash and
restricted cash
Net increase (decrease) in cash and restricted cash
Cash and restricted cash – beginning of year (1)
—
(2)
3
—
1
1
Cash and restricted cash – end of year (1)
$
1 $
2 $
1,989 $
(652) $
1,340
(1)
Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2018 and 2017,
the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
F-103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2017
(in millions of U.S. dollars)
Net cash flows from operating activities
Cash flows from investing activities
Purchases of fixed maturities available for sale
Purchases of fixed maturities held to maturity
Purchases of equity securities
Sales of fixed maturities available for sale
Sales of equity securities
Maturities and redemptions of fixed maturities
available for sale
Maturities and redemptions of fixed maturities
held to maturity
Net change in short-term investments
Net derivative instruments settlements
Private equity contributions
Private equity distributions
Other
Net cash flows from (used for) investing activities
Cash flows from financing activities
—
—
—
—
—
—
—
—
—
—
—
—
—
Dividends paid on Common Shares
(1,308)
Common Shares repurchased
Proceeds from issuance of long-term debt
Proceeds from issuance of repurchase agreements
Repayment of long-term debt
Repayment of repurchase agreements
Proceeds from share-based compensation plans
Advances (to) from affiliates
Dividends to parent company
Net payments to affiliated notional cash pooling
programs(1)
Policyholder contract deposits
Policyholder contract withdrawals
—
—
—
—
—
—
892
—
(363)
—
—
Chubb
Limited
(Parent
Guarantor)
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)
Other Chubb
Limited
Subsidiaries
Consolidating
Adjustments
and
Eliminations
Chubb
Limited
Consolidated
$
781 $
1,648 $
4,598 $
(2,524) $
4,503
(9)
(25,738)
—
—
99
—
29
—
189
(15)
—
—
(10)
283
—
—
—
—
(500)
—
—
(927)
—
(504)
—
—
(352)
(173)
13,156
187
10,396
879
(726)
(250)
(648)
1,084
(520)
(2,705)
—
(801)
—
2,353
(1)
(2,348)
151
35
—
442
(307)
(3,000)
1
(1,106)
2,068
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
867
—
—
—
867
(982)
(25,747)
(352)
(173)
13,255
187
10,425
879
(537)
(265)
(648)
1,084
(530)
(2,422)
(1,308)
(801)
—
2,353
(501)
(2,348)
151
—
—
—
442
(307)
1
(237)
1,088
851
(2,524)
2,524
3,391
(2,319)
Net cash flows used for financing activities
(779)
(1,931)
Effect of foreign currency rate changes on cash and
restricted cash
Net increase (decrease) in cash and restricted cash
Cash and restricted cash – beginning of year (1)
—
2
1
—
—
1
Cash and restricted cash – end of year (1)
$
3 $
1 $
962 $
(115) $
(1)
Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2017 and 2016,
the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
F-104
Chubb
Limited
(Parent
Guarantor)
Chubb INA
Holdings Inc.
(Subsidiary
Issuer)
Other Chubb
Limited
Subsidiaries
Consolidating
Adjustments
and
Eliminations
Chubb
Limited
Consolidated
$
3,618 $
4,305 $
5,536 $
(8,167) $
5,292
(156)
(30,659)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2016
(in millions of U.S. dollars)
Net cash flows from operating activities
Cash flows from investing activities
Purchases of fixed maturities available for sale
Purchases of fixed maturities held to maturity
Purchases of equity securities
Sales of fixed maturities available for sale
Sales of equity securities
Maturities and redemptions of fixed maturities
available for sale
Maturities and redemptions of fixed maturities
held to maturity
Net change in short-term investments
Net derivative instruments settlements
Private equity contributions
Private equity distributions
Acquisition of subsidiaries (net of cash acquired of
$71)
Capital contribution
Other
—
—
—
—
—
—
—
—
—
—
—
—
(2,330)
—
—
—
66
—
66
—
7,943
(9)
—
—
(14,282)
(215)
(3)
Net cash flows used for investing activities
(2,330)
(6,590)
Cash flows from financing activities
Dividends paid on Common Shares
(1,173)
Proceeds from issuance of repurchase agreements
Repayment of repurchase agreements
Proceeds from share-based compensation plans
Advances (to) from affiliates
Dividends to parent company
Capital contribution
—
—
—
404
—
—
—
—
—
—
(572)
—
2,330
Net proceeds from (payments to) affiliated notional
cash pooling programs(1)
(519)
530
Policyholder contract deposits
Policyholder contract withdrawals
Other
—
—
—
—
—
(4)
(282)
(146)
16,611
1,000
9,283
958
4,407
(159)
(553)
958
34
(2,330)
(399)
(1,277)
—
2,310
(2,311)
167
168
(8,167)
2,545
—
522
(253)
—
—
—
—
—
—
—
—
—
—
—
—
—
4,875
—
4,875
—
—
—
—
—
8,167
(4,875)
(11)
—
—
—
(30,815)
(282)
(146)
16,677
1,000
9,349
958
12,350
(168)
(553)
958
(14,248)
—
(402)
(5,322)
(1,173)
2,310
(2,311)
167
—
—
—
—
522
(253)
(4)
(742)
(25)
(797)
1,885
1,088
Net cash flows (used for) from financing activities
(1,288)
2,284
(5,019)
3,281
Effect of foreign currency rate changes on cash and
restricted cash
Net increase (decrease) in cash and restricted cash
Cash and restricted cash – beginning of year (1)
—
—
1
—
(1)
2
(25)
(785)
2,853
—
(11)
(971)
Cash and restricted cash – end of year (1)
$
1 $
1 $
2,068 $
(982) $
(1)
Chubb maintains two notional multi-currency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information. At December 31, 2016 and 2015,
the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
F-105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Chubb Limited and Subsidiaries
19. Condensed unaudited quarterly financial data
March 31
June 30
September 30
December 31
Three Months Ended
(in millions of U.S. dollars, except per share data)
2018
2018
2018
Net premiums earned
Net investment income
Net realized gains (losses) including OTTI
Total revenues
Losses and loss expenses
Policy benefits
Net income
Basic earnings per share
Diluted earnings per share
$
$
$
$
$
$
$
7,027 $
7,664 $
7,908 $
806
(2)
7,831 $
4,102 $
151 $
828
18
8,510 $
4,487 $
150 $
823
19
8,750 $
4,868 $
127 $
1,082 $
1,294 $
1,231 $
2.32 $
2.30 $
2.78 $
2.76 $
2.66 $
2.64 $
2018
7,465
848
(687)
7,626
4,610
162
355
0.77
0.76
Net income for the three months ended December 31, 2018 included after-tax catastrophe losses of $506 million.
March 31
June 30
September 30
December 31
Three Months Ended
(in millions of U.S. dollars, except per share data)
2017
2017
2017
Net premiums earned
Net investment income
Net realized gains (losses) including OTTI
Total revenues
Losses and loss expenses
Policy benefits
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
$
$
$
$
$
$
$
6,772 $
7,237 $
7,807 $
745
(7)
7,510 $
3,789 $
168 $
770
101
8,108 $
4,146 $
163 $
1,093 $
1,305 $
2.33 $
2.31 $
2.79 $
2.77 $
813
(10)
8,610 $
6,247 $
169 $
(70) $
(0.15) $
(0.15) $
2017
7,218
797
—
8,015
4,272
176
1,533
3.29
3.27
Net income for the three months ended September 30, 2017 included after-tax catastrophe losses of $1.5 billion. Net income
for the three months ended December 31, 2017 included a one-time income tax transition benefit of $450 million related to
the 2017 Tax Act. Refer to Note 7 for additional information.
F-106
SCHEDULE I
Chubb Limited and Subsidiaries
SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2018
(in millions of U.S. dollars)
Fixed maturities available for sale
U.S. Treasury and agency
Foreign
Corporate securities
Mortgage-backed securities
States, municipalities, and political subdivisions
Total fixed maturities available for sale
Fixed maturities held to maturity
U.S. Treasury and agency
Foreign
Corporate securities
Mortgage-backed securities
States, municipalities, and political subdivisions
Total fixed maturities held to maturity
Equity securities
Industrial, miscellaneous, and all other
Short-term investments
Other investments (1)
Cost or
Amortized Cost
Fair Value
Amount at Which
Shown in the
Balance Sheet
$
4,158 $
4,145 $
21,370
27,183
15,758
10,854
79,323
1,185
1,549
2,601
2,524
5,576
21,416
26,583
15,540
10,786
78,470
1,182
1,542
2,508
2,486
5,541
4,145
21,416
26,583
15,540
10,786
78,470
1,185
1,549
2,601
2,524
5,576
13,435
13,259
13,435
770
3,016
5,153
770
3,016
5,153
770
3,016
5,153
Total investments - other than investments in related parties
$
101,697 $
100,668 $
100,844
(1)
Excludes $124 million of related party investments.
F-107
SCHEDULE II
Chubb Limited and Subsidiaries
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS (Parent Company Only)
(in millions of U.S. dollars)
Assets
December 31
December 31
2018
2017
Investments in subsidiaries and affiliates on equity basis
$
43,531 $
Total investments
Cash
Due from subsidiaries and affiliates, net
Other assets
Total assets
Liabilities
Affiliated notional cash pooling programs (1)
Accounts payable, accrued expenses, and other liabilities
Total liabilities
Shareholders' equity
Common Shares
Common Shares in treasury
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders' equity
Total liabilities and shareholders' equity
(1) Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information.
The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.
50,609 $
51,554
$
$
43,531
1
7,074
3
35 $
262
297
11,121
(2,618)
12,557
31,700
(2,448)
50,312
$
50,609 $
41,909
41,909
3
9,639
3
—
382
382
11,121
(1,944)
13,978
27,474
543
51,172
51,554
F-108
SCHEDULE II (continued)
Chubb Limited and Subsidiaries
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS (Parent Company Only)
(in millions of U.S. dollars)
Revenues
Investment income, including interest income
Equity in net income of subsidiaries and affiliates
Expenses
Administrative and other (income) expense
Chubb integration expenses
Income tax expense
Net income
Comprehensive income
Year Ended December 31
2018
2017
2016
$
305 $
336 $
3,753
4,058
63
14
19
96
3,640
3,976
63
32
20
115
$
$
3,962 $
3,861 $
1,242 $
4,718 $
356
3,901
4,257
39
62
21
122
4,135
4,556
The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.
F-109
SCHEDULE II (continued)
Chubb Limited and Subsidiaries
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS (Parent Company Only)
(in millions of U.S. dollars)
Net cash flows from operating activities (1)
Cash flows from investing activities
Capital contribution
Net cash flows used for investing activities
Cash flows from financing activities
Dividends paid on Common Shares
Advances from affiliates
Net proceeds from (payments to) affiliated notional cash pooling programs (2)
Net cash flows from (used for) financing activities
Net increase (decrease) in cash and restricted cash
Cash and restricted cash – beginning of year
Cash and restricted cash – end of year
Year Ended December 31
2018
2017
$
256 $
781 $
(1,308)
(1,173)
(1,475)
(1,475)
(1,337)
2,519
35
1,217
(2)
3
—
—
892
(363)
(779)
2
1
$
1 $
3 $
(1)
(2)
Includes cash dividends received from subsidiaries of $75 million, $450 million, and $3.4 billion in 2018, 2017, and 2016, respectively.
Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to Note 1 f) for additional information.
The condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto.
2016
3,618
(2,330)
(2,330)
404
(519)
(1,288)
—
1
1
F-110
SCHEDULE IV
Chubb Limited and Subsidiaries
SUPPLEMENTAL INFORMATION CONCERNING REINSURANCE
Premiums Earned
For the years ended December 31, 2018, 2017, and 2016
(in millions of U.S. dollars, except for percentages)
Direct
Amount
Ceded To
Other
Companies
Assumed
From Other
Companies
Net Amount
Percentage
of Amount
Assumed to
Net
$
28,793 $
6,792 $
2,812 $
24,813
$
$
$
$
4,409
906
342
85
162
201
4,229
1,022
34,108 $
7,219 $
3,175 $
30,064
27,774 $
6,650 $
2,891 $
24,015
4,167
841
349
81
221
220
4,039
980
32,782 $
7,080 $
3,332 $
29,034
26,919 $
6,407 $
3,284 $
23,796
4,047
845
315
84
219
241
3,951
1,002
$
31,811 $
6,806 $
3,744 $
28,749
11%
4%
20%
11%
12%
5%
22%
11%
14%
6%
24%
13%
2018
Property and Casualty
Accident and Health
Life
Total
2017
Property and Casualty
Accident and Health
Life
Total
2016
Property and Casualty
Accident and Health
Life
Total
F-111
SCHEDULE VI
Chubb Limited and Subsidiaries
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY AND CASUALTY OPERATIONS
As of and for the years ended December 31, 2018, 2017, and 2016
(in millions of U.S. dollars)
Deferred
Policy
Acquisition
Costs
Net Reserves
for Unpaid
Losses and
Loss
Expenses
Unearned
Premiums
Net
Premiums
Earned
Net
Investment
Income
Net Losses and Loss
Expenses Incurred
Related to
Current
Year
Prior
Year
Amortization
of Deferred
Policy
Acquisition
Costs
Net Paid
Losses and
Loss Expenses
Net
Premiums
Written
2018
2017
2016
$
$
$
3,926 $
48,271 $ 15,532 $ 29,042 $
3,047 $ 19,048 $ (981) $
5,630 $
18,340 $ 29,505
3,805
3,537
$
$
49,165
$ 15,216
$ 28,054
47,832
$ 14,779
$ 27,747
$
$
2,890
$ 19,391
$ (937) $
2,656
$ 17,256
$ (1,204) $
5,519
5,654
$
$
17,448
$ 28,225
15,715
$ 27,074
F-112
REPORT OF THE STATUTORY AUDITOR TO THE GENERAL MEETING OF CHUBB LIMITED, ZURICH ON
THE (US GAAP) CONSOLIDATED FINANCIAL STATEMENTS
Report of the statutory auditor on the consolidated financial statements
As statutory auditor, we have audited the consolidated financial statements of Chubb Limited and its subsidiaries (the
Company), which comprise the consolidated balance sheet as of December 31, 2018, and the consolidated statement of
operations and comprehensive income, consolidated statement of shareholders’ equity, and consolidated statement of cash
flows for the year then ended, and the related notes to the consolidated financial statements (pages F-6 to F-106).
Board of Directors' responsibility
The Board of Directors is responsible for the preparation of the consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America (US GAAP) and the requirements of Swiss law. This responsibility
includes designing, implementing and maintaining an internal control system relevant to the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further
responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in
the circumstances.
Auditor's responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit
in accordance with Swiss law, Swiss Auditing Standards and auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers the internal control system relevant to the entity’s preparation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2018, and the results of its operations and its cash flows for the year then ended in accordance
with accounting principles generally accepted in the United States of America (US GAAP), and comply with Swiss law.
F-113
REPORT OF THE STATUTORY AUDITOR TO THE GENERAL MEETING OF CHUBB LIMITED, ZURICH ON
THE (US GAAP) CONSOLIDATED FINANCIAL STATEMENTS (continued)
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
Key audit matter
How our audit addressed the key audit matter
Valuation of unpaid losses and loss expenses, net of
reinsurance
In relation to the valuation of unpaid losses and loss
expenses, we performed the following procedures:
At December 31, 2018, the Company’s liability for unpaid
losses and loss expenses was approximately $63.0 billion on
a gross of reinsurance basis and $47.0 billion on a net of
reinsurance basis. The liability for unpaid losses and loss
expenses is based on historical loss emergence adjusted for
changes in the business mix, legal environment, claims
handling processes, or ceded reinsurance. Further disclosures
are provided in footnote 6 of the consolidated financial
statements.
We focused on this area as 85% of the Company’s net unpaid
losses and loss expenses arise from difficult to estimate
liabilities, with 63% arising from the Company’s long-tail
business (such as general liability, professional liability and
motor liability), 19% from US sourced workers’ compensation,
and 3% from asbestos-related, environmental pollution and
other long-term exposure claims. Additionally, liabilities in the
long-tail business typically take years to develop, and require
significant management judgments involving credibility of
historical development patterns, which could be impacted by
judicial, regulatory, economic, social or other factors.
• We assessed and tested the design and operating
effectiveness of the Company's controls over the valuation
of unpaid losses and loss expenses, and concluded that
these operate effectively.
• We assessed and evaluated external third party actuarial
studies to corroborate the Company's carried reserves for
unpaid losses and loss expenses and evaluated where
differences in view existed.
• With the support of our actuarial specialists we tested the
valuation of unpaid losses and loss expenses at December
31, 2018. Specifically, we independently estimated the
ultimate losses for selected long-tail lines of businesses,
based on the size of the balance and the risk of
misstatement, and compared these estimates with the
Company's carried reserves and the results of third-party
actuarial studies to understand significant differences in
methodologies and assumptions, and evaluated whether
the Company's estimates are within a reasonable range.
Where management's carried reserves were different than
the actuarially determined estimate, we also evaluated
judgments made by management to support such
differences.
• We evaluated and tested the Company's approach in
determining when emerging loss data was sufficiently
credible to warrant adjustments to previously established
reserves. We also assessed the consistency of
management's approach period-over-period.
• We evaluated management's documentation supporting
their conclusions of the reserves, including evidence
supporting significant judgments made, and evaluated the
transparency of the Company's US GAAP financial
statement footnote disclosures.
Based on our audit procedures, we determined the valuation
of unpaid losses and loss expenses, net of reinsurance, as of
December 31, 2018, is within a reasonable range of
actuarial estimates.
F-114
REPORT OF THE STATUTORY AUDITOR TO THE GENERAL MEETING OF CHUBB LIMITED, ZURICH ON
THE (US GAAP) CONSOLIDATED FINANCIAL STATEMENTS (continued)
Valuation of certain types of investments included in level 2
and 3 in the valuation hierarchy
In relation to the valuation of certain types of investments
included in level 2 and 3 in the valuation hierarchy, we
performed the following procedures:
At December 31, 2018, the Company had total investments
of approximately $101.0 billion, of which $77.2 billion and
$1.8 billion were categorized as level 2 and 3 in the valuation
hierarchy, respectively. Further disclosures are provided in
footnote 2 and 3 of the consolidated financial statements.
We focused on certain types of investments included in level 2
and 3 in the valuation hierarchy, such as asset-backed
securities of various collateral types and issuers with credit
ratings below investment grade, because such investments are
more complex and more difficult to value than others. These
types of investments are more likely to be priced using models
or inputs other than quoted prices, as these investments are
not always traded in an active market. As such, inherent risks
in valuation of such investments are higher.
• We assessed and tested the design and operating
effectiveness of the Company's controls over the
assessment of valuation of investments.
• We tested the reasonableness of management's recorded
fair value estimates for a sample of securities by obtaining
corroborative pricing from sources other than those used
by the Company.
• With the support of our valuation specialists we tested
pricing by developing a range of reasonable prices for a
sample of securities through the use of our own models
and compared to the pricing obtained by the Company.
• We evaluated the Company's US GAAP footnote
disclosures in relation to the valuation hierarchy level at
which such securities are disclosed, based on the market
observability of the inputs used in each model.
Based on our audit procedures we determined that the pricing
used to value level 2 and level 3 investments, and related
disclosures were reasonable.
Report on other legal requirements
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence
(article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control
system exists which has been designed for the preparation of consolidated financial statements according to the instructions of
the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
/s/ Nicolas Juillerat
Nicolas Juillerat
Audit expert
PricewaterhouseCoopers AG
/s/ Ray Kunz
Ray Kunz
Audit expert
Auditor in charge
Zurich, March 1, 2019
F-115
CHUBB LIMITED
SWISS STATUTORY FINANCIAL STATEMENTS
December 31, 2018
S-1
December 31
2018
December 31
2017
1
1
128
130
30,402
7,217
9
37,628
37,758
74
949
342
40
1,405
1,405
3
1
10
14
28,974
9,303
10
38,287
38,301
52
532
331
—
915
915
11,587
11,587
12,226
1,045
2,538
(2)
8,679
280
36,353
37,758
13,545
1,039
1,873
(2)
8,804
540
37,386
38,301
SWISS STATUTORY BALANCE SHEETS (Unconsolidated)
Chubb Limited
(in millions of Swiss francs)
Assets
Cash and cash equivalents
Prepaid expenses and other assets
Receivable from subsidiaries
Total current assets
Investments in subsidiaries
Loans to subsidiaries
Other assets
Total non-current assets
Total assets
Liabilities
Accounts payable
Payable to subsidiaries
Capital distribution payable
Deferred unrealized exchange gain
Total short-term liabilities
Total liabilities
Shareholders' equity
Share capital
Statutory capital reserves:
Capital contribution reserves
Reserve for dividends from capital contributions
Reserve for treasury shares
Treasury shares
Statutory retained earnings:
Retained earnings
Profit for the period
Total shareholders' equity
Total liabilities and shareholders' equity
The accompanying notes form an integral part of these statutory financial statements
S-2
SWISS STATUTORY STATEMENTS OF INCOME (Unconsolidated)
Chubb Limited
For the years ended December 31, 2018 and 2017
(in millions of Swiss francs)
Dividend income
Interest income from subsidiaries
Interest (expense) to subsidiaries
Debt guarantee fee income
Administrative and other expenses
Operating results
Interest income (expense) third party only
Foreign exchange translation losses
Earnings before taxes
Tax expense
Profit for the year
The accompanying notes form an integral part of these statutory financial statements
2018
74
312
(16)
33
(107)
296
2
—
298
(18)
280
2017
443
329
—
28
(115)
685
2
(127)
560
(20)
540
S-3
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (continued)
Chubb Limited
1. Basis of presentation
Chubb Limited (Chubb), domiciled in Zurich, Switzerland, is the holding company of Chubb Group (Group) with a listing on the
New York Stock Exchange (NYSE). Chubb's principal activity is the holding of subsidiaries. Revenues consist mainly of dividend
and interest income. The accompanying financial statements comply with Swiss Law. The financial statements present the
financial position of the holding company on a standalone basis and do not represent the consolidated financial position of the
holding company and its subsidiaries.
The financial statements have been prepared in accordance with the provisions of commercial accounting as set out in the
Swiss Code of Obligations (Art. 957 to 963b CO, effective since January 1, 2013).
All amounts in the notes are shown in millions of Swiss francs unless otherwise stated.
2. Significant accounting policies
a) Cash and cash equivalents
Cash and cash equivalents includes cash on hand and deposits with an original maturity of three months or less at time of
purchase.
Chubb and certain of its subsidiaries (participating entities) have agreements with a third-party bank provider which
implemented two international multi-currency notional cash pooling programs. In each program, participating entities establish
deposit accounts in different currencies with the bank provider and each day the credit or debit balances in every account are
notionally translated into a single currency (U.S. dollars) and then notionally pooled. Participants of the notional pool either pay
or receive interest from the third-party bank provider. The bank extends overdraft credit to any participating entity as needed,
provided that the overall notionally-pooled balance of all accounts in each pool at the end of each day is at least zero. Actual
cash balances are not physically converted and are not commingled between legal entities. Any overdraft balances incurred
under this program by a participating entity would be guaranteed by Chubb (up to $300 million in the aggregate). Our
syndicated letter of credit facility allows for same day drawings to fund a net pool overdraft should participating entities
withdraw contributed funds from the pool.
b) Investments in subsidiaries
Investments in subsidiaries are equity interests, which are held on a long-term basis for the purpose of the holding company's
business activities. They are carried at a value no higher than their cost less adjustments for impairment. An impairment
analysis of the investments in subsidiaries is performed on an annual basis.
c) Translation of foreign currencies
The financial statements are translated from U.S. Dollar into Swiss francs using the following exchange rates:
• Investments in subsidiaries at historical exchange rates;
• Other assets and liabilities at period end exchange rates;
• Treasury shares and shareholders' equity at historical exchange rates; and
• Revenues and expenses at average exchange rates.
Exchange losses are recorded in the statement of income and unrealized exchange gains are recorded on the balance sheet and
deferred until realized.
d) Dividend income
Chubb collects dividend income from its direct subsidiaries.
e) Interest income (expense) from subsidiaries
Chubb collects interest income from loans issued to its subsidiaries which are reflected within operating income. Additionally,
Chubb either collects or pays interest related to a reciprocal line of credit with one of its subsidiaries.
f) Debt guarantee fee income
Chubb collects a fee for Chubb's guarantee of the debt issued by one of its subsidiaries.
S-4
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (continued)
Chubb Limited
g) Integration expenses
As part of the January 14, 2016 acquisition of The Chubb Corporation (Chubb Corp), direct costs related to the Chubb Corp
acquisition are expensed as incurred and are reported within Administrative and other expenses. Chubb integration expenses
were CHF 14 million ($14 million) and CHF 31 million ($32 million) for the years ended December 31, 2018 and 2017,
respectively, and include one-time rebranding costs directly attributable to the merger.
3. Commitments, contingencies, and guarantees
a) Letters of credit (LOC)
On October 25, 2017, Chubb entered into a credit facility that provides for up to $1.0 billion of availability, all of which may be
used for the issuance of letters of credit and for revolving loans. Chubb has the ability to increase the capacity under the
existing credit facility to $2.0 billion under certain conditions, but any such increase would not raise the sub-limit for revolving
loans above $1.0 billion. Chubb's existing credit facility has a remaining term expiring in October 2022. At December 31,
2018, Chubb's LOC usage was CHF 391 million ($398 million).
The letter of credit facility required that Chubb maintains certain financial covenants, all of which were met at December 31,
2018.
b) Lease commitments
Chubb leases property under an operating lease which expires in 2023. The following table presents future annual minimum lease
payments as of December 31, 2018.
Year ending December 31
(in millions of Swiss francs)
2019
2020
2021
2022
2023
Thereafter
Total minimum future lease commitments
1.49
1.49
1.49
1.49
1.18
—
7.14
At December 31, 2017, the total minimum future lease commitments were CHF 1.31 million as the prior lease agreement
expired on October 1, 2018.
c) Guarantee of debt
Chubb fully and unconditionally guarantees certain subsidiary debt totaling CHF 12.7 billion ($12.9 billion) and CHF 12.5 billion
($12.9 billion) at December 31, 2018 and 2017, respectively, and receives a fee.
4. Significant investments
a) Share capital:
The following table presents information regarding share capital held of subsidiaries at both December 31, 2018 and 2017.
Amounts are expressed in whole U.S. dollars or Swiss francs.
Holdings as of December 31, 2018 and 2017
Chubb Group Holdings, Inc.
Chubb INA Holdings
Chubb Insurance (Switzerland) Limited
Chubb Reinsurance (Switzerland) Limited
Chubb Group Management and Holdings Ltd.
Country
U.S.A.
U.S.A.
Switzerland
Switzerland
Bermuda
% of
Possession
100%
20%
100%
100%
100%
Currency
Share Capital
Purpose
USD
USD
CHF
CHF
USD
11
1
Holding company
Holding company
100,000,000
Insurance company
44,000,000
Reinsurance
100
Holding company
S-5
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (continued)
Chubb Limited
b) Investments in subsidiaries:
The following table presents information regarding investments in subsidiaries at both December 31, 2018 and 2017.
Investments in subsidiaries increased CHF 1.4 billion ($1.5 billion) in 2018 due to capital contributions primarily to fund the
Chubb share repurchase program executed by Chubb Group Management Holdings Ltd.
(in millions of Swiss francs)
Chubb Group Holdings, Inc.
Chubb INA Holdings
Chubb Group Management Holdings Ltd.
Chubb Insurance (Switzerland) Limited
Chubb Reinsurance (Switzerland) Limited
Balance - end of year
2018
17,004
2,043
10,928
185
242
30,402
2017
17,004
2,043
9,500
185
242
28,974
S-6
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (continued)
Chubb Limited
5. Common Share ownership of the Board of Directors and Group Executives
a) Board of Directors
The following table presents information, at December 31, 2018 and 2017, with respect to the beneficial ownership of
Common Shares by each of our directors. Although Evan G. Greenberg is Chairman of the Board as well as the Chief Executive
Officer, details of Mr. Greenberg's Common share ownership are included in Note 5 b) below. Unless otherwise indicated, the
named individual has sole voting and investment power over the Common Shares listed in the Common Shares Beneficially
Owned column.
Name of Beneficial Owner
Michael G. Atieh (3)
Sheila P. Burke
James Cash
Mary A. Cirillo
Michael P. Connors
John A. Edwardson
Robert M. Hernandez
Leo F. Mullin (4)
Kimberly A. Ross
Robert W. Scully (5)
Eugene B. Shanks, Jr.
Theodore E. Shasta
David H. Sidwell
Olivier Steimer
James Zimmerman
Total
Common
Shares
Restricted
Stock
Units (1)
Restricted
Common
Stock (2)
4,279
5,479
2,079
1,159
1,881
961
20,338
18,661
11,114
10,194
6,827
5,258
62,344
61,424
—
13,213
6,859
5,290
27,052
25,483
8,204
7,284
10,191
9,271
7,985
7,065
15,320
14,176
5,152
4,232
189,625
189,150
34,547
33,822
39,130
38,915
19,317
19,248
14,385
14,083
—
—
—
—
25,244
24,714
—
5,520
—
—
—
—
—
—
—
—
—
—
3,485
3,412
17,078
17,078
153,186
156,792
1,264
1,227
1,264
1,227
1,264
1,227
2,306
2,237
1,264
1,227
2,157
2,093
1,264
1,227
—
1,227
1,264
2,093
2,417
2,093
1,264
1,227
1,264
1,227
1,264
1,227
1,264
1,227
1,264
1,227
20,784
22,013
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
(1) Represents Common Shares that will be issued to the director upon his or her termination from the Board. These Common Shares relate to stock units granted as director's
compensation prior to 2008 and associated dividend reinvestment accruals.
For Ms. Burke and Mr. Cash include deferred stock units and market value units granted prior to the merger that will settle following separation from service. The market value
units includes dividend reinvestment accruals. For Mr. Zimmerman, it includes deferred stock units granted prior to the merger that will settle following separation from service.
(2) Represents Common Shares with respect to which the individual has the power to vote (but not to dispose of).
(3) Mr. Atieh shares with other persons the power to vote and/or dispose of 341 of the Common Shares listed at December 31, 2018 and 2017.
(4)
Mr. Mullin retired from the Board upon the expiration of his term at the May 2018 annual general meeting.
(5) Includes 2,775 shares held by Mr. Scully's daughter, of which Mr. Scully disclaims beneficial ownership.
S-7
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (continued)
Chubb Limited
b) Group Executives
The following table presents information, at December 31, 2018 and 2017, with respect to the beneficial ownership of
Common Shares by each of the following Group Executives. Unless otherwise indicated, the named individual has sole voting
and investment power over the Common Shares listed in the Common Shares Beneficially Owned column.
Name of Beneficial Owner
Evan G. Greenberg (3) (4)
Philip V. Bancroft (5)
John W. Keogh (6)
Joseph Wayland
Total
Common
Shares
Beneficially
Owned
Common
Shares
Subject to
Options (1)
Weighted
Average
Option
Exercise Price
in CHF
1,049,537
941,594
1,042,235
1,019,269
207,900
249,516
126,395
107,941
22,500
16,030
82,377
64,311
183,149
151,847
46,805
33,841
1,406,332
1,253,925
1,415,722
1,269,268
85.46
74.28
108.73
103.58
104.20
99.60
117.40
113.45
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Option
Exercise
Years
4.25
4.25
6.21
6.69
5.85
6.39
6.93
7.49
Restricted
Common
Stock (2)
172,442
175,877
37,466
42,243
79,576
80,485
29,530
28,997
319,014
327,602
(1) Represents Common Shares that the individual has the right to acquire within 60 days of December 31, 2018 and 2017, through option exercises, both vested and unvested.
(2) Represents Common Shares with respect to which the individual has the power to vote (but not to dispose of).
(3) Mr. Greenberg shares with other persons the power to vote and/or dispose of 97,528 and 115,298 of the Common Shares listed at December 31, 2018 and 2017, respectively.
(4) Mr. Greenberg pledged 240,000 Common Shares in connection with a margin account at December 31, 2018 and 2017.
(5) Mr. Bancroft pledged 41,000 Common Shares in connection with a margin account at December 31, 2018 and 2017.
(6) Mr. Keogh shares with other persons the power to vote and/or dispose of 2,702 of the Common Shares listed at December 31, 2018.
6. Shareholders' equity
The following table presents issued, authorized, and conditional share capital, at December 31, 2018 and 2017. Treasury
shares held by Chubb which are issued, but not outstanding totaled 21,902 shares at both December 31, 2018 and 2017. In
addition to the treasury shares held by Chubb, at December 31, 2018 and 2017, subsidiaries of Chubb held 20,558,584
treasury shares at a cost of CHF 2.5 billion ($2.6 billion) and 15,928,783 treasury shares at a cost of CHF 1.9 billion ($1.9
billion), respectively.
Issued share capital
Authorized share capital for general purposes
Conditional share capital for bonds and similar debt instruments
Conditional share capital for employee benefit plans
Year ended December 31
2018
2017
479,783,864
479,783,864
200,000,000
200,000,000
33,000,000
25,410,929
33,000,000
25,410,929
S-8
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (continued)
Chubb Limited
a) Shares authorized and issued
All Common Shares are authorized under Swiss Corporate law. At December 31, 2018 and 2017, Chubb's share capital
consisted of 479,783,864 Common Shares, with a par value of CHF 24.15 per share for both periods. The Board has
shareholder-approved authority as set forth in the Articles of Association to increase for general purposes Chubb's share capital
from time to time until May 17, 2020, by the issuance of up to 200,000,000 fully paid up Common Shares with a par value
equal to the par value of Chubb's Common Shares as set forth in the Articles of Association at the time of any such issuance.
b) Conditional share capital
(i) Conditional share capital for bonds and similar debt instruments
At both December 31, 2018 and 2017, the share capital of Chubb was authorized to be increased through the issuance of a
maximum of 33,000,000 fully paid up shares each with a par value of CHF 24.15 per share through the exercise of conversion
and/or option or warrant rights granted in connection with bonds, notes, or similar instruments, issued or to be issued by
Chubb, including convertible debt instruments.
(ii) Conditional share capital for employee benefit plans
At both December 31, 2018 and 2017, the share capital of Chubb was authorized to be increased through the issuance of a
maximum of 25,410,929 fully paid up shares each with a par value of CHF 24.15 per share in connection with the exercise of
option rights granted to any employee of Chubb or a subsidiary, and any consultant, director, or other person providing services
to Chubb or a subsidiary.
c) Capital contribution reserves
At our May 2017 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.84
per share, which was paid in four quarterly installments of $0.71 per share at dates determined by the Board of Directors
(Board) after the annual general meeting by way of a distribution from capital contribution reserves, transferred to free reserves
for payment.
At our May 2018 annual general meeting, our shareholders approved an annual dividend for the following year of up to $2.92
per share, expected to be paid in four quarterly installments of $0.73 per share after the annual general meeting by way of
distribution from capital contribution reserves, transferred to free reserves for payment. The Board will determine the record and
payment dates at which the annual dividend may be paid until the date of the 2019 annual general meeting, and is authorized
to abstain from distributing a dividend at its discretion. The first three quarterly installments of $0.73 per share have been
distributed by the Board as expected.
The following table presents dividend distributions per Common Share in Swiss francs (CHF) and U.S. dollars (USD) for the
years ended December 31, 2018 and 2017:
Dividends - distributed from Capital contribution reserves
Total dividend distributions per common share
CHF
2.84 $
2.84 $
2018
USD
2.90
2.90
CHF
2.76 $
2.76 $
2017
USD
2.82
2.82
S-9
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (continued)
Chubb Limited
d) Treasury Shares - Reserve for Treasury shares
Treasury shares held by Chubb are carried at the lower of cost or market. Treasury shares held by Chubb totaled 21,902 at a
cost of CHF 1.6 million for both years ended December 31, 2018 and 2017. Treasury shares held by Chubb subsidiaries are
carried at the lower of cost or market. The following table presents a roll-forward of treasury shares held by Chubb subsidiaries
for the years ended December 31, 2018 and 2017:
(cost in millions of Swiss francs)
Balance – beginning of year
Repurchase of shares
Additions related to share-based compensation plans
Redeemed under share-based compensation plans
Balance – end of year
Number of
Shares
15,928,783
7,719,035
1,121,923
2018
Cost
1,871
999
146
Number of
Shares
13,793,246
5,866,612
1,289,422
(4,211,157)
(478)
(5,020,497)
20,558,584
2,538
15,928,783
2017
Cost
1,391
817
173
(510)
1,871
Decreases in treasury shares held by Chubb and its subsidiaries are principally due to issuances of shares upon the exercise of
employee stock options, grants of restricted stock, and purchases under the Employee Stock Purchase Plan (ESPP). Increases
in treasury shares are due to open market repurchases of shares and the surrender of shares to satisfy tax withholding
obligations in connection with the vesting of restricted stock and the forfeiture of unvested restricted stock.
e) Movements in Statutory Retained earnings
(in millions of Swiss francs)
Balance – beginning of year
Attribution to reserve for treasury shares
Profit for the year
Balance – end of year
Year ended December 31
2018
9,344
(665)
280
8,959
2017
9,284
(480)
540
9,344
f) Chubb securities repurchase authorization
From time to time, Chubb repurchases shares as part of our capital management program and to partially offset potential
dilution from the exercise of stock options and the granting of restricted stock under share-based compensation plans. Our
Board of Directors has authorized share repurchase programs as follows:
•
•
•
$1.0 billion of Chubb Common Shares from November 17, 2016 through December 31, 2017
$1.0 billion of Chubb Common Shares from January 1, 2018 through December 31, 2018
$1.5 billion of Chubb Common Shares from December 1, 2018 through December 31, 2019
Share repurchases may be in the open market, in privately negotiated transactions, block trades, accelerated repurchases and/or
through option or other forward transactions.
The following table presents repurchases of Chubb's Common Shares conducted in a series of open market transactions under
the Board authorizations:
(in millions of Swiss francs)
Number of shares repurchased
Cost of shares repurchased
Year ended December 31
2017
2018
7,719,035
5,866,612
999
817
g) General restrictions
Holders of Common Shares are entitled to receive dividends as proposed by the Board and approved by the shareholders.
Holders of Common Shares are allowed one vote per share provided that, if the controlled shares of any shareholder constitute
ten percent or more of the outstanding Common Shares of Chubb, only a fraction of the vote will be allowed so as not to exceed
ten percent. Entry of acquirers of Common Shares as shareholders with voting rights in the share register may be refused if it
S-10
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (continued)
Chubb Limited
would confer voting rights with respect to ten percent or more of the registered share capital recorded in the commercial
register.
7. Significant shareholders
The following table presents information regarding each person, including corporate groups, known to Chubb to own beneficially
or of record more than five percent of Chubb's outstanding Common Shares at December 31, 2018 and December 31, 2017.
Name of Beneficial Owner
Vanguard Group, Inc.
Wellington Management Group, LLP
BlackRock, Inc.
FMR LLC
* Represented less than five percent
8. Other disclosures required by Swiss law
Number of Shares
Beneficially
Owned
38,234,960
31,405,197
31,252,910
2018
Percent of
Class
8.29%
6.82%
6.80%
Number of Shares
Beneficially
Owned
36,217,268
28,209,206
30,206,383
*
*
26,140,134
2017
Percent of
Class
7.80%
6.08%
6.50%
5.63%
a) Expenses
Total personnel expenses amounted to CHF 8.8 million and CHF 10.0 million for the years ended December 31, 2018 and
2017, respectively. The number of full-time positions on an annual average was no more than 50 for years ended December
31, 2018 and 2017.
Total amortization expense related to tangible property amounted to CHF 0.6 million and CHF 0.7 million for the years ended
December 31, 2018 and 2017, respectively.
b) Fees paid to auditors
Fees paid to auditors by Chubb Limited totaled CHF 4.2 million and CHF 3.2 million for the years ended December 31, 2018
and 2017, respectively. An allocation of audit fees for professional services rendered in connection with the integrated audit of
our consolidated financial statements and internal controls over financial reporting and audit fees for the standalone Swiss
statutory financial statements totaled CHF 3.9 million and CHF 2.8 million for the years ended December 31, 2018 and 2017,
respectively. Tax fees totaled CHF 0.3 million and CHF 0.4 million for the years ended December 31, 2018 and 2017,
respectively.
c) Loans to subsidiaries
The following table presents information regarding loans to subsidiaries at December 31, 2018 and 2017. Loans to
subsidiaries decreased CHF 2.1 billion ($2.2 billion) due to a principal repayment in 2018. For additional information regarding
loans to subsidiaries, refer to Note 19 to the Consolidated Financial Statements.
(in millions of Swiss francs)
Loans to Chubb Group Holdings, Inc.
Total loans to subsidiaries
2018
7,217
7,217
2017
9,303
9,303
S-11
NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS (continued)
Chubb Limited
d) Receivables from subsidiaries
The following table presents information regarding receivables from subsidiaries at December 31, 2018 and 2017.
(in millions of Swiss francs)
Receivables from Chubb Group Holdings, Inc.
Receivables from Chubb Group Management and Holdings, Ltd.
Total receivables from subsidiaries
2018
127
1
128
2017
8
2
10
e) Payable to subsidiaries
The following table presents information regarding payables to subsidiaries at December 31, 2018 and 2017, respectively.
(in millions of Swiss francs)
Payable to Chubb Group Holdings, Inc.
Payable to INA Holdings, Inc.
Payable to Chubb Group Management and Holdings, Ltd.
Payable to Chubb Insurance (Switzerland) Ltd.
Total payable to subsidiaries
2018
343
457
137
12
949
2017
289
144
92
7
532
S-12
PROPOSED APPROPRIATION OF AVAILABLE EARNINGS
Chubb Limited
Proposed appropriation of available earnings
Our Board of Directors proposes to the Annual General Meeting that the Company's disposable profit (including the net income
and the other items as shown below) be carried forward. The following table shows the appropriation of available earnings as
proposed by the Board of Directors for the year ended December 31, 2018.
(in millions of Swiss francs)
Balance brought forward
Profit for the year
Attribution to reserve for treasury shares
Balance carried forward
2018
9,344
280
(665)
8,959
2017
9,284
540
(480)
9,344
In order to pay dividends, our Board of Directors proposes that an aggregate amount equal to CHF 2.1 billion be released from
the capital contribution reserves account in 2019 and allocated to a segregated reserve for dividends account (the "Dividend
Reserve"). The Board proposes to distribute a dividend to the shareholders up to an aggregate amount totaling $3.00 per
Common Share from, and limited at a maximum to the amount of, the Dividend Reserve in one or more installments, in such
amounts and on such record and payment dates as determined by the Board in its discretion. If the Board deems it advisable
for the Company, the Board shall be authorized to abstain (in whole or in part) from distributing a dividend in its discretion. The
authorization of the Board to distribute the installments from the Dividend Reserve will expire on the date of the 2020 annual
general meeting, on which date any balance remaining in the Dividend Reserve will be automatically reallocated to the capital
contribution reserves account.
If the Annual General Meeting approves this proposal, our Board currently intends to distribute the dividend in four equal
installments of $0.75 each, on record dates at about the end of June, September, December and March, respectively, with
payment dates about 21 days thereafter.
At December 31, 2018, 479,783,864 of the Company's Common Shares were eligible for dividends.
At the 2018 annual general meeting, the Company’s shareholders approved an aggregate annual dividend by way of a
distribution from Capital contribution reserves, transferred to free reserves at the time of payment in 2018 totaling $2.92 per
Common Share. The annual dividend was payable in four installments, each denominated in CHF but adjusted appropriately so
that the U.S. dollar value of the installment remained at $0.73. The installments were subject to a dividend cap expressed in
CHF which was not reached for 2018.
S-13
REPORT OF THE STATUTORY AUDITOR TO THE GENERAL MEETING OF CHUBB LIMITED, ZURICH ON THE
(SWISS STATUTORY) FINANCIAL STATEMENTS
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Chubb Limited, which comprise the balance sheet as at December 31, 2018,
income statement and notes for the year then ended, including a summary of significant accounting policies (pages S-2 to
S-13).
In our opinion, the accompanying financial statements as at December 31, 2018 comply with Swiss law and the company’s
articles of association.
Basis for opinion
We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions
and standards are further described in the “Auditor’s responsibilities for the audit of the financial statements” section of our
report.
We are independent of the entity in accordance with the provisions of Swiss law and the requirements of the Swiss audit
profession and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period. These matters were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Investments in subsidiaries
As set out in the balance sheet and at footnote 4, the
Company owns five direct subsidiaries as at December 31,
2018 with a total book value of CHF 30.4 billion,
representing 81% of the Company’s total assets.
We focused on this area due to the size of the investments in
subsidiaries relative to the total assets, and the fact that there
is judgment involved in assessing whether the carrying values
of the investments in subsidiaries were impaired.
The Swiss accounting law generally requires an individual
impairment test at the entity or unit of account level.
• We tested the design and operating effectiveness of the
Company’s control over the valuation of investments in
subsidiaries.
• We reviewed the Company’s impairment analyses
performed for the five direct subsidiaries. The assessment
of potential impairment indicators included as a first step
the comparison of the recorded Swiss statutory carrying
value with the net asset value of each subsidiary. In case
the net asset value was smaller than the carrying value, a
secondary, more judgmental, step was followed using
additional valuation techniques, such as a value-in-use
assessment, to assess whether there was any potential
need for impairment.
• Where a value-in-use metric was used, we challenged
management as to whether the input data and
assumptions to their model were reliable and reasonable.
The most important parameters were underwriting
income, investment income and operating expenses.
We concluded that the carrying value of the Company’s
investments in subsidiaries is in line with its accounting policy
and the valuation requirements of the Swiss Code of
Obligations.
S-14
REPORT OF THE STATUTORY AUDITOR TO THE GENERAL MEETING OF CHUBB LIMITED, ZURICH ON THE
(SWISS STATUTORY) FINANCIAL STATEMENTS (continued)
Responsibilities of the Board of Directors for the financial statements
The Board of Directors is responsible for the preparation of the financial statements in accordance with the provisions of Swiss
law and the company’s articles of association, and for such internal control as the Board of Directors determines is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors is responsible for assessing the entity’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless the Board of Directors either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do
so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing
Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
As part of an audit in accordance with Swiss law and Swiss Auditing Standards, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made.
• Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
on the entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the entity to cease to continue as a going concern.
We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during
our audit.
We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors or its relevant committee, we determine those matters that were of
most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
S-15
REPORT OF THE STATUTORY AUDITOR TO THE GENERAL MEETING OF CHUBB LIMITED, ZURICH ON THE
(SWISS STATUTORY) FINANCIAL STATEMENTS (continued)
Report on other legal and regulatory requirements
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control
system exists which has been designed for the preparation of financial statements according to the instructions of the Board of
Directors.
We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of
association. We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers AG
/s/ Ray Kunz
Ray Kunz
Audit expert
Auditor in charge
Zurich, February 27, 2019
/s/ Nicolas Juillerat
Nicholas Juillerat
Audit expert
S-16
CHUBB LIMITED
SWISS STATUTORY COMPENSATION REPORT
December 31, 2018
SC- 1
SWISS STATUTORY COMPENSATION REPORT
A. General
Under the Swiss ordinance against excessive compensation in stock exchange listed companies (the “Ordinance”) and our
Articles of Association, we are required to prepare a separate Swiss Statutory Compensation Report each year that contains
specific items in a presentation format determined by these regulations.
Our Executive Management (as defined under Swiss law) is appointed by our Board and for each of 2018 and 2017 consisted
of Evan G. Greenberg, Chairman, President and Chief Executive Officer; Philip V. Bancroft, Chief Financial Officer; John W.
Keogh, Executive Vice Chairman and Chief Operating Officer; and Joseph F. Wayland, General Counsel and Secretary.
For more detailed information about compensation for our Board of Directors and Executive Management, please review our
Proxy Statement. You may access this report on the Investor Information section of our website at http://investors.chubb.com/
investor-relations/shareholder-resources/shareholder-meeting-materials/default.aspx or by contacting Investor Relations by
telephone, email or mail at:
Telephone:
+1 (212) 827-4400
Email:
Mail:
investorrelations@chubb.com
Investor Relations, Chubb Limited, 1133 Avenue of the Americas, 41st Floor, New York, New York 10036
References in this report to “we,” “our” or “Chubb” are to Chubb Limited.
B. Compensation of the Board of Directors and Executive Management
Basis of Presentation
The following information sets forth the compensation for the years ended December 31, 2018 and 2017, of the members of
the Board and Executive Management for all of the functions that they have performed for Chubb. Compensation of the Board is
paid by Chubb. Compensation of Executive Management is paid by Chubb and the Chubb group entities where they are
employed. Compensation is paid as a combination of both U.S. dollars, our functional reporting currency, with translation of
certain amounts to whole Swiss francs. Where presented, 2018 and 2017 Swiss franc compensation figures have been
translated at the average exchange rates. Swiss franc-equivalent total compensation of the Board and Executive Management is
included in Tables 1 and 2 below. The average exchange rate we used for U.S. dollars into Swiss francs was 0.97804 in 2018
and 0.98461 in 2017.
This report is established in accordance with the provisions of the Ordinance.
Compensation of the Board of Directors
Our directors receive compensation in accordance with our Outside Directors Compensation Parameters. No changes were made
to our Outside Directors Compensation Parameters in 2018. The Board had previously approved changes to the Outside
Directors Compensation Parameters effective as of May 2017 based on, among other things, a comparison of our compensation
structure to that of our competitors and other insurance and similarly-sized companies. The compensation of the Board for the
financial year 2017 set forth in Table 1 is therefore composed of compensation under the prior parameters from January 1 to
the date of our 2017 annual general meeting and compensation under the revised parameters from such date and thereafter.
Director compensation had not been increased for several years prior to the 2017 changes, and director compensation for cash
and equity retainers, as well as certain Committee chair retainers, were below the median of competitors and other insurance
and similarly-sized companies. The following modifications were made in 2017:
•
•
•
•
•
•
increase in the cash retainer from $100,000 to $120,000;
increase in the equity retainer from $160,000 to $170,000;
increase in the Audit Committee Chair retainer from $25,000 to $35.000;
increase in the Compensation Committee Chair retainer from $20,000 to $25,000;
increase in the Risk & Finance Committee Chair retainer from $15,000 to $20,000; and
increase in the Nominating & Governance Committee Chair retainer from $12,000 to $20,000.
SC- 2
SWISS STATUTORY COMPENSATION REPORT (continued)
Non-management directors received $290,000 (CHF 283,633) in 2018 for their service as directors. Chubb paid $170,000
(CHF 166,267) of this fee in the form of restricted stock awards, based on the fair value of Chubb's Common Shares as of the
date of the award, with the remaining portion of the annual fee paid to non-management directors in cash quarterly.
The Lead Director received a retainer of $50,000 (CHF 48,902) in 2018. Committee chairs received Committee chair retainers
as follows:
Audit Committee - $35,000 (CHF 34,232)
Compensation Committee - $25,000 (CHF 24,451)
Nominating & Governance Committee - $20,000 (CHF 19,561)
Risk & Finance Committee - $20,000 (CHF 19,561)
Directors are not paid fees for attending regular Board or committee meetings but, at the discretion of the Chairman of the
Board and the Lead Director, Chubb may pay an additional $2,000 fee for each special meeting attended by telephone and
$3,000 for each special meeting attended in person. Such fees were not paid in 2018.
Directors may elect to receive all of their compensation, other than compensation for special meetings, in the form of restricted
stock awards. Restricted stock awards vest at the following year's annual general meeting.
Chubb’s Corporate Governance Guidelines specify director equity ownership requirements. Chubb awards independent directors
restricted stock awards and mandates minimum equity ownership of $600,000 for outside directors (based on the stock price
on the date of award). Each director has until the fifth anniversary of his or her initial election to the Board to achieve this
minimum. The previously granted restricted stock awards (whether or not vested) will be counted toward achieving this
minimum. Stock options will not be counted toward achieving this minimum.
Once a director has achieved the minimum equity ownership, this requirement will remain satisfied going forward as long as he
or she retains the number of shares valued at the minimum amount based on the New York Stock Exchange closing price for
Chubb’s Common Shares as of the date the minimum threshold is initially met. Any vested shares held by a director in excess of
the minimum share equivalent specified above may be sold at the director's discretion after consultation with Chubb’s General
Counsel.
No compensation was paid to former directors nor did any former director receive any benefits in kind or waivers of claims
during the years ended December 31, 2018 and 2017. During the years ended December 31, 2018 and 2017, no current
directors received benefits in kind or waivers of claims and no compensation had been paid to any related party of current or
former directors, except as noted below with respect to our director charitable contributions program. Additionally, no related
party of current or former directors received any benefits in kind or waivers of claims during 2018 or 2017. At each of
December 31, 2018 and 2017, no current or former directors or any related party of current or former directors had
outstanding loans or credits from Chubb.
Chubb has a matching contribution program for directors under which Chubb will match director charitable contributions to
registered charities, churches, and other places of worship or schools up to a maximum of $20,000 per year. For Swiss law
purposes, some of these matching contributions during the years ended December 31, 2018 and 2017 qualified as related
party transactions under our Related Party Transactions Guidelines because our directors or members of their immediate family
were directors or officers of the charity. Pursuant to this matching charitable contributions program, Chubb matched a total of
$72,000 (CHF 70,419) in contributions to six organizations that fell under our Related Party Transactions Guidelines in 2018
and $47,000 (CHF 46,277) in contributions to five organizations that fell under our Related Party Transactions Guidelines in
2017.
The following table presents information concerning director compensation paid or, in the case of restricted stock awards,
earned in the years ended December 31, 2018 and 2017. Although Evan G. Greenberg is Chairman of the Board, Mr.
Greenberg received no compensation in respect of these duties. Details of Mr. Greenberg's compensation in his capacity as a
member of Executive Management are included in Table 2 below.
SC- 3
SWISS STATUTORY COMPENSATION REPORT (continued)
Table 1 - audited
Name
Michael G. Atieh
Sheila P. Burke
James I. Cash
Mary Cirillo
Year
2018
2017
2018
2017
2018
2017
2018
2017
Michael P. Connors
2018
John A. Edwardson
2017
2018
2017
Robert M. Hernandez
2018
Leo F. Mullin
Kimberly A. Ross
Robert W. Scully
2017
2018
2017
2018
2017
2018
2017
Eugene B. Shanks, Jr. 2018
Theodore E. Shasta
David H. Sidwell
Olivier Steimer
2017
2018
2017
2018
2017
2018
2017
James M. Zimmerman 2018
Total (3)
2017
2018
2017
Member
Chair - Audit
Member
Member
Member
Member
Member
Chair - Nominating &
Governance
Member
Chair - Nominating &
Governance
Member
Chair - Compensation
Member
Chair - Compensation
Member
Member
Lead Director
Lead Director
Retired
Member
Member
Member
Member
Chair - Audit
Member
Member
Member
Member
Member
Member
Member
Member
Chair - Risk & Finance
Member
Chair - Risk & Finance
Board Function
Fees
Earned or Paid
Stock Awards (1)
All Other (2)
Total in USD
Total in CHF
Member
$
128,750 $
170,000 $
98,153 $
396,903
CHF 388,189
147,500
166,250
93,577
407,327
CHF 401,059
120,000
115,000
120,000
115,000
—
—
170,000
166,250
170,000
166,250
29,246
27,882
9,280
8,846
319,246
309,132
299,280
290,096
312,237
304,375
292,709
285,632
310,000
40,870
350,870
343,166
295,750
38,962
334,712
329,562
315,000
308,084
145,000
170,000
138,750
166,250
—
—
170,000
165,000
30,000
115,000
90,000
—
—
—
120,000
115,000
120,000
115,000
120,000
115,000
140,000
290,000
278,750
170,000
166,250
63,750
166,250
215,000
278,750
311,875
278,750
170,000
166,250
170,000
166,250
170,000
166,250
170,000
—
—
—
—
71,872
68,558
16,019
15,272
—
—
—
—
—
—
—
—
—
—
305,000
290,000
278,750
411,872
399,808
109,769
296,522
305,000
278,750
311,875
278,750
290,000
281,250
290,000
281,250
290,000
281,250
300,307
283,633
274,461
402,829
393,656
107,359
291,959
298,303
274,461
305,027
274,461
283,633
276,922
283,633
276,922
283,633
276,922
312,877
304,678
283,633
276,922
9,901
319,901
133,750
166,250
9,439
309,439
Member
Member
120,000
115,000
170,000
166,250
—
—
290,000
281,250
$
$
1,423,750 $
2,890,625 $
275,341 $ 4,589,716
CHF 4,488,945
1,390,000
$
2,960,750
$
262,536
$ 4,613,286
CHF 4,542,299
(1) The Stock Awards column reflects restricted stock awards earned during 2018 and 2017. These stock awards were granted in May 2018 and May 2017, respectively, at the
annual general meetings and vest at the subsequent year's annual general meeting.
(2) The All Other column includes dividend equivalents on our deferred restricted stock units (which we stopped issuing in 2009) held by our longer-serving directors. We issue
stock units equivalent in value to the dividend payments that those directors would have received if they held stock.
Ms. Burke and Mr. Cash received deferred Market Value Units from The Chubb Corporation prior to its acquisition by us in January 2016. Each unit has the equivalent value of
one share of our common stock. These units are credited with market value units equivalent in value to the dividend payments they would have received if they held stock.
(3) Total director compensation in 2018 reflects one less director for a portion of the year compared to 2017 as a result of the retirement of Leo F. Mullin as of the date of the May
2018 annual general meeting of shareholders.
SC- 4
SWISS STATUTORY COMPENSATION REPORT (continued)
Compensation of Executive Management
The following table presents information concerning Executive Management’s 2018 and 2017 compensation.
Table 2 - audited
Name and
Principal Position
Evan G.
Greenberg
Chairman,
President and
Chief Executive
Officer, Chubb
Limited (highest
paid executive)
All Other
Executive
Management
Year
Salary
Bonus
Stock
Awards (1)
Option
Awards (2)
All Other
Compensation (3)
Total in USD
Total in CHF
2018
$ 1,400,000 $ 6,100,000
$ 9,225,174 $ 1,881,925 $
1,246,474 $ 19,853,573
CHF 19,417,589
2017
1,400,000
5,500,000
8,849,881
2,761,129
1,183,046
19,694,056
CHF 19,391,024
2018
$ 2,523,193 $ 4,634,800
$ 6,425,985 $ 1,280,174 $
1,229,301 $ 16,093,453
CHF 15,740,041
2017
2,432,212
4,362,000
5,930,968
1,850,407
1,246,688
15,822,275
CHF 15,578,817
Total
2018
$ 3,923,193 $10,734,800 $ 15,651,159 $ 3,162,099 $
2,475,775 $ 35,947,026
CHF 35,157,629
2017
$ 3,832,212
$ 9,862,000
$ 14,780,849
$ 4,611,536
$
2,429,734
$ 35,516,331
CHF 34,969,841
(1) The Stock Awards column discloses the fair value of the restricted stock awards granted on February 28, 2019 for 2018 and February 22, 2018 for 2017, respectively. This
column includes time-based and performance-based restricted stock awards. In comparison, the Summary Compensation Table in the Company's annual proxy statement
(unaudited) discloses equity grants for a particular fiscal year based on the grants made during that fiscal year.
(2) The Option Awards column discloses the fair value of the stock options granted on February 28, 2019 for 2018 and February 22, 2018 for 2017. In comparison, the Summary
Compensation Table in the Company's annual proxy statement (unaudited) discloses equity grants for a particular fiscal year based on the grants made during that fiscal year.
(3) All Other Compensation column includes perquisites and other personal benefits, consisting of the following:
For Mr. Greenberg, contributions to retirement plans of $828,000 (CHF 809,820) in 2018 and $960,000 (CHF 945,228) in 2017, personal use of corporate aircraft of
$378,929 (CHF 370,609) in 2018 and $188,405 (CHF 185,506) in 2017, and miscellaneous other benefits of $39,545 (CHF 38,677) in 2018 and $34,641 (CHF 34,108)
in 2017, including executive medical coverage and matching contributions made under our matching charitable contributions program. The Board required Mr. Greenberg to
use corporate aircraft for all travel whenever practicable for security reasons.
For the other members of Executive Management, contributions to retirement plans, personal use of corporate aircraft and corporate apartment, and miscellaneous other benefits,
including, as applicable, club memberships, financial planning, executive medical coverage, matching contributions made under our matching charitable contributions program,
car allowance or car lease and car maintenance allowance.
Personal use of the corporate aircraft was limited to space available on normally scheduled management business flights.
Other personal benefits including housing allowances and cost of living allowance.
In 2018 and 2017, housing allowances were provided to Mr. Bancroft because Chubb requires him to maintain a second residence in addition to maintaining his own personal
residence.
Contributions to retirement plans for 2018 and 2017 totaled $1.55 million (CHF 1.51 million) in 2018 and $1.72 million (CHF 1.69 million) in 2017, respectively. These
consist of discretionary and non-discretionary employer contributions. The discretionary employer contributions for 2018 have been calculated and are expected to be paid in
April 2019.
No former member of Executive Management or any related party of current or former Executive Management received non-
market standard compensation from Chubb during each of the years ended December 31, 2018 and 2017. Additionally, no
current or former member of Executive Management or any related party thereto received benefits in kind or waivers of claims
during 2018 or 2017 other than as described in the footnotes to Table 2.
At each of December 31, 2018 and 2017, no current or former member of Executive Management or any related party of a
current or former member of Executive Management had outstanding loans or credits from Chubb.
SC- 5
REPORT OF THE STATUTORY AUDITOR TO THE GENERAL MEETING OF CHUBB LIMITED, ZURICH ON
THE (SWISS STATUTORY) COMPENSATION REPORT
Report of the statutory auditor on the compensation report
We have audited the accompanying compensation report of Chubb Limited for the year ended December 31, 2018. The audit
was limited to the information according to articles 14-16 of the Ordinance against Excessive Compensation in Stock Exchange
Listed Companies (Ordinance) contained in Table 1 and Table 2 of the compensation report.
Board of Directors’ responsibility
The Board of Directors is responsible for the preparation and overall fair presentation of the compensation report in accordance
with Swiss law and the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordinance). The
Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages.
Auditor’s responsibility
Our responsibility is to express an opinion on the accompanying compensation report. We conducted our audit in accordance
with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the compensation report complies with Swiss law and articles 14-16 of the
Ordinance.
An audit involves performing procedures to obtain audit evidence on the disclosures made in the compensation report with
regard to compensation, loans and credits in accordance with articles 14-16 of the Ordinance. The procedures selected depend
on the auditor’s judgment, including the assessment of the risks of material misstatements in the compensation report, whether
due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of
remuneration, as well as assessing the overall presentation of the compensation report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the compensation report of Chubb Limited for the year ended December 31, 2018 complies with Swiss law and
articles 14-16 of the Ordinance.
PricewaterhouseCoopers AG
/s/ Ray Kunz
Ray Kunz
Audit expert
Auditor in charge
Zurich, March 20, 2019
/s/ Nicolas Juillerat
Nicolas Juillerat
Audit expert
SC- 6
ENVIRONMENTAL STATEMENT
Chubb Greenhouse Gas Reduction Programs
As an insurance company, Chubb’s environmental footprint is relatively modest, but through our Corporate Greenhouse Gas
Inventory Program and Corporate Environmental Strategy, we work to reduce it even further. Some of the primary objectives of our
environmental strategy are to measure, record and reduce Chubb’s corporate GHG emissions.
In 2007, Chubb joined the voluntary U.S. Environmental Protection Agency (EPA)-sponsored Climate Leaders program, through which
the company was able to develop long-term, comprehensive climate change strategies, inventory its emissions and set a six-year GHG
reduction goal of 8% per employee. While the EPA program was discontinued in September 2011, Chubb’s Corporate GHG Inventory
Program remains active using its methodology, which is based on the World Resources Institute and the World Business Council for
Sustainable Development (WRI/WBCSD) GHG Protocol for data collection and analysis. In 2012, Chubb successfully met its first
generation GHG reduction goal with a 27% reduction in emissions per employee since 2006. In order to continue Chubb’s global
commitment to reducing its environmental footprint, a new GHG reduction target was announced in September of 2014 to reduce
emissions 10% per employee by 2020 from a 2012 base year. From 2015 to 2018, Chubb reduced its global absolute GHG emissions
by 21%.
Chubb 2018 GHG Inventory Data
Global Absolute Emissions (CO2-eq.)
2018
71,488
The data above represent 26,048 metric tons of CO2-eq. of Scope 1 emissions from fossil fuel combustion; 47,190 metric tons of
CO2-eq. of location-based Scope 2 emissions; and 45,440 metric tons of CO2-eq. of market-based Scope 2 emissions from
purchased electricity. Chubb’s GHG emissions data are reviewed by a third-party on an annual basis. The company’s most recent
2018 GHG inventory was reviewed by Bureau Veritas and the verification statement can be found on the following page.
In addition to tracking GHG emissions versus its goals, Chubb reports its GHG emissions data to the CDP, an organization that scores
carbon emissions information from thousands of corporations on behalf of the global investment community. In 2018, Chubb’s
response to the questionnaire resulted in a score of B.
Chubb’s Global GHG Management Plan concentrates primarily on reducing energy consumption at the facility level – specifically,
in owned buildings and larger, long-term leased spaces. Projects have been implemented at a number of major offices including:
Philadelphia, Pa.; Wilmington, Del.; Whitehouse Station, N.J.; Hamilton, Bermuda; Sydney, Australia; the Chubb Conference
Center, Lafayette Hill, Pa.; London, U.K.; and Monterrey, Mexico. The projects include installation of new HVAC equipment,
lighting upgrades and installation of a central building automation system (BAS) in order to improve operations within the building
and reduce energy consumption.
In Chubb’s office building in Philadelphia, the company has reduced energy consumption by over 20% since 2006 through the
installation of new boilers and LED lighting, the use of variable speed drive HVAC equipment and installation of an exhaust energy
recovery ventilator. Through these steps, the company earned LEED Silver certification in 2009 and was awarded LEED Gold
certification in 2014. It was also awarded Energy Star Certification by the U.S. EPA in 2016.
In July 2011, the company’s Bermuda office building was awarded LEED Gold certification – the first building in Bermuda to be
awarded the designation – due in large part to a re-lamping of office lights, applying a floating temperature set point and installing
motion sensors and timers on office equipment. These actions reduced electrical needs by approximately 500,000 kWh (358 metric
tons CO2e) per year. In 2014, the company engaged with the U.S. Green Building Council (USGBC) and the Bermuda facility became
one of the first buildings using LEED Dynamic Plaque, a tool that continuously monitors and encourages improvement of overall
building performance. The building was re-certified with LEED Gold using LEED Dynamic Plaque in 2019.
Information about Chubb’s full range of environmental efforts, including insurance solutions to help customers manage their
environmental and climate change risks, corporate initiatives to control our own ecological impact and philanthropic actions in
support of environmental causes, can be found in the company’s annual Environmental Report, which is available at
https://www.chubb.com/environment.
E-1
VERIFICATION STATEMENT
GREENHOUSE GAS EMISSIONS
Bureau Veritas North America, Inc. (BVNA) was engaged to provide
Limited Assurance and conduct an independent verification of the
greenhouse gas (GHG) emissions and energy consumption reported by
Chubb from January 1, 2018 to December 31, 2018. This Verification
Statement applies to the related information included within the scope of
work described below.
The determination of the GHG emissions is the sole responsibility of
Chubb. BVNA was not involved in determining the GHG emissions. Our
sole responsibility was to provide independent verification on the
accuracy of the GHG emissions reported, and on the underlying systems
and processes used to collect, analyze and review the information.
Boundaries of the reporting company GHG emissions covered by
the verification:
Operational Control
Global
Emissions verified in Metric tonnes of CO2-equivalent (tCO2e):
Scope 1 Emissions: 26,048
Scope 2 Emissions (Location-Based): 47,190
Scope 2 Emissions (Market-Based): 45,440
Review of documentary evidence produced by Chubb;
Review of Chubb data and information systems and methodology
for collection, aggregation, analysis and review of information used
to determine GHG emissions;
Audit of samples of data used by Chubb to determine GHG
emissions.
Assurance Opinion:
Based on the results of our verification process, BVNA provides Limited
Assurance of the GHG emissions and energy assertion shown above,
and found no evidence that the assertion:
is not materially correct;
is not a fair representation of the GHG emissions and energy
data and information; and
is not prepared in accordance with the WRI/WBCSD GHG
Protocol Corporate Accounting and Reporting Standard.
It is our opinion that Chubb has established appropriate systems for the
collection, aggregation and analysis of quantitative data for determination
of GHG emissions for the stated period and boundaries.
Scope 3 Emissions (Business Air & Rail Travel): 17,310
Statement of independence, impartiality and competence
Data and information supporting the Scope 1 & Scope 2 GHG emissions
were historical in nature and in some cases estimated, based on
historical data for similar properties in similar locations. Data and
information supporting the Scope 3 GHG emissions assertion were in
some cases estimated rather than historical in nature.
Period covered by GHG emissions verification:
January 1, 2018 to December 31, 2018
The Bureau Veritas Group is an independent professional services
company
in Quality, Health, Safety, Social and
Environmental management with over 180 years history in providing
independent assurance services.
that specializes
No member of the verification team has a business relationship with
this
Chubb,
assignment. We conducted this verification independently and to our
knowledge there has been no conflict of interest.
its Directors or Managers beyond
that required of
Reporting Protocols against which verification was conducted:
World Resources Institute (WRI)/World Business Council for
Sustainable Development (WBCSD) Greenhouse Gas
Protocol, Corporate Accounting and Reporting Standard
(Scope 1 & 2)
WRI/WBCSD Corporate Value Chain (Scope 3) Accounting
and Reporting Standard (Scope 3)
BVNA has implemented a Code of Ethics across the business to
maintain high ethical standards among staff in their day-to-day business
activities.
The verification team has extensive experience in conducting assurance
over environmental, social, ethical and health and safety information,
systems and processes, has over 20 years combined experience in this
field and an excellent understanding of BVNA standard methodology for
the verification of greenhouse gas emissions data.
GHG Verification Protocols used to conduct the verification:
Attestation:
ISO 14064-3: Greenhouse gases -- Part 3: Specification with
guidance for the validation and verification of greenhouse gas
assertions
Level of Assurance and Qualifications:
Limited
Materiality Threshold: ±5%
Verification Methodology:
Interviews with relevant personnel of Chubb;
Trevor A. Donaghu, Lead Verifier
Program Manager, Sustainability and Climate Change Services
Bureau Veritas North America, Inc.
March 18, 2019
This verification statement, including the opinion expressed herein, is provided to Chubb and is solely for the benefit of Chubb in accordance with the terms of
our agreement. We consent to the release of this statement by you to the CDP in order to satisfy the terms of CDP disclosure requirements but without
accepting or assuming any responsibility or liability on our part to CDP or to any other party who may have access to this statement.
B u r e a u V e r i t a s N o r t h A m e r i c a , I n c .
Health, Safety and Environmental Services
E-2
Main : (925) 426.2600
www.BureauVeritasHSE.com
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Financial Summary
Chairman and CEO Letter to Shareholders
Review of Operations
Citizenship at Chubb
Chubb Group Corporate Offi cers and Other Executives
Chubb Limited Board of Directors
Shareholder Information
Non–GAAP Financial Measures
Form 10–K
Swiss Statutory Financial Statements
Swiss Statutory Compensation Report
Environmental Statement
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Chubb Limited
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CH—8001 Zurich
Switzerland
chubb.com
Chubb Limited
Chubb Limited
Annual Report
Annual Report
2018
2018
002CSN9C06