CHUBB LTD, 10-Q filed on 4/29/2020
Quarterly Report
v3.20.1
Document and Entity Information - SFr / shares
3 Months Ended
Mar. 31, 2020
Apr. 17, 2020
Dec. 31, 2019
Document Type 10-Q    
Document Period End Date Mar. 31, 2020    
Document Quarterly Report true    
Document Transition Report false    
Entity Registrant Name Chubb Ltd    
Entity Central Index Key 0000896159    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus Q1    
Entity File Number 1-11778    
Entity Incorporation, State or Country Code V8    
Entity Tax Identification Number 98-0091805    
Entity Address, Address Line One Baerengasse 32    
Entity Address, City or Town Zurich    
Entity Address, Country CH    
Entity Address, Postal Zip Code 8001    
Country Region 41    
City Area Code (0)43    
Local Phone Number 456 76 00    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Shell Company false    
Entity Emerging Growth Company false    
Common Shares, par value SFr 24.15   SFr 24.15
Common Shares Outstanding   451,357,210  
Current Fiscal Year End Date --12-31    
Amendment Flag false    
Document Transition Report false    
Common Class A [Member]      
Title of 12(b) Security Common Shares, par value CHF 24.15 per share    
Trading Symbol CB    
Security Exchange Name NYSE    
INA Senior Notes Due December 2024 [Member]      
Title of 12(b) Security Guarantee of Chubb INA Holdings Inc. 0.30% Senior Notes due 2024    
Trading Symbol CB/24A    
Security Exchange Name NYSE    
INA Senior Notes Due June 2027 [Member]      
Title of 12(b) Security Guarantee of Chubb INA Holdings Inc. 0.875% Senior Notes due 2027    
Trading Symbol CB/27    
Security Exchange Name NYSE    
INA Senior Notes Due March 2028 [Member]      
Title of 12(b) Security Guarantee of Chubb INA Holdings Inc. 1.55% Senior Notes due 2028    
Trading Symbol CB/28    
Security Exchange Name NYSE    
INA Senior Notes Due December 2029 [Member]      
Title of 12(b) Security Guarantee of Chubb INA Holdings Inc. 0.875% Senior Notes due 2029    
Trading Symbol CB/29A    
Security Exchange Name NYSE    
INA Senior Notes Due June 2031 [Member]      
Title of 12(b) Security Guarantee of Chubb INA Holdings Inc. 1.40% Senior Notes due 2031    
Trading Symbol CB/31    
Security Exchange Name NYSE    
INA Senior Notes Due March 2038 [Member]      
Title of 12(b) Security Guarantee of Chubb INA Holdings Inc. 2.50% Senior Notes due 2038    
Trading Symbol CB/38A    
Security Exchange Name NYSE    
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Assets    
Fixed maturities available for sale, at fair value, net of valuation allowance - $176 at March 31, 2020 (amortized cost – $80,959 and $82,580) $ 81,530 $ 85,488
Fixed maturities held to maturity, at amortized cost, net of valuation allowance 12,025  
Fixed maturities held to maturity, at amortized cost, net of valuation allowance - $45 at March 31, 2020 (fair value – $12,471 and $13,005) 12,070 12,581
Equity securities, at fair value 2,068 812
Short-term investments, at fair value (amortized cost - $3,582 and $4,291) 3,586 4,291
Other investments, at fair value 6,075 6,062
Total investments 105,284 109,234
Cash 1,512 [1] 1,537 [2]
Restricted cash 146 109
Securities lending collateral 1,342 994
Accrued investment income 839 867
Insurance and reinsurance balances receivable 10,058 10,357
Reinsurance recoverable on losses and loss expenses, net of valuation allowance - $305 and $316 14,898 15,181
Reinsurance recoverable on policy benefits 196 197
Deferred policy acquisition costs 5,162 5,242
Value of business acquired 289 306
Goodwill 14,971 15,296
Other intangible assets 5,902 6,063
Prepaid reinsurance premiums 2,570 2,647
Investments in partially-owned insurance companies 1,346 1,332
Other assets 8,612 7,581
Total assets 173,127 176,943
Liabilities    
Unpaid losses and loss expenses 62,214 62,690
Unearned premiums 16,459 16,771
Future policy benefits 5,776 5,814
Insurance and reinsurance balances payable 6,084 6,184
Securities lending payable 1,342 994
Accounts payable, accrued expenses, and other liabilities 12,055 11,773
Deferred tax liabilities 474 804
Repurchase agreements 1,408 1,416
Short-term debt 1,300 1,299
Long-term debt 13,510 13,559
Trust preferred securities 308 308
Total liabilities 120,930 121,612
Commitments and contingencies (refer to Note 7)
Shareholders’ equity    
Common Shares (CHF 24.15 par value; 479,783,864 shares issued; 451,367,782 and 451,971,567 shares outstanding) 11,121 11,121
Common Shares in treasury (28,416,082 and 27,812,297 shares) (3,872) (3,754)
Additional Paid in Capital, Common Stock 10,710 11,203
Retained earnings 36,331 36,142
Accumulated other comprehensive income (loss) (AOCI) (2,093) 619
Total shareholders’ equity 52,197 55,331
Total liabilities and shareholders’ equity $ 173,127 $ 176,943
[1]
Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At March 31, 2020, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
[2]
Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to the 2019 Form 10-K for additional information.
v3.20.1
Consolidated Balance Sheets (Parenthetical)
$ in Millions
Mar. 31, 2020
USD ($)
shares
Dec. 31, 2019
USD ($)
shares
Statement of Financial Position [Abstract]    
Available for sale, at amortized cost $ 80,959 $ 82,580
Debt Securities, Available-for-sale, Allowance for Credit Loss 176 0
Held to maturity, at Fair Value 12,471 13,005
Debt Securities, Held-to-maturity, Allowance for Credit Loss 45 0
short-term investments amortized cost 3,582 4,291
Reinsurance Recoverable, Allowance for Credit Loss $ 305 $ 316
Common Shares, shares issued | shares 479,783,864 479,783,864
Common Shares, shares outstanding | shares 451,367,782 451,971,567
Common Shares in treasury, shares | shares 28,416,082 27,812,297
v3.20.1
Consolidated Statements Of Operations and Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenues    
Net premiums written $ 7,977 $ 7,313
Increase in unearned premiums (183) (176)
Net premiums earned 7,794 7,137
Net investment income 861 836
Net realized gains (losses):    
Other-than-temporary impairment (OTTI) losses gross 0 (13)
Portion of OTTI losses recognized in other comprehensive income (OCI) 0 0
Net OTTI losses recognized in income 0 (13)
Net realized gains (losses) excluding OTTI losses 0 (84)
Net Realized Gains Losses (958) (97)
Total revenues 7,697 7,876
Expenses    
Losses and loss expenses 4,485 4,098
Policy benefits 129 196
Policy acquisition costs 1,615 1,464
Administrative expenses 741 710
Interest expense 132 140
Other (income) expense 55 (39)
Amortization of purchased intangibles 73 76
Chubb integration expenses 0 3
Total expenses 7,230 6,648
Income before income tax 467 1,228
Income tax expense (benefit) (includes $(40) and $(6) on reclassified unrealized gains and losses) 215 188
Net income 252 1,040
Other comprehensive income (loss)    
Unrealized appreciation (depreciation) (2,479) 1,845
Reclassification adjustment for net realized (gains) losses included in net income 319 44
Unrealized appreciation (Depreciation) after reclassification adjustment (2,160) 1,889
Change in:    
Cumulative foreign currency translation adjustment (859) 147
Postretirement benefit liability adjustment (14) (27)
Other comprehensive income (loss), before income tax (3,033) 2,009
Income tax (expense) benefit related to OCI items 321 (331)
Other comprehensive income (loss) (2,712) 1,678
Comprehensive income (loss) $ (2,460) $ 2,718
Earnings per share    
Basic earnings per share $ 0.56 $ 2.27
Diluted earnings per share $ 0.55 $ 2.25
v3.20.1
Consolidated Statements of Operations and Comprehensive Income (Parenthetical) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Total net realized gains (losses) reclassified from AOCI $ (319) $ (44)
Income tax expense on reclassified unrealized gains and loses $ (40) $ (6)
v3.20.1
Consolidated Statements Of Shareholders' Equity - USD ($)
$ in Millions
Total
Common Stock [Member]
Common shares in treasury [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-sale, Parent [Member]
Cumulative Foreign Currency Translation Adjustment [Member]
Postretirement Benefit Liability Adjustment [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Balance - beginning of period at Dec. 31, 2018   $ 11,121 $ (2,618) $ 12,557 $ 31,688 $ (545) $ (1,976) $ 73  
Balance - beginning of period (Previous Accounting Guidance [Member]) at Dec. 31, 2018         31,700        
Balance - beginning of period (Accounting Standards Update 2017-08 [Member]) at Dec. 31, 2018         (12)        
Common Shares repurchased     (367)            
Net shares redeemed under employee share-based compensation plans     210 (191)          
Exercise of stock options       (34)          
Share-based compensation expense       54          
Adjustments to Additional Paid in Capital, Dividends in Excess of Retained Earnings       (335)          
Net income (loss) $ 1,040       1,040        
Funding of dividends declared from Additional paid-in capital         (335)        
Dividends declared on Common Shares         (335)        
Change in period, before reclassification from AOCI, net of income tax (expense) benefit of $324 and $(324)           1,521      
Amounts reclassified from AOCI, net of income tax expense of $(40) and $(6)           38      
Change in period, net of income tax (expense) benefit of $284 and $(330)           1,559      
Change in period, net of income tax (expense) benefit of $34 and $(7)             140    
Change in period, net of income tax benefit of $3 and $6               (21)  
Balance - end of period at Mar. 31, 2019 52,355 11,121 (2,775) 12,051 32,728 1,014 (1,836) 52 $ (770)
Balance - beginning of period at Dec. 31, 2019 55,331 11,121 (3,754) 11,203 36,079 2,543 (1,939) 15  
Balance - beginning of period (Previous Accounting Guidance [Member]) at Dec. 31, 2019         36,142        
Balance - beginning of period (Accounting Standards Update 2016-13 [Member]) at Dec. 31, 2019         (63)        
Common Shares repurchased     (326)            
Net shares redeemed under employee share-based compensation plans     208 (196)          
Exercise of stock options       (26)          
Share-based compensation expense       69          
Adjustments to Additional Paid in Capital, Dividends in Excess of Retained Earnings       (340)          
Net income (loss) 252       252        
Funding of dividends declared from Additional paid-in capital         (340)        
Dividends declared on Common Shares         (340)        
Change in period, before reclassification from AOCI, net of income tax (expense) benefit of $324 and $(324)           (2,155)      
Amounts reclassified from AOCI, net of income tax expense of $(40) and $(6)           279      
Change in period, net of income tax (expense) benefit of $284 and $(330)           (1,876)      
Change in period, net of income tax (expense) benefit of $34 and $(7)             (825)    
Change in period, net of income tax benefit of $3 and $6               (11)  
Balance - end of period at Mar. 31, 2020 $ 52,197 $ 11,121 $ (3,872) $ 10,710 36,331 $ 667 $ (2,764) $ 4 $ (2,093)
Balance - end of period (Accounting Standards Update 2016-13 [Member]) at Mar. 31, 2020         $ (63)        
v3.20.1
Consolidated Statements Of Shareholders' Equity (Parenthetical) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]    
Other Comprehensive Income (Loss), Available-for-sale Securities, before Reclassification Adjustments, Tax $ 324 $ (324)
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax (40) (6)
Net unrealized appreciation on investments, Change in period, income tax (expense) benefit 284 (330)
Cumulative translation adjustment, Change in period, income tax(expense) benefit 34 (7)
Pension liability adjustment, Change in period, income tax (expense) benefit $ 3 $ 6
v3.20.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities    
Net income $ 252 $ 1,040
Adjustments to reconcile net income to net cash flows from operating activities    
Net realized (gains) losses 958 97
Amortization of premiums/discounts on fixed maturities 87 118
Amortization of purchased intangibles 73 76
Deferred income taxes (13) (76)
Unpaid losses and loss expenses 228 62
Unearned premiums 192 274
Future policy benefits 31 41
Insurance and reinsurance balances payable 2 13
Accounts payable, accrued expenses, and other liabilities (392) (502)
Income taxes payable 109 266
Insurance and reinsurance balances receivable (6) 278
Reinsurance recoverable 116 (97)
Deferred policy acquisition costs (65) (63)
Other 140 (205)
Net cash flows from operating activities 1,712 1,322
Cash flows from investing activities    
Purchases of fixed maturities available for sale (6,474) (5,561)
Purchases of fixed maturities held to maturity (6) (1)
Purchases of equity securities (1,380) (49)
Sales of fixed maturities available for sale 4,687 3,287
Sales of to be announced mortgage-backed securities 0 6
Sales of equity securities 131 60
Maturities and redemptions of fixed maturities available for sale 2,756 1,831
Maturities and redemptions of fixed maturities held to maturity 440 280
Net change in short-term investments 552 (39)
Net derivative instruments settlements 109 (358)
Private equity contribution (361) (410)
Private equity distribution 211 368
Payments for Other Deposits 1,550 0
Other (125) (87)
Net cash flows used for investing activities (1,010) (673)
Cash flows from financing activities    
Dividends paid on Common Shares (339) (336)
Common Shares repurchased (323) (367)
Proceeds from issuance of repurchase agreements 952 471
Repayment of repurchase agreements (952) (470)
Proceeds from share-based compensation plans 47 35
Policyholder contract deposits 135 115
Policyholder contract withdrawals (162) (78)
Proceeds from (Payments for) Other Financing Activities (3) 0
Net cash flows used for financing activities (645) (630)
Effect of foreign currency rate changes on cash and restricted cash (45) 34
Net increase (decrease) in cash and restricted cash 12 53
Cash and restricted cash - beginning of period 1,646 [1] 1,340 [2]
Cash and restricted cash - end of period 1,658 [1] 1,393 [2]
Supplemental cash flow information    
Taxes paid 107 14
Interest paid $ 91 $ 85
[1]
Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At March 31, 2020 and December 31, 2019, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
[2]
Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At March 31, 2019 and December 31, 2018, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
v3.20.1
General
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
General General

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 11 for additional information.

The interim unaudited 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 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 results of operations and cash flows for any interim period are not necessarily indicative of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2019 Form 10-K.

b) 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.

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:
 
March 31

 
December 31

(in millions of U.S. dollars)
2020

 
2019

Cash
$
1,512

 
$
1,537

Restricted cash
146

 
109

Total cash and restricted cash shown in the Consolidated statements of cash flows
$
1,658

 
$
1,646



c) Goodwill
During the three months ended March 31, 2020, Goodwill decreased $325 million, primarily reflecting the impact of foreign exchange.

d) Accounting guidance adopted in 2020
Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments
Effective January 1, 2020, we adopted, on a modified retrospective basis, new 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 considers historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. In addition, the guidance also replaced the current available for sale (AFS) 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 security has been below its amortized cost no longer impacts the determination of whether a potential credit loss exists. The AFS security model also requires the use of a valuation allowance as compared to the previous practice of writing down the asset.

During the first quarter of 2020, we established a valuation allowance for credit losses and recognized a cumulative effect adjustment and decreased beginning retained earnings by $69 million pre-tax, or $63 million after-tax. We also adopted the required disclosures within Note 3 Investments and Note 5 Reinsurance. Results for reporting periods prior to January 1, 2020 are presented in accordance with the previous guidance.
Accounting guidance not yet adopted
Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying GAAP to investments, derivatives, or other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Along with the optional expedients, the amendments include a general principle that permits an entity to consider contract modifications due to reference reform to be an event that does not require contract re-measurement at the modification date or reassessment of a previous accounting determination. Additionally, a company may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that were classified as held to maturity before January 1, 2020. This standard may be elected over time through December 31, 2022 as reference rate reform activities occur. We are currently assessing the effect of adopting this guidance on our financial condition and results of operations.

Refer to the 2019 Form 10-K for information on additional accounting guidance not yet adopted.
v3.20.1
Acquisitions
3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
Acquisitions Acquisitions

Huatai Group
Chubb maintains a direct investment in Huatai Insurance Group Company Limited (Huatai Group). Huatai Group is the parent company of, and owns 100 percent of, Huatai Property & Casualty Insurance Co., Ltd. (Huatai P&C) and approximately 80 percent of Huatai Life Insurance Co., Ltd. (Huatai Life). As of March 31, 2020 Chubb's aggregate ownership interest in Huatai Group was 30.9 percent. Chubb applies the equity method of accounting to its investment in Huatai Group by recording its share of net income or loss in Other (income) expense in the Consolidated statements of operations.
In 2019, Chubb entered into agreements to acquire an additional 22.4 percent ownership in Huatai Group for approximately $1.55 billion through two separate purchases, a 15.3 percent ownership interest for approximately $1.1 billion and a 7.1 percent ownership interest for approximately $493 million. These purchases are contingent upon Chinese insurance regulatory approval and other important conditions that are expected to be completed by the end of 2021. The purchase of the 7.1 percent ownership stake is also contingent upon the receipt of Chinese insurance regulatory approval of the 15.3 percent purchase.
In connection with these purchase agreements, in January 2020, we paid collateralized deposits totaling $1.55 billion to the selling shareholders. This transaction was recorded to Other assets on the Consolidated balance sheet and within investing activities on the Consolidated statement of cash flows.
Upon completion of the 7.1 percent purchase, which will result in majority ownership of Huatai Group at 53.3 percent, Chubb is expected to obtain control of Huatai Group, Huatai P&C and Huatai Life. At that time, Chubb is expected to apply consolidation accounting and discontinue the application of the equity method of accounting.
v3.20.1
Investments
3 Months Ended
Mar. 31, 2020
Investments, Debt and Equity Securities [Abstract]  
Investments Investments

a) Fixed maturities
Effective January 1, 2020, we adopted new accounting guidance that requires a valuation allowance for credit losses to be established for fixed maturity securities classified as held to maturity (HTM) or available for sale (AFS). For information on accounting policies applicable to periods prior to January 1, 2020, refer to the 2019 Form 10-K.
March 31, 2020
Amortized
Cost

 
Valuation Allowance

 
Gross
Unrealized
Appreciation

 
Gross
Unrealized
Depreciation

 
Fair
Value

 
 
(in millions of U.S. dollars)
 
 
 
Available for sale
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
2,773

 
$

 
$
240

 
$

 
$
3,013

 


Foreign
22,615

 
(44
)
 
850

 
(577
)
 
22,844

 


Corporate securities
31,530

 
(132
)
 
644

 
(1,374
)
 
30,668

 


Mortgage-backed securities
17,073

 

 
864

 
(52
)
 
17,885

 


States, municipalities, and political subdivisions
6,968

 

 
169

 
(17
)
 
7,120

 


 
$
80,959

 
$
(176
)
 
$
2,767

 
$
(2,020
)
 
$
81,530

 


 
Amortized
Cost

 
Valuation Allowance

 
Net Carrying Value

 
Gross
Unrealized
Appreciation

 
Gross
Unrealized
Depreciation

 
Fair
Value

 
 
 
 
Held to maturity
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,208

 
$

 
$
1,208

 
$
75

 
$

 
$
1,283

Foreign
1,294

 
(7
)
 
1,287

 
63

 
(7
)
 
1,343

Corporate securities
2,272

 
(36
)
 
2,236

 
113

 
(27
)
 
2,322

Mortgage-backed securities
2,266

 
(1
)
 
2,265

 
106

 
(4
)
 
2,367

States, municipalities, and political subdivisions
5,030

 
(1
)
 
5,029

 
130

 
(3
)
 
5,156

 
$
12,070

 
$
(45
)
 
$
12,025

 
$
487

 
$
(41
)
 
$
12,471


December 31, 2019
Amortized
Cost

 
Gross
Unrealized
Appreciation

 
Gross
Unrealized
Depreciation

 
Fair
Value

 
OTTI Recognized
in AOCI

(in millions of U.S. dollars)
 
 
 
 
Available for sale
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
3,188

 
$
96

 
$
(1
)
 
$
3,283

 
$

Foreign
22,670

 
1,099

 
(62
)
 
23,707

 
(25
)
Corporate securities
30,689

 
1,180

 
(78
)
 
31,791

 
(5
)
Mortgage-backed securities
18,712

 
494

 
(14
)
 
19,192

 

States, municipalities, and political subdivisions
7,321

 
205

 
(11
)
 
7,515

 

 
$
82,580

 
$
3,074

 
$
(166
)
 
$
85,488

 
$
(30
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,318

 
$
29

 
$

 
$
1,347

 
$

Foreign
1,423

 
62

 

 
1,485

 

Corporate securities
2,349

 
121

 
(2
)
 
2,468

 

Mortgage-backed securities
2,331

 
65

 

 
2,396

 

States, municipalities, and political subdivisions
5,160

 
150

 
(1
)
 
5,309

 

 
$
12,581

 
$
427

 
$
(3
)
 
$
13,005

 
$



Management evaluates CECL for all HTM securities each quarter. U.S. Treasury and agency securities and U.S. government agency mortgage-backed securities are assumed to have no risk of non-payment and therefore are excluded from the CECL evaluation. The remaining HTM securities are evaluated for potential credit loss on a collective pool basis. We elected to pool
HTM securities by 1) external credit rating and 2) time to maturity (duration). These characteristics are the most representative of similar risk characteristics within our portfolio. Chubb will pool HTM securities and calculate an expected credit loss for each pool using Moody’s corporate bond default average, corporate bond recovery rate, and an economic cycle multiplier. The multiplier is based on the leading economic index and will adjust the average default frequency for a forward-looking economic outlook. Prior to the adoption of this guidance, HTM securities were evaluated individually for other-than-temporary impairment.

Management monitors the credit quality of HTM securities through the review of external credit ratings on a quarterly basis. The following table presents the amortized cost of our HTM securities according to S&P rating:
 
March 31, 2020
 
(in millions of U.S. dollars)
Amortized cost

 
% of Total

AAA
$
2,642

 
22
%
AA
6,608

 
55
%
A
2,371

 
20
%
BBB
422

 
3
%
BB
21

 
%
Other
6

 
%
Total
$
12,070

 
100
%


Management evaluates expected credit losses (ECL) for AFS securities when fair value is below amortized cost. AFS securities are evaluated for potential credit loss on an individual security level but the evaluation may use assumptions consistent with expectations of credit losses for a group of similar securities. If management has the intent to sell or will be required to sell the security before recovery, the entire impairment loss will be recorded through income to net realized gains and losses. If management does not have the intent to sell or will not be required to sell the security before recovery, an allowance for credit losses is established and the portion of loss that relates to credit losses is recorded in income to Net realized gains (losses) and the portion of loss that relates to non-credit loss is recorded in Other comprehensive income.

Examples of criteria that are collectively evaluated to determine if a credit loss has occurred include the following:
The extent to which the fair value is less than amortized cost;
Adverse conditions related to the security, industry, or geographic area;
Downgrades in the security's credit rating by a rating agency; and
Failure of the issuer to make scheduled principal or interest payments

AFS securities that meet any one of the criteria included above will be subject to a discounted cash flow analysis by comparing the present value of expected future cash flows with the amortized cost basis. If the present value of expected future cash flows is less than the amortized cost, a credit loss exists and an allowance for credit losses will be recognized. If the present value of expected future cash flows is equal to or greater than the amortized cost basis, management will conclude an expected credit loss does not exist.

We elected to not measure an allowance for accrued investment income as uncollectible balances are written off in a timely manner, typically 30 to 45 days after uncollected balances are due.



The following table presents fixed maturities by contractual maturity:
 
 
 
March 31

 
 
 
December 31

 
 
 
2020

 
 
 
2019

(in millions of U.S. dollars)
Net Carrying Value

 
Fair Value

 
Amortized Cost

 
Fair Value

Available for sale
 
 
 
 
 
 
 
Due in 1 year or less
$
3,816

 
$
3,816

 
$
3,951

 
$
3,973

Due after 1 year through 5 years
25,837

 
25,837

 
27,142

 
27,720

Due after 5 years through 10 years
23,712

 
23,712

 
23,901

 
24,874

Due after 10 years
10,280

 
10,280

 
8,874

 
9,729

 
63,645

 
63,645

 
63,868

 
66,296

Mortgage-backed securities
17,885

 
17,885

 
18,712

 
19,192

 
$
81,530

 
$
81,530

 
$
82,580

 
$
85,488

Held to maturity
 
 
 
 
 
 
 
Due in 1 year or less
$
614

 
$
620

 
$
478

 
$
479

Due after 1 year through 5 years
3,695

 
3,775

 
3,869

 
3,940

Due after 5 years through 10 years
3,383

 
3,479

 
3,756

 
3,883

Due after 10 years
2,068

 
2,230

 
2,147

 
2,307

 
9,760

 
10,104

 
10,250

 
10,609

Mortgage-backed securities
2,265

 
2,367

 
2,331

 
2,396

 
$
12,025

 
$
12,471

 
$
12,581

 
$
13,005



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) Gross unrealized loss
Fixed maturities in an unrealized loss position at March 31, 2020 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 table presents, for AFS fixed maturities in an unrealized loss position (including securities on loan) that are not deemed to have credit losses, the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
 
0 – 12 Months
 
 
Over 12 Months
 
 
Total
 
March 31, 2020
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

(in millions of U.S. dollars)
 
 
 
 
 
Foreign
$
6,534

 
$
(376
)
 
$
132

 
$
(21
)
 
$
6,666

 
$
(397
)
Corporate securities
13,492

 
(858
)
 
448

 
(51
)
 
13,940

 
(909
)
Mortgage-backed securities
914

 
(48
)
 
36

 
(4
)
 
950

 
(52
)
States, municipalities, and political subdivisions
637

 
(6
)
 
130

 
(11
)
 
767

 
(17
)
Total AFS fixed maturities
$
21,577

 
$
(1,288
)
 
$
746

 
$
(87
)
 
$
22,323

 
$
(1,375
)

The following table presents, 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:
 
0 – 12 Months
 
 
Over 12 Months
 
 
Total
 
December 31, 2019
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

 
Fair Value

 
Gross
Unrealized
Loss

(in millions of U.S. dollars)
 
 
 
 
 
U.S. Treasury and agency
$
234

 
$
(1
)
 
$
339

 
$

 
$
573

 
$
(1
)
Foreign
1,846

 
(34
)
 
802

 
(28
)
 
2,648

 
(62
)
Corporate securities
2,121

 
(40
)
 
988

 
(40
)
 
3,109

 
(80
)
Mortgage-backed securities
1,174

 
(6
)
 
932

 
(8
)
 
2,106

 
(14
)
States, municipalities, and political subdivisions
188

 

 
276

 
(12
)
 
464

 
(12
)
Total fixed maturities
$
5,563

 
$
(81
)
 
$
3,337

 
$
(88
)
 
$
8,900

 
$
(169
)



c) Net realized gains (losses)

Management reviews credit losses and the valuation allowance for expected credit losses each quarter. When all or a portion of a fixed maturity security is identified to be uncollectible and written off, the valuation allowance for expected credit losses is reduced by the same amount. In general, a security is considered uncollectible no later than when all efforts to collect contractual cash flows have been exhausted. Below are considerations for when a security may be deemed uncollectible:

We have sufficient information to determine that the issuer of the security is insolvent;
We receive notice that the issuer of the security has filed for bankruptcy, and the collectability is expected to be adversely impacted by the bankruptcy;
The issuer of a security has violated multiple debt covenants;
Amounts have been past due for a specified period of time with no response from the issuer;
A significant deterioration in the value of the collateral has occurred;
We have received correspondence from the issuer of the security indicating that it doesn’t intend to pay the contractual principal and interest.

Projected cash flows are driven primarily by assumptions regarding probability of default and also the timing and amount of recoveries associated with defaults. Chubb developed the projected cash flows using market data, issuer-specific information, and credit ratings. In combination with contractual cash flows and the use of historical default and recovery data by Moody’s Investors Service (Moody’s) rating category we generate expected cash flows using the average cumulative issuer-weighted global default rates by letter rating.
The following table presents the components of Net realized gains (losses):
 
Three Months Ended
 
 
March 31
 
(in millions of U.S. dollars)
2020

 
2019

Fixed maturities:
 
 
 
OTTI on fixed maturities, gross and net
$

 
$
(13
)
Gross realized gains excluding OTTI
77

 
27

Gross realized losses excluding OTTI
(125
)
 
(58
)
Provision for expected credit losses
(150
)
 

Impairment (1)
(121
)
 

Total fixed maturities
$
(319
)
 
$
(44
)
Equity securities
(29
)
 
58

Other investments
5

 
(44
)
Foreign exchange gains (losses)
(68
)
 
13

Investment and embedded derivative instruments
15

 
(130
)
Fair value adjustments on insurance derivative
(685
)
 
114

S&P futures
125

 
(63
)
Other derivative instruments
(2
)
 
(1
)
Net realized gains (losses) (pre-tax)
$
(958
)
 
$
(97
)

(1) 
Related to our intent to sell certain securities.

Realized gains and losses from Equity securities and Other investments from the table above include sales of securities and unrealized gains and losses from fair value changes as follows:
 
 
 
Three Months Ended
 
 
 
 
March 31
 
 
2020
 
 
2019
 
(in millions of U.S. dollars)
Equity Securities

 
Other Investments

 
Total

 
Equity Securities

 
Other Investments

 
Total

Net gains (losses) recognized during the period
$
(29
)
 
$
5

 
$
(24
)
 
$
58

 
$
(44
)
 
$
14

Less: Net gains (losses) recognized from sales of securities
(24
)
 

 
(24
)
 
1

 
(2
)
 
(1
)
Unrealized gains (losses) recognized for securities still held at reporting date
$
(5
)
 
$
5

 
$

 
$
57

 
$
(42
)
 
$
15



The following table presents a roll-forward of valuation allowance for expected credit losses on fixed maturities:
 
Three Months Ended

 
March 31

(in millions of U.S. dollars)
2020

Available for sale
 
Valuation allowance for expected credit losses - beginning of period
$

Impact of adoption of new accounting guidance
25

Provision for expected credit loss
149

Initial allowance for purchased securities with credit deterioration
2

Valuation allowance for expected credit losses - end of period
$
176

Held to maturity
 
Valuation allowance for expected credit losses - beginning of period
$

Impact of adoption of new accounting guidance
44

Provision for expected credit loss
1

Valuation allowance for expected credit losses - end of period
$
45



Alternative investments
Alternative investments include partially-owned investment companies, investment funds, and limited partnerships measured at fair value using their respective net asset values or equivalent (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:
 
 
 
 
 
March 31

 
 
 
December 31

 
Expected
Liquidation
Period of Underlying Assets
 
 
 
2020

 
 
 
2019

(in millions of U.S. dollars)
Fair
Value

 
Maximum
Future Funding
Commitments

 
Fair
Value

 
Maximum
Future Funding
Commitments

Financial
2 to 10 Years
 
$
590

 
$
325

 
$
611

 
$
329

Real Assets
2 to 11 Years
 
721

 
414

 
712

 
422

Distressed
2 to 7 Years
 
262

 
67

 
263

 
80

Private Credit
3 to 8 Years
 
106

 
272

 
104

 
272

Traditional
2 to 14 Years
 
3,045

 
1,868

 
2,844

 
2,160

Vintage
1 to 2 Years
 
103

 

 
116

 

Investment funds
Not Applicable
 
264

 

 
271

 

 
 
 
$
5,091

 
$
2,946

 
$
4,921

 
$
3,263



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.
Investment Category:
 
Consists of investments in private equity funds:
Financial
 
targeting financial services companies, such as financial institutions and insurance services worldwide
Real Assets
 
targeting investments related to hard, physical assets, such as real estate, infrastructure and natural resources
Distressed
 
targeting distressed corporate debt/credit and equity opportunities in the U.S.
Private Credit
 
targeting privately originated corporate debt investments, including senior secured loans and subordinated bonds
Traditional
 
employing traditional private equity investment strategies, such as buyout and growth equity globally
Vintage
 
funds where the initial fund term has expired

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.

d) 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 March 31, 2020 and December 31, 2019 are investments, primarily fixed maturities, totaling $20.9 billion and $21.0 billion, respectively, and cash of $146 million and $109 million, respectively.
The following table presents the components of restricted assets:
 
March 31

 
December 31

(in millions of U.S. dollars)
2020

 
2019

Trust funds
$
13,974

 
$
14,004

Deposits with U.S. regulatory authorities
2,424

 
2,466

Deposits with non-U.S. regulatory authorities
2,669

 
2,709

Assets pledged under repurchase agreements
1,492

 
1,464

Other pledged assets
496

 
490

Total
$
21,055

 
$
21,133


v3.20.1
Fair value measurements
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair value measurements 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.

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 plans 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. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3.

Financial instruments measured at fair value on a recurring basis, by valuation hierarchy
March 31, 2020
Level 1

 
Level 2

 
Level 3

 
Total

(in millions of U.S. dollars)
 
 
 
Assets:
 
 
 
 
 
 
 
Fixed maturities available for sale
 
 
 
 
 
 
 
U.S. Treasury and agency
$
2,400

 
$
613

 
$

 
$
3,013

Foreign

 
22,379

 
465

 
22,844

Corporate securities

 
29,166

 
1,502

 
30,668

Mortgage-backed securities

 
17,825

 
60

 
17,885

States, municipalities, and political subdivisions

 
7,120

 

 
7,120

 
2,400

 
77,103

 
2,027

 
81,530

Equity securities
2,001

 

 
67

 
2,068

Short-term investments
2,165

 
1,420

 
1

 
3,586

Other investments (1)
285

 
335

 
10

 
630

Securities lending collateral

 
1,342

 

 
1,342

Investment derivative instruments
64