CHUBB LTD, 10-K filed on 2/28/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2018
Feb. 14, 2019
Jun. 29, 2018
Document Documentand Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Trading Symbol CB    
Entity Registrant Name Chubb Ltd    
Entity Central Index Key 0000896159    
Current Fiscal Year End Date --12-31    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Common Stock, Shares Outstanding   458,380,937  
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Public Float     $ 59
Entity Shell Company false    
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Assets    
Fixed maturities available for sale, at fair value (amortized cost – $79,323 and $77,835)(includes hybrid financial instruments of $9 and $5) $ 78,470 $ 78,939
Fixed maturities held to maturity, at amortized cost (fair value – $13,259 and $14,474) 13,435 14,335
Equity Securities, at fair value (cost - $770) 770  
Equity securities, available for sale, at fair value (cost $737)   937
Short-term investments, at fair value and amortized cost 3,016 3,561
Other investments (cost – $5,277 and $4,417) 5,277 4,672
Total investments 100,968 102,444
Cash 1,247 [1] 728 [2]
Restricted Cash 93 [1] 123 [2]
Securities lending collateral 1,926 1,737
Accrued investment income 883 909
Insurance and reinsurance balances receivable 10,075 9,334
Reinsurance recoverable on losses and loss expenses 15,993 15,034
Reinsurance recoverable on policy benefits 202 184
Deferred policy acquisition costs 4,922 4,723
Value of business acquired 295 326
Goodwill 15,271 15,541
Other intangible assets 6,143 6,513
Prepaid reinsurance premiums 2,544 2,529
Investments in partially-owned insurance companies 678 662
Other assets 6,531 6,235
Total assets 167,771 167,022
Liabilities    
Unpaid losses and loss expenses 62,960 63,179
Unearned premiums 15,532 15,216
Future policy benefits 5,506 5,321
Insurance and reinsurance balances payable 6,437 5,868
Securities lending payable 1,926 1,737
Accounts payable, accrued expenses, and other liabilities 10,472 9,545
Deferred Income Tax Liabilities, Net 304 699
Repurchase agreements 1,418 1,408
Short-term debt 509 1,013
Long-term debt 12,087 11,556
Trust preferred securities 308 308
Total liabilities 117,459 115,850
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) 11,121 11,121
Common Shares in treasury (20,580,486 and 15,950,685 shares) (2,618) (1,944)
Additional Paid in Capital, Common Stock 12,557 13,978
Retained earnings 31,700 27,474
Accumulated other comprehensive income (loss) (AOCI) (2,448) 543
Total shareholders' equity 50,312 51,172
Total liabilities and shareholders’ equity $ 167,771 $ 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, 2018, 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 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.
v3.10.0.1
Consolidated Balance Sheets (Parenthetical)
$ in Millions
Dec. 31, 2018
USD ($)
shares
Dec. 31, 2017
USD ($)
shares
Statement of Financial Position [Abstract]    
Fixed maturities available for sale, at amortized cost $ 79,323 $ 77,835
Fixed maturities available for sale, hybrid financial instruments 9 5
Debt Securities, Held-to-maturity, Fair Value 13,259 14,474
Equity Securities, FV-NI, Cost 770  
Equity securities, at cost   737
Other investments, cost $ 5,277 $ 4,417
Common Shares, shares issued | shares 479,783,864 479,783,864
Common Shares, shares outstanding | shares 459,203,378 463,833,179
Common Shares in treasury, shares | shares 20,580,486 15,950,685
v3.10.0.1
Consolidated Statements Of Operations and Comprehensive Income - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Revenues      
Net premiums written $ 30,579 $ 29,244 $ 28,145
(Increase) decrease in unearned premiums (515) (210) 604
Net premiums earned 30,064 29,034 28,749
Net investment income 3,305 3,125 2,865
Net realized gains (losses):      
Other-than-temporary impairment (OTTI) losses gross (52) (46) (111)
Portion of OTTI losses recognized in other comprehensive income (OCI) 3 1 8
Net OTTI losses recognized in income 49    
Net OTTI losses recognized in income   45 103
Net realized, Gain (Loss), Excluding Other-than-temporary Impairment Loss (603)    
Net realized gains (losses) excluding OTTI losses   129 (42)
Total net realized gains (losses) (includes ($302) reclassified from AOCI) (652)    
Net Realized Investment Gains (Losses) (includes $(15), and $(119) reclassified from AOCI)   84 (145)
Total revenues 32,717 32,243 31,469
Expenses      
Losses and loss expenses 18,067 18,454 16,052
Policy benefits 590 676 588
Policy Acquisition Costs 5,912 5,781 5,904
Administrative expenses 2,886 2,833 3,081
Interest expense 641 607 605
Other (income) expense (434) (400) (222)
Amortization of Purchased Intangibles 339 260 19
Chubb integration expenses 59 310 492
Total expenses 28,060 28,521 26,519
Income before income tax 4,657 3,722 4,950
Income tax expense (benefit) (includes $(41), $(13), and $28 on reclassified unrealized gains and losses) 695 (139) 815
Net income 3,962 3,861 4,135
Other comprehensive income (loss)      
Unrealized appreciation (depreciation) (2,298) 618 (35)
Reclassification adjustment for net realized (gains) losses included in net income 302 15 119
Other comprehensive income (loss) after reclassification for net realized gains included in net income (1,996) 633 84
Change in:      
Cumulative foreign currency translation adjustment (802) 471 (154)
Postretirement benefit liability adjustment (321) (16) 545
Other comprehensive income (loss), before income tax (3,119) 1,088 475
Income tax (expense) benefit related to OCI items 399 (231) (54)
Other comprehensive income (loss) (2,720) 857 421
Comprehensive income $ 1,242 $ 4,718 $ 4,556
Earnings per share      
Basic earnings per share $ 8.55 $ 8.26 $ 8.94
Diluted earnings per share $ 8.49 $ 8.19 $ 8.87
v3.10.0.1
Consolidated Statements of Operations and Comprehensive Income (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income tax expense (benefit) $ (41) $ (13) $ 28
Reclassification out of Accumulated Other Comprehensive Income [Member] | Net unrealized appreciation on investments      
Net realized gains (losses) (302) (15) (119)
Income tax expense (benefit) $ (41) $ (13) $ 28
v3.10.0.1
Consolidated Statements Of Shareholders' Equity - USD ($)
$ in Millions
Total
Common Shares
Common Shares in Treasury
Additional Paid-in Capital
Retained Earnings
Net unrealized appreciation on investments
Cumulative Translation Adjustment
Accumulated Defined Benefit Plans Adjustment [Member]
Accumulated Other Comprehensive Income
The Chubb Corporation [Member]
Common Shares
The Chubb Corporation [Member]
Additional Paid-in Capital
Balance – beginning of year at Dec. 31, 2015   $ 7,833 $ (1,922) $ 4,481 $ 19,478 $ 874 $ (1,539) $ (70)      
Common Shares repurchased $ 0   0                
Shares issued for Chubb Corp acquisition                   $ 3,288 $ 11,916
Net shares redeemed under employee share-based compensation plans     442 (382)             323
Stock Issued During Period, Value, Stock Options Exercised       (64)              
Share-based compensation expense       313              
FundingDividendsDeclaredToRetainedEarnings       (1,284)              
Tax benefit on share-based compensation expense       32              
Net income 4,135       4,135            
Funding Dividends Declared From Additional Paid In Capital         1,284            
Dividends declared on Common Shares         (1,284)            
Change in year, before reclassification from AOCI, net of income tax benefit (expense) of $338, $(228), and $72           37          
Amounts reclassified from AOCI, net of income tax benefit (expense) of $(41), $(13), and $28           147          
Change in year, net of income tax benefit (expense) of $297, $(241), and $100           184          
Change in year, net of income tax benefit of $35, $5, and $30             (124)        
Change in year, net of income tax benefit (expense) of $67, $5, and $(184)               361      
Balance – Ending of year at Dec. 31, 2016 48,275 11,121 (1,480) 15,335 23,613 1,058 (1,663) 291 $ (314)    
Common Shares repurchased     (830)                
Shares issued for Chubb Corp acquisition                   0 0
Net shares redeemed under employee share-based compensation plans     366 (313)              
Stock Issued During Period, Value, Stock Options Exercised       (58)              
Share-based compensation expense       331              
FundingDividendsDeclaredToRetainedEarnings       (1,317)              
Tax benefit on share-based compensation expense       0              
Net income 3,861       3,861            
Funding Dividends Declared From Additional Paid In Capital         1,317            
Dividends declared on Common Shares         (1,317)            
Change in year, before reclassification from AOCI, net of income tax benefit (expense) of $338, $(228), and $72           390          
Amounts reclassified from AOCI, net of income tax benefit (expense) of $(41), $(13), and $28           2          
Change in year, net of income tax benefit (expense) of $297, $(241), and $100           392          
Change in year, net of income tax benefit of $35, $5, and $30             476        
Change in year, net of income tax benefit (expense) of $67, $5, and $(184)               (11)      
Balance – Ending of year at Dec. 31, 2017 51,172 11,121 (1,944) 13,978 27,738 1,154 (1,209) 327 543    
Balance – Ending of year (Previous Accounting Guidance [Member]) at Dec. 31, 2017         27,474 1,450 (1,187) 280      
Cumulative Effect of New Accounting Principle in Period of Adoption         264 (296)          
Common Shares repurchased     (1,021)                
Shares issued for Chubb Corp acquisition                   $ 0 $ 0
Net shares redeemed under employee share-based compensation plans     347 (313)              
Stock Issued During Period, Value, Stock Options Exercised       (49)              
Share-based compensation expense       285              
FundingDividendsDeclaredToRetainedEarnings       (1,344)              
Tax benefit on share-based compensation expense       0              
Net income 3,962       3,962            
Funding Dividends Declared From Additional Paid In Capital         1,344            
Dividends declared on Common Shares         (1,344)            
Change in year, before reclassification from AOCI, net of income tax benefit (expense) of $338, $(228), and $72           (1,960)          
Amounts reclassified from AOCI, net of income tax benefit (expense) of $(41), $(13), and $28           261          
Change in year, net of income tax benefit (expense) of $297, $(241), and $100           (1,699)          
Change in year, net of income tax benefit of $35, $5, and $30             (767)        
Change in year, net of income tax benefit (expense) of $67, $5, and $(184)               (254)      
Balance – Ending of year at Dec. 31, 2018 $ 50,312 $ 11,121 $ (2,618) $ 12,557 31,700 (545) (1,976) 73 $ (2,448)    
Cumulative Effect of New Accounting Principle in Period of Adoption | Accounting standards update 2018-02 [Member]         $ (146) $ 121 $ (22) $ 47      
v3.10.0.1
Consolidated Statements Of Shareholders' Equity (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Other Comprehensive Income (Loss), Available-for-sale Securities, before Reclassification Adjustments, Tax $ 338 $ (228) $ 72
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax (41) (13) 28
Net unrealized appreciation on investments, Change in year, income tax (expense) benefit 297 (241) 100
Cumulative translation adjustment, Change in year, income tax(expense) benefit 35 5 30
Pension liability adjustment, Change in year, income tax (expense) benefit $ 67 $ 5 $ (184)
v3.10.0.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities      
Net income $ 3,962 $ 3,861 $ 4,135
Adjustments to reconcile net income to net cash flows from operating activities      
Realized Gain (Loss) 652    
Realized Investment Gains (Losses)   (84) 145
Amortization of premiums/discounts on fixed maturities 592 694 737
Amortization of purchased intangibles 339 260 1,578
Deferred income taxes 16 (527) 96
Unpaid losses and loss expenses 570 2,137 332
Unearned premiums 654 264 (680)
Future policy benefits 235 217 188
Insurance and reinsurance balances payable 722 271 848
Accounts payable, accrued expenses, and other liabilities 375 (517) (97)
Income taxes payable 161 (365) 147
Insurance and reinsurance balances receivable (981) (243) (616)
Reinsurance recoverable (1,165) (1,248) (358)
Deferred policy acquisition costs (301) (317) (1,449)
Other (351) 100 286
Net cash flows from operating activities 5,480 4,503 5,292
Cash flows from investing activities      
Purchases of fixed maturities available for sale (24,700) (25,720) (30,759)
Purchases of to be announced mortgage-backed securities (35) (27) (56)
Purchases of fixed maturities held to maturity (456) (352) (282)
Payments to acquire equity securities (207)    
Purchases of equity securities (207) (173) (146)
Sales of fixed maturities available for sale 14,001 13,228 16,621
Sales of to be announced mortgage-backed securities 29 27 56
Proceeds from Sale of Equity Securities 315    
Sales of equity securities 315 187 1,000
Maturities and redemptions of fixed maturities available for sale 7,352 10,425 9,349
Maturities and redemptions of fixed maturities held to maturity 1,124 879 958
Net change in short-term investments 516 (537) 12,350
Net derivative instruments settlements 16 (265) (168)
Private equity contributions (1,337) (648) (553)
Private equity distributions 980 1,084 958
Acquisition of subsidiaries (net of cash acquired of $X, nil, and $71)     (14,248)
Other (533) (530) (402)
Net cash flows used for investing activities (2,935) (2,422) (5,322)
Cash flows from financing activities      
Dividends paid on Common Shares (1,337) (1,308) (1,173)
Common Shares repurchased (1,044) (801)  
Proceeds from issuance of long-term debt 2,171 0  
Proceeds from issuance of repurchase agreements 2,029 2,353 2,310
Repayments of Long-term Debt (2,001) (501) 0
Repayment of repurchase agreements (2,019) (2,348) (2,311)
Proceeds from share-based compensation plans 115 151 167
Policyholder contract deposits 453 442 522
Policyholder contract withdrawals (358) (307) (253)
Other 0 0 (4)
Net cash flows used for financing activities (1,991) (2,319) (742)
Effect of foreign currency rate changes on cash and restricted cash (65) 1 (25)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect 489 (237) (797)
Cash and restricted cash - beginning of year 851 [1],[2] 1,088 [2],[3] 1,885 [3]
Cash and restricted cash - end of year [2] 1,340 851 [1] 1,088 [3]
Supplemental cash flow information      
Taxes paid 503 736 662
Interest paid $ 621 $ 644 $ 642
[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.
[2] 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.
[3] 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.
v3.10.0.1
Consolidated Statements Of Cash Flows (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Cash Flows [Abstract]      
Acquisition of subsidiaries, cash acquired $ 0 $ 0 $ 71
v3.10.0.1
Summary of significant accounting policies
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Summary of significant accounting policies
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. 

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).

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.

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).



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.

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:
 
December 31
 
(in millions of U.S. dollars)
2018

 
2017

 
2016

Cash
$
1,247

 
$
728

 
$
985

Restricted cash
93

 
123

 
103

Total cash and restricted cash shown in the Consolidated statements of cash flows
$
1,340

 
$
851

 
$
1,088



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 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.

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.

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.

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 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.

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.
v3.10.0.1
Investments
12 Months Ended
Dec. 31, 2018
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments

a) Fixed maturities
December 31, 2018
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
$
4,158

 
$
30

 
$
(43
)
 
$
4,145

 
$

Foreign
21,370

 
395

 
(349
)
 
21,416

 

Corporate securities
27,183

 
150

 
(750
)
 
26,583

 
(6
)
Mortgage-backed securities
15,758

 
66

 
(284
)
 
15,540

 
(1
)
States, municipalities, and political subdivisions
10,854

 
49

 
(117
)
 
10,786

 

 
$
79,323

 
$
690

 
$
(1,543
)
 
$
78,470

 
$
(7
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
1,185

 
$
8

 
$
(11
)
 
$
1,182

 
$

Foreign
1,549

 
11

 
(18
)
 
1,542

 

Corporate securities
2,601

 
11

 
(104
)
 
2,508

 

Mortgage-backed securities
2,524

 
5

 
(43
)
 
2,486

 

States, municipalities, and political subdivisions
5,576

 
16

 
(51
)
 
5,541

 

 
$
13,435

 
$
51

 
$
(227
)
 
$
13,259

 
$



December 31, 2017
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
$
3,701

 
$
32

 
$
(35
)
 
$
3,698

 
$

Foreign
20,514

 
622

 
(106
)
 
21,030

 
(1
)
Corporate securities
23,453

 
638

 
(95
)
 
23,996

 
(4
)
Mortgage-backed securities
15,279

 
111

 
(100
)
 
15,290

 
(1
)
States, municipalities, and political subdivisions
14,888

 
125

 
(88
)
 
14,925

 

 
$
77,835

 
$
1,528

 
$
(424
)
 
$
78,939

 
$
(6
)
Held to maturity
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency
$
908

 
$
12

 
$
(5
)
 
$
915

 
$

Foreign
1,738

 
27

 
(8
)
 
1,757

 

Corporate securities
3,159

 
67

 
(7
)
 
3,219

 

Mortgage-backed securities
2,724

 
23

 
(5
)
 
2,742

 

States, municipalities, and political subdivisions
5,806

 
50

 
(15
)
 
5,841

 

 
$
14,335

 
$
179

 
$
(40
)
 
$
14,474

 
$



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.

The following table presents fixed maturities by contractual maturity:
 
December 31
 
 
December 31
 
 
 
 
2018

 
 
 
2017

(in millions of U.S. dollars)
Amortized Cost

 
Fair Value

 
Amortized Cost

 
Fair Value

Available for sale
 
 
 
 
 
 
 
Due in 1 year or less
$
3,569

 
$
3,568

 
$
3,164

 
$
3,182

Due after 1 year through 5 years
27,134

 
27,005

 
24,749

 
25,068

Due after 5 years through 10 years
24,095

 
23,543

 
25,388

 
25,704

Due after 10 years
8,767

 
8,814

 
9,255

 
9,695

 
63,565

 
62,930

 
62,556

 
63,649

Mortgage-backed securities
15,758

 
15,540

 
15,279

 
15,290

 
$
79,323

 
$
78,470

 
$
77,835

 
$
78,939

Held to maturity
 
 
 
 
 
 
 
Due in 1 year or less
$
536

 
$
537

 
$
743

 
$
746

Due after 1 year through 5 years
3,122

 
3,106

 
2,669

 
2,688

Due after 5 years through 10 years
4,468

 
4,407

 
4,744

 
4,756

Due after 10 years
2,785

 
2,723

 
3,455

 
3,542

 
10,911

 
10,773

 
11,611

 
11,732

Mortgage-backed securities
2,524

 
2,486

 
2,724

 
2,742

 
$
13,435

 
$
13,259

 
$
14,335

 
$
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:
 
Year Ended December 31, 2018
 
(in millions of U.S. dollars)
Equity Securities

 
Other Investments

 
Total

Net losses recognized during the period
$
(59
)
 
$
(5
)
 
$
(64
)
Less: Net gains recognized from sales of securities
70

 
121

 
191

Unrealized losses recognized for securities still held at reporting date
$
(129
)
 
$
(126
)
 
$
(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.

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
1-in-100 Year Default Rate

 
Historical Mean Default Rate

Investment Grade:
 
 
 
Aaa-Baa
0.0 - 1.3%

 
0.0 - 0.3%

Below Investment Grade:
 
 
 
Ba
4.8
%
 
1.0
%
B
12.0
%
 
3.2
%
Caa-C
36.6
%
 
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.

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: 
 
Year Ended December 31
 
(in millions of U.S. dollars)
2018

 
2017

 
2016

Fixed maturities:
 
 
 
 
 
OTTI on fixed maturities, gross
$
(52
)
 
$
(24
)
 
$
(89
)
OTTI on fixed maturities recognized in OCI (pre-tax)
3

 
1

 
8

OTTI on fixed maturities, net
(49
)
 
(23
)
 
(81
)
Gross realized gains excluding OTTI
334

 
149

 
183

Gross realized losses excluding OTTI
(587
)
 
(157
)
 
(265
)
Total fixed maturities
(302
)
 
(31
)
 
(163
)
Equity securities:
 
 
 
 
 
OTTI on equity securities

 
(10
)
 
(8
)
Gross realized gains excluding OTTI
74

 
28

 
65

Gross realized losses excluding OTTI
(133
)
 
(2
)
 
(13
)
Total equity securities
(59
)
 
16

 
44

OTTI on other investments

 
(12
)
 
(14
)
Other investments
(5
)
 

 

Foreign exchange gains
131

 
36

 
118

Investment and embedded derivative instruments
(75
)
 
(11
)
 
(33
)
Fair value adjustments on insurance derivative
(248
)
 
364

 
53

S&P put options and futures
(4
)
 
(261
)
 
(136
)
Other derivative instruments
(3
)
 
(5
)
 
(10
)
Other
(87
)
 
(12
)
 
(4
)
Net realized gains (losses) (pre-tax)
$
(652
)
 
$
84

 
$
(145
)
 
 
 
 
 
 
Change in net unrealized appreciation (depreciation) on investments (pre-tax):
 
 
 
 
 
Fixed maturities available for sale
$
(1,958
)
 
$
519

 
$
142

Fixed maturities held to maturity
(38
)
 
18

 
(59
)
Equity securities

 
88

 
52

Other

 
8

 
(51
)
Income tax (expense) benefit
297

 
(241
)
 
100

Change in net unrealized appreciation (depreciation) on investments (after-tax)
$
(1,699
)
 
$
392

 
$
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.

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: 
 
Year Ended December 31
 
(in millions of U.S. dollars)
2018

 
2017

 
2016

Balance of credit losses related to securities still held – beginning of year
$
22

 
$
35

 
$
53

Additions where no OTTI was previously recorded
20

 
4

 
17

Additions where an OTTI was previously recorded
5

 
2

 
14

Reductions for securities sold during the period
(13
)
 
(19
)
 
(49
)
Balance of credit losses related to securities still held – end of year
$
34

 
$
22

 
$
35


d) Other investments
 
 
 
December 31

 
 
 
December 31

 
 
 
2018

 
 
 
2017

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

 
Cost

 
Fair Value

 
Cost

Partially-owned investment companies
$
3,623

 
$
3,623

 
$
2,803

 
$
2,803

Limited partnerships
538

 
538

 
549

 
441

Investment funds
83

 
83

 
270

 
123

Other
 
 
 
 
 
 
 
Life insurance policies
304

 
304

 
305

 
305

Policy loans
243

 
243

 
244

 
244

Non-qualified separate account assets
252

 
252

 
333

 
333

Other
234

 
234

 
168

 
168

Total
$
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.

e) Investments in partially-owned insurance companies
The following table presents Investments in partially-owned insurance companies: