CHUBB LTD, 10-Q filed on 10/30/2020
Quarterly Report
v3.20.2
Document and Entity Information - SFr / shares
9 Months Ended
Sep. 30, 2020
Oct. 16, 2020
Dec. 31, 2019
Document Type 10-Q    
Document Period End Date Sep. 30, 2020    
Document Quarterly Report true    
Document Transition Report false    
Entity Registrant Name Chubb Ltd    
Entity Central Index Key 0000896159    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus Q3    
Entity File Number 1-11778    
Entity Incorporation, State or Country Code V8    
Entity Tax Identification Number 98-0091805    
Entity Address, Address Line One Baerengasse 32    
Entity Address, City or Town Zurich    
Entity Address, Country CH    
Entity Address, Postal Zip Code 8001    
Country Region 41    
City Area Code (0)43    
Local Phone Number 456 76 00    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Shell Company false    
Entity Emerging Growth Company false    
Common Shares, par value SFr 24.15   SFr 24.15
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Common Shares Outstanding   451,370,518  
INA Senior Notes Due March 2038 [Member]      
Title of 12(b) Security Guarantee of Chubb INA Holdings Inc. 2.50% Senior Notes due 2038    
Trading Symbol CB/38A    
Security Exchange Name NYSE    
INA Senior Notes Due December 2029 [Member]      
Title of 12(b) Security Guarantee of Chubb INA Holdings Inc. 0.875% Senior Notes due 2029    
Trading Symbol CB/29A    
Security Exchange Name NYSE    
INA Senior Notes Due June 2031 [Member]      
Title of 12(b) Security Guarantee of Chubb INA Holdings Inc. 1.40% Senior Notes due 2031    
Trading Symbol CB/31    
Security Exchange Name NYSE    
INA Senior Notes Due March 2028 [Member]      
Title of 12(b) Security Guarantee of Chubb INA Holdings Inc. 1.55% Senior Notes due 2028    
Trading Symbol CB/28    
Security Exchange Name NYSE    
INA Senior Notes Due June 2027 [Member]      
Title of 12(b) Security Guarantee of Chubb INA Holdings Inc. 0.875% Senior Notes due 2027    
Trading Symbol CB/27    
Security Exchange Name NYSE    
INA Senior Notes Due December 2024 [Member]      
Title of 12(b) Security Guarantee of Chubb INA Holdings Inc. 0.30% Senior Notes due 2024    
Trading Symbol CB/24A    
Security Exchange Name NYSE    
Common Class A [Member]      
Title of 12(b) Security Common Shares, par value CHF 24.15 per share    
Trading Symbol CB    
Security Exchange Name NYSE    
v3.20.2
Consolidated Balance Sheets
$ in Millions
Sep. 30, 2020
USD ($)
shares
Dec. 31, 2019
USD ($)
shares
Assets    
Fixed maturities available for sale, at fair value, net of valuation allowance - $34 at September 30, 2020 (amortized cost – $85,201 and $82,580) $ 89,852 $ 85,488
Fixed maturities held to maturity, net carrying value 11,651  
Fixed maturities held to maturity, at amortized cost, net of valuation allowance - $45 at September 30, 2020 (fair value – $12,473 and $13,005) 11,696 12,581
Equity securities, at fair value 3,088 812
Short-term investments, at fair value (amortized cost - $4,662 and $4,291) 4,660 4,291
Other investments, at fair value 6,796 6,062
Total investments 116,047 109,234
Cash 1,707 [1] 1,537 [2]
Restricted cash 166 109
Securities lending collateral 1,851 994
Accrued investment income 862 867
Insurance and reinsurance balances receivable 10,588 10,357
Reinsurance recoverable on losses and loss expenses, net of valuation allowance – $320 and $316 15,670 15,181
Reinsurance recoverable on policy benefits 203 197
Deferred policy acquisition costs 5,275 5,242
Value of business acquired 286 306
Goodwill 15,254 15,296
Other intangible assets 5,849 6,063
Prepaid reinsurance premiums 2,760 2,647
Investments in partially-owned insurance companies 2,534 1,332
Other assets 8,734 7,581
Total assets 187,786 176,943
Liabilities    
Unpaid losses and loss expenses 67,905 62,690
Unearned premiums 17,502 16,771
Future policy benefits 5,955 5,814
Insurance and reinsurance balances payable 6,420 6,184
Securities lending payable 1,851 994
Accounts payable, accrued expenses, and other liabilities 13,074 11,773
Deferred tax liabilities 815 804
Repurchase agreements 1,413 1,416
Short-term debt 1,300 1,299
Long-term debt 14,830 13,559
Trust preferred securities 308 308
Total liabilities 131,373 121,612
Commitments and contingencies (refer to Note 8)
Shareholders’ equity    
Common Shares (CHF 24.15 par value; 477,605,264 and 479,783,864 shares issued; 451,376,194 and 451,971,567 shares outstanding) 11,064 11,121
Common Shares in treasury (26,229,070 and 27,812,297 shares) (3,541) (3,754)
Additional Paid in Capital, Common Stock 10,115 11,203
Retained earnings 36,919 36,142
Accumulated other comprehensive income (AOCI) 1,856 619
Total shareholders’ equity 56,413 55,331
Total liabilities and shareholders’ equity 187,786 176,943
Available for sale, at amortized cost 85,201 82,580
Debt Securities, Available-for-sale, Allowance for Credit Loss 34 0
Held-to-maturity, Fair Value 12,473 13,005
Debt Securities, Held-to-maturity, Allowance for Credit Loss 45 0
short-term investments amortized cost 4,662 4,291
Reinsurance Recoverable, Allowance for Credit Loss $ 320 $ 316
Common Shares, shares outstanding | shares 451,376,194 451,971,567
Common Shares, shares issued | shares 477,605,264 479,783,864
Common Shares in treasury, shares | shares 26,229,070 27,812,297
[1] Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At September 30, 2020, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
[2] Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Refer to the 2019 Form 10-K for additional information.
v3.20.2
Consolidated Statements Of Operations and Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenues        
Net premiums written $ 9,078 $ 8,622 $ 25,410 $ 24,278
Increase in unearned premiums (313) (295) (723) (923)
Net premiums earned 8,765 8,327 24,687 23,355
Net investment income 840 873 2,528 2,568
Net realized gains (losses):        
Other-than-temporary impairment (OTTI) losses gross 0 (54) 0 (81)
Portion of OTTI losses recognized in other comprehensive income (OCI) 0 30 0 31
Net OTTI losses recognized in income 0 (24) 0 (50)
Net realized gains (losses) excluding OTTI losses (141) (131) (1,069) (425)
Net gains (losses) recognized during the period (141) (155) (1,069) (475)
Total revenues 9,464 9,045 26,146 25,448
Expenses        
Losses and loss expenses 5,835 5,052 16,897 13,865
Policy benefits 198 158 550 515
Policy acquisition costs 1,645 1,603 4,853 4,611
Administrative expenses 733 752 2,201 2,220
Interest expense 130 138 390 418
Other (income) expense (485) (57) (372) (326)
Amortization of purchased intangibles 72 76 217 229
Chubb integration expenses 0 2 0 9
Total expenses 8,128 7,724 24,736 21,541
Income before income tax 1,336 1,321 1,410 3,907
Income tax expense (includes $7, nil, $(35), and $(2) on reclassified unrealized gains and losses) 142 230 295 626
Net income 1,194 1,091 1,115 3,281
Other comprehensive income        
Unrealized appreciation 687 694 1,456 3,791
Reclassification adjustment for net realized (gains) losses included in net income (49) 11 303 43
Unrealized appreciation (Depreciation) after reclassification adjustment 638 705 1,759 3,834
Change in:        
Cumulative foreign currency translation adjustment 246 (193) (168) (143)
Postretirement benefit liability adjustment (23) (17) (59) (62)
Other comprehensive income, before income tax 861 495 1,532 3,629
Income tax expense related to OCI items (103) (113) (295) (660)
Other comprehensive income 758 382 1,237 2,969
Comprehensive income $ 1,952 $ 1,473 $ 2,352 $ 6,250
Earnings per share        
Basic earnings per share $ 2.64 $ 2.40 $ 2.47 $ 7.18
Diluted earnings per share $ 2.63 $ 2.38 $ 2.46 $ 7.13
Total net realized gains (losses) reclassified from AOCI $ 49 $ (11) $ (303) $ (43)
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax 7 0 (35) (2)
AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-sale, Parent [Member]        
Earnings per share        
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax $ 7 $ 0 $ (35) $ (2)
v3.20.2
Consolidated Statements Of Shareholders' Equity - USD ($)
$ in Millions
Total
Common Stock [Member]
Common shares in treasury [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Retained Earnings [Member]
Cumulative Effect, Period of Adoption, Adjustment
Retained Earnings [Member]
Cumulative Effect, Period of Adoption, Adjusted Balance
AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-sale, Parent [Member]
Cumulative Foreign Currency Translation Adjustment [Member]
Postretirement Benefit Liability Adjustment [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Balance - beginning of period at Dec. 31, 2018   $ 11,121 $ (2,618) $ 12,557 $ 31,700 $ (12) $ 31,688 $ (545) $ (1,976) $ 73  
Common Shares repurchased     (1,221)                
Treasury Stock, Retired, Cost Method, Amount   0 0   0            
Net shares redeemed under employee share-based compensation plans     335 (184)              
Exercise of stock options       (65)              
Share-based compensation expense       177              
Adjustments to Additional Paid in Capital, Dividends in Excess of Retained Earnings       (1,020)              
Net income (loss) $ 3,281       3,281            
Funding of dividends declared from Additional paid-in capital         1,020            
Dividends declared on Common Shares         (1,020)            
Change in period, before reclassification from AOCI, net of income tax expense of $(102), $(125), $(300) and $(674)               3,117      
Amounts reclassified from AOCI, net of income tax (expense) benefit of $7, nil, $(35) and $(2)               41      
Change in period, net of income tax expense of $(95), $(125), $(335) and $(676)               3,158      
Change in period, net of income tax (expense) benefit of $(13), $8, $27 and $3                 (140)    
Change in period, net of income tax benefit of $5, $4, $13 and $13                   (49)  
Balance - end of period at Sep. 30, 2019 54,572 11,121 (3,504) 11,465 34,969     2,613 (2,116) 24 $ 521
Other Comprehensive Income (Loss), Available-for-sale Securities, before Reclassification Adjustments, Tax               (674)      
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax (2)             (2)      
Other Comprehensive Income (Loss), Securities, Available-for-sale, Tax               (676)      
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax                 3    
Pension liability adjustment, Change in period, income tax (expense) benefit                   13  
Balance - beginning of period at Jun. 30, 2019   11,121 (3,093) 11,757 33,878 0 33,878 2,033 (1,931) 37  
Common Shares repurchased     (478)                
Treasury Stock, Retired, Cost Method, Amount   0 0   0            
Net shares redeemed under employee share-based compensation plans     67 6              
Exercise of stock options       (17)              
Share-based compensation expense       60              
Adjustments to Additional Paid in Capital, Dividends in Excess of Retained Earnings       (341)              
Net income (loss) 1,091       1,091            
Funding of dividends declared from Additional paid-in capital         341            
Dividends declared on Common Shares         (341)            
Change in period, before reclassification from AOCI, net of income tax expense of $(102), $(125), $(300) and $(674)               569      
Amounts reclassified from AOCI, net of income tax (expense) benefit of $7, nil, $(35) and $(2)               11      
Change in period, net of income tax expense of $(95), $(125), $(335) and $(676)               580      
Change in period, net of income tax (expense) benefit of $(13), $8, $27 and $3                 (185)    
Change in period, net of income tax benefit of $5, $4, $13 and $13                   (13)  
Balance - end of period at Sep. 30, 2019 54,572 11,121 (3,504) 11,465 34,969     2,613 (2,116) 24 521
Other Comprehensive Income (Loss), Available-for-sale Securities, before Reclassification Adjustments, Tax               (125)      
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax 0             0      
Other Comprehensive Income (Loss), Securities, Available-for-sale, Tax               (125)      
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax                 8    
Pension liability adjustment, Change in period, income tax (expense) benefit                   4  
Balance - beginning of period at Dec. 31, 2019 55,331 11,121 (3,754) 11,203 36,142 (72) 36,070 2,543 (1,939) 15  
Common Shares repurchased     (326)                
Treasury Stock, Retired, Cost Method, Amount   (57) 323   (266)            
Net shares redeemed under employee share-based compensation plans     216 (195)              
Exercise of stock options       (30)              
Share-based compensation expense       183              
Adjustments to Additional Paid in Capital, Dividends in Excess of Retained Earnings       (1,046)              
Net income (loss) 1,115       1,115            
Funding of dividends declared from Additional paid-in capital         1,046            
Dividends declared on Common Shares         (1,046)            
Change in period, before reclassification from AOCI, net of income tax expense of $(102), $(125), $(300) and $(674)               1,156      
Amounts reclassified from AOCI, net of income tax (expense) benefit of $7, nil, $(35) and $(2)               268      
Change in period, net of income tax expense of $(95), $(125), $(335) and $(676)               1,424      
Change in period, net of income tax (expense) benefit of $(13), $8, $27 and $3                 (141)    
Change in period, net of income tax benefit of $5, $4, $13 and $13                   (46)  
Balance - end of period at Sep. 30, 2020 56,413 11,064 (3,541) 10,115 36,919     3,967 (2,080) (31) 1,856
Other Comprehensive Income (Loss), Available-for-sale Securities, before Reclassification Adjustments, Tax               (300)      
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax $ (35)             (35)      
Other Comprehensive Income (Loss), Securities, Available-for-sale, Tax               (335)      
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax                 27    
Pension liability adjustment, Change in period, income tax (expense) benefit                   13  
Accounting Standards Update [Extensible List] us-gaap:AccountingStandardsUpdate201613Member                    
Balance - beginning of period at Jun. 30, 2020   11,121 (3,866) 10,416 35,991 $ 0 $ 35,991 3,424 (2,313) (13)  
Common Shares repurchased     0                
Treasury Stock, Retired, Cost Method, Amount   (57) 323   (266)            
Net shares redeemed under employee share-based compensation plans     2 (6)              
Exercise of stock options       (1)              
Share-based compensation expense       59              
Adjustments to Additional Paid in Capital, Dividends in Excess of Retained Earnings       (353)              
Net income (loss) $ 1,194       1,194            
Funding of dividends declared from Additional paid-in capital         353            
Dividends declared on Common Shares         (353)            
Change in period, before reclassification from AOCI, net of income tax expense of $(102), $(125), $(300) and $(674)               585      
Amounts reclassified from AOCI, net of income tax (expense) benefit of $7, nil, $(35) and $(2)               (42)      
Change in period, net of income tax expense of $(95), $(125), $(335) and $(676)               543      
Change in period, net of income tax (expense) benefit of $(13), $8, $27 and $3                 233    
Change in period, net of income tax benefit of $5, $4, $13 and $13                   (18)  
Balance - end of period at Sep. 30, 2020 56,413 $ 11,064 $ (3,541) $ 10,115 $ 36,919     3,967 (2,080) (31) $ 1,856
Other Comprehensive Income (Loss), Available-for-sale Securities, before Reclassification Adjustments, Tax               (102)      
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax $ 7             7      
Other Comprehensive Income (Loss), Securities, Available-for-sale, Tax               $ (95)      
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax                 $ (13)    
Pension liability adjustment, Change in period, income tax (expense) benefit                   $ 5  
v3.20.2
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash flows from operating activities    
Net income $ 1,115 $ 3,281
Adjustments to reconcile net income to net cash flows from operating activities    
Net realized (gains) losses 1,069 475
Amortization of premiums/discounts on fixed maturities 280 294
Amortization of purchased intangibles 217 229
Deferred income taxes (287) (178)
Unpaid losses and loss expenses 5,112 277
Unearned premiums 881 1,061
Future policy benefits 138 148
Insurance and reinsurance balances payable 280 (114)
Accounts payable, accrued expenses, and other liabilities 190 (6)
Income taxes payable (95) 83
Insurance and reinsurance balances receivable (324) (371)
Reinsurance recoverable (496) 426
Deferred policy acquisition costs (77) (266)
Other (762) (426)
Net cash flows from operating activities 7,241 4,913
Cash flows from investing activities    
Purchases of fixed maturities available for sale (20,793) (19,778)
Purchases of fixed maturities held to maturity (42) (143)
Purchases of equity securities (3,622) (466)
Sales of fixed maturities available for sale 9,537 10,430
Sales of to be announced mortgage-backed securities 0 6
Sales of equity securities 1,526 577
Maturities and redemptions of fixed maturities available for sale 8,709 6,390
Maturities and redemptions of fixed maturities held to maturity 841 814
Net change in short-term investments (434) 202
Net derivative instruments settlements (74) (647)
Private equity contribution (1,056) (1,093)
Private equity distribution 588 973
Payments to Acquire Other Investments   (329)
Payments for Other Deposits 503  
Portion one of payments to acquire 22.4% of Huatai Group (1,054)  
Other (352) (497)
Net cash flows used for investing activities (6,729) (3,561)
Cash flows from financing activities    
Dividends paid on Common Shares (1,035) (1,014)
Common Shares repurchased (333) (1,203)
Proceeds from issuance of repurchase agreements 1,402 2,394
Repayment of repurchase agreements (1,402) (2,396)
Proceeds from share-based compensation plans 77 155
Policyholder contract deposits 322 376
Policyholder contract withdrawals (253) (221)
Net cash flows used for financing activities (234) (1,124)
Proceeds from Issuance of Long-term Debt 988 1,286
Repayments of Long-term Debt 0 (501)
Effect of foreign currency rate changes on cash and restricted cash (51) 21
Net increase (decrease) in cash and restricted cash 227 249
Cash and restricted cash - beginning of period 1,646 [1] 1,340 [2]
Cash and restricted cash - end of period 1,873 [1] 1,589 [2]
Supplemental cash flow information    
Taxes paid 668 733
Interest paid 323 327
CHINA | Huatai Group [Member]    
Cash flows from investing activities    
Payments to Acquire Other Investments   (329)
Payments for Other Deposits 503 $ 0
Portion one of payments to acquire 22.4% of Huatai Group $ (1,054)  
[1] Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At September 30, 2020 and December 31, 2019, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
[2] Chubb maintains two notional multicurrency cash pools (Pools) with a third-party bank. Various Chubb entities participate in one or the other of the Pools, pursuant to which credit and debit balances in individual Chubb accounts are translated daily into a single currency and pooled on a notional basis. Individual Chubb entities are permitted to overdraw on their individual accounts provided the overall Pool balances do not fall below zero. At September 30, 2019 and December 31, 2018, the cash balance of one or more entities was negative; however, the overall Pool balances were positive.
v3.20.2
General
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
General General
a) Basis of presentation
Chubb Limited is a holding company incorporated in Zurich, Switzerland. Chubb Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. Our results are reported through the following business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. Refer to Note 12 for additional information.

The interim unaudited consolidated financial statements, which include the accounts of Chubb Limited and its subsidiaries (collectively, Chubb, we, us, or our), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and, in the opinion of management, reflect all adjustments necessary for a fair statement of the results and financial position for such periods. All significant intercompany accounts and transactions, including internal reinsurance transactions, have been eliminated.

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

b) Restricted cash
Restricted cash in the Consolidated balance sheets represents amounts held for the benefit of third parties and is legally or contractually restricted as to withdrawal or usage. Amounts include deposits with U.S. and non-U.S. regulatory authorities, trust funds set up for the benefit of ceding companies, and amounts pledged as collateral to meet financing arrangements.

The following table provides a reconciliation of cash and restricted cash reported within the Consolidated balance sheets that total to the amounts shown in the Consolidated statements of cash flows:
September 30December 31
(in millions of U.S. dollars)20202019
Cash$1,707 $1,537 
Restricted cash166 109 
Total cash and restricted cash shown in the Consolidated statements of cash flows$1,873 $1,646 

c) Goodwill
During the nine months ended September 30, 2020, Goodwill decreased $42 million, primarily reflecting the impact of foreign exchange.

d) Accounting guidance adopted in 2020
Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments
Effective January 1, 2020, we adopted, on a modified retrospective basis, new guidance on the accounting for credit losses of financial instruments that are measured at amortized cost, including held to maturity securities, and reinsurance recoverables, by applying an approach based on the current expected credit losses (CECL). The estimate of expected credit losses considers historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. In addition, the guidance also replaced the current available for sale (AFS) security other-than-temporary impairment model by requiring an estimate of the expected credit loss (ECL) only when the fair value is below the amortized cost of the asset. The length of time the fair value of an AFS security has been below its amortized cost no longer impacts the determination of whether a potential credit loss exists. The AFS security model also requires the use of a valuation allowance as compared to the previous practice of writing down the asset.

In 2020, we recognized a cumulative effect adjustment and decreased beginning retained earnings by $79 million pre-tax, or $72 million after-tax, principally related to the valuation allowance for credit losses. We also adopted the required disclosures within Note 3 Investments and Note 5 Reinsurance. Results for reporting periods prior to January 1, 2020 are presented in accordance with the previous guidance.
Accounting guidance not yet adopted
Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying GAAP to investments, derivatives, or other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Along with the optional expedients, the amendments include a general principle that permits an entity to consider contract modifications due to reference reform to be an event that does not require contract re-measurement at the modification date or reassessment of a previous accounting determination. Additionally, a company may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that were classified as held to maturity before January 1, 2020. This standard may be elected over time through December 31, 2022 as reference rate reform activities occur. We are currently assessing the effect of adopting this guidance on our financial condition and results of operations.

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 in the first quarter of 2023 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.

Refer to the 2019 Form 10-K for information on additional accounting guidance not yet adopted.
v3.20.2
Acquisitions
9 Months Ended
Sep. 30, 2020
Business Combinations [Abstract]  
Acquisitions Acquisitions
Huatai Group
Chubb maintains a direct investment in Huatai Insurance Group Company Limited (Huatai Group). Huatai Group is the parent company of, and owns 100 percent of, Huatai Property & Casualty Insurance Co., Ltd. (Huatai P&C) and approximately 80 percent of Huatai Life Insurance Co., Ltd. (Huatai Life) (collectively, Huatai).
In 2019, Chubb entered into agreements to acquire an additional 22.4 percent ownership in Huatai Group for approximately $1.55 billion through two separate purchases, a 15.3 percent ownership interest for approximately $1.1 billion and a 7.1 percent ownership interest for approximately $493 million. On July 13, 2020, we acquired the 15.3 percent ownership interest. The purchase of the additional 7.1 percent ownership interest is contingent upon important conditions that are expected to be completed by the end of 2021.

In connection with these purchase agreements, in January 2020, we paid collateralized deposits totaling $1.55 billion to the selling shareholders. Transactions relating to the deposits are recorded within investing activities on the Consolidated statement of cash flows.

As of September 30, 2020, Chubb's aggregate ownership interest in Huatai Group was 46.2 percent. Chubb applies the equity method of accounting to its investment in Huatai Group by recording its share of net income or loss in Other (income) expense in the Consolidated statements of operations. At September 30, 2020, the total carrying value of our investment in Huatai was approximately $2.4 billion, including approximately $1.3 billion attributable to goodwill.
Upon completion of the 7.1 percent purchase, which will result in majority ownership of Huatai Group, Chubb is expected to obtain control of Huatai Group, Huatai P&C and Huatai Life. At that time, Chubb is expected to apply consolidation accounting and discontinue the application of the equity method of accounting.
v3.20.2
Investments
9 Months Ended
Sep. 30, 2020
Investments, Debt and Equity Securities [Abstract]  
Investments Investments
a) Fixed maturities
Effective January 1, 2020, we adopted new accounting guidance that requires a valuation allowance for credit losses to be established for fixed maturity securities classified as held to maturity (HTM) or available for sale (AFS). For information on accounting policies applicable to periods prior to January 1, 2020, refer to the 2019 Form 10-K.
September 30, 2020Amortized
Cost
Valuation AllowanceGross
Unrealized
Appreciation
Gross
Unrealized
Depreciation
Fair
Value
(in millions of U.S. dollars)
Available for sale
U.S. Treasury / Agency$2,564 $ $227 $ $2,791 
Non-U.S.23,858 (9)1,548 (115)25,282 
Corporate and asset-backed securities33,661 (25)1,895 (233)35,298 
Mortgage-backed securities18,272  1,078 (13)19,337 
Municipal6,846  302 (4)7,144 
$85,201 $(34)$5,050 $(365)$89,852 
Amortized
Cost
Valuation AllowanceNet Carrying ValueGross
Unrealized
Appreciation
Gross
Unrealized
Depreciation
Fair
Value
Held to maturity
U.S. Treasury / Agency$1,240 $ $1,240 $69 $ $1,309 
Non-U.S.1,273 (7)1,266 109 (1)1,374 
Corporate and asset-backed securities2,204 (36)2,168 252 (6)2,414 
Mortgage-backed securities2,104 (1)2,103 152 (2)2,253 
Municipal4,875 (1)4,874 249  5,123 
$11,696 $(45)$11,651 $831 $(9)$12,473 

December 31, 2019Amortized
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 / Agency$3,188 $96 $(1)$3,283 $— 
Non-U.S.22,670 1,099 (62)23,707 (25)
Corporate and asset-backed securities30,689 1,180 (78)31,791 (5)
Mortgage-backed securities18,712 494 (14)19,192 — 
Municipal7,321 205 (11)7,515 — 
$82,580 $3,074 $(166)$85,488 $(30)
Held to maturity
U.S. Treasury / Agency$1,318 $29 $— $1,347 $— 
Non-U.S.1,423 62 — 1,485 — 
Corporate and asset-backed securities2,349 121 (2)2,468 — 
Mortgage-backed securities2,331 65 — 2,396 — 
Municipal5,160 150 (1)5,309 — 
$12,581 $427 $(3)$13,005 $— 
Management evaluates CECL for all HTM securities each quarter. U.S. Treasury and agency securities and U.S. government agency mortgage-backed securities are assumed to have no risk of non-payment and therefore are excluded from the CECL evaluation. The remaining HTM securities are evaluated for potential credit loss on a collective pool basis. We elected to pool HTM securities by 1) external credit rating and 2) time to maturity (duration). These characteristics are the most representative of similar risk characteristics within our portfolio. Chubb pools HTM securities and calculates an expected credit loss for each pool using Moody’s corporate bond default average, corporate bond recovery rate, and an economic cycle multiplier. The multiplier is based on the leading economic index and adjusts the average default frequency for a forward-looking economic outlook. Prior to the adoption of this guidance, HTM securities were evaluated individually for other-than-temporary impairment (OTTI).

Management monitors the credit quality of HTM securities through the review of external credit ratings on a quarterly basis. The following table presents the amortized cost of our HTM securities according to S&P rating:
September 30, 2020
(in millions of U.S. dollars)Amortized cost% of Total
AAA$2,542 22 %
AA6,239 53 %
A2,072 18 %
BBB821 7 %
BB21  %
Other1  %
Total$11,696 100 %

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

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

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

We elected to not measure an allowance for accrued investment income as uncollectible balances are written off in a timely manner, typically 30 to 45 days after uncollected balances are due.
The following table presents fixed maturities by contractual maturity:
September 30December 31
 20202019
(in millions of U.S. dollars)Net Carrying ValueFair ValueAmortized CostFair Value
Available for sale
Due in 1 year or less$4,703 $4,703 $3,951 $3,973 
Due after 1 year through 5 years26,319 26,319 27,142 27,720 
Due after 5 years through 10 years26,456 26,456 23,901 24,874 
Due after 10 years13,037 13,037 8,874 9,729 
70,515 70,515 63,868 66,296 
Mortgage-backed securities19,337 19,337 18,712 19,192 
$89,852 $89,852 $82,580 $85,488 
Held to maturity
Due in 1 year or less$1,045 $1,056 $478 $479 
Due after 1 year through 5 years3,501 3,667 3,869 3,940 
Due after 5 years through 10 years3,119 3,315 3,756 3,883 
Due after 10 years1,883 2,182 2,147 2,307 
9,548 10,220 10,250 10,609 
Mortgage-backed securities2,103 2,253 2,331 2,396 
$11,651 $12,473 $12,581 $13,005 

Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties. 

b) Gross unrealized loss
Fixed maturities in an unrealized loss position at September 30, 2020 comprised both investment grade and below investment grade securities for which fair value declined primarily due to widening credit spreads since the date of purchase.

The following table presents, for AFS fixed maturities in an unrealized loss position (including securities on loan) that are not deemed to have credit losses, the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
0 – 12 MonthsOver 12 MonthsTotal
September 30, 2020Fair ValueGross
Unrealized
Loss
Fair ValueGross
Unrealized
Loss
Fair ValueGross
Unrealized
Loss
(in millions of U.S. dollars)
Non-U.S.$2,848 $(89)$122 $(14)$2,970 $(103)
Corporate and asset-backed securities6,149 (145)721 (41)6,870 (186)
Mortgage-backed securities1,481 (11)26 (2)1,507 (13)
Municipal
190 (2)54 (2)244 (4)
Total AFS fixed maturities $10,668 $(247)$923 $(59)$11,591 $(306)
The following table presents, for all securities in an unrealized loss position (including securities on loan), the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
0 – 12 MonthsOver 12 MonthsTotal
December 31, 2019Fair ValueGross
Unrealized
Loss
Fair ValueGross
Unrealized
Loss
Fair ValueGross
Unrealized
Loss
(in millions of U.S. dollars)
U.S. Treasury / Agency$234 $(1)$339 $— $573 $(1)
Non-U.S.1,846 (34)802 (28)2,648 (62)
Corporate and asset-backed securities2,121 (40)988 (40)3,109 (80)
Mortgage-backed securities1,174 (6)932 (8)2,106 (14)
Municipal
188 — 276 (12)464 (12)
Total fixed maturities$5,563 $(81)$3,337 $(88)$8,900 $(169)

c) Net realized gains (losses)

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

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

Projected cash flows are driven primarily by assumptions regarding probability of default and also the timing and amount of recoveries associated with defaults. Chubb developed the projected cash flows using market data, issuer-specific information, and credit ratings. In combination with contractual cash flows and the use of historical default and recovery data by Moody’s Investors Service (Moody’s) rating category we generate expected cash flows using the average cumulative issuer-weighted global default rates by letter rating.
The following table presents the components of Net realized gains (losses):
Three Months EndedNine Months Ended
September 30September 30
(in millions of U.S. dollars)2020201920202019
Fixed maturities:
OTTI on fixed maturities, gross$ $(54)$ $(81)
OTTI on fixed maturities recognized in OCI (pre-tax) 30  31 
OTTI on fixed maturities, net (24) (50)
Gross realized gains excluding OTTI50 70 195 153 
Gross realized losses excluding OTTI(32)(57)(331)(146)
Provision for expected credit losses42 — (4)— 
Impairment (1)
(11)— (163)— 
Total fixed maturities 49 (11)(303)(43)
Equity securities 119 66 
Other investments31 (4)(71)(18)
Foreign exchange gains (losses)(222)84 (351)86 
Investment and embedded derivative instruments9 (97)38 (408)
Fair value adjustments on insurance derivative46 (106)(426)(57)
S&P futures(52)(6)(30)(89)
Other derivative instruments1 (14)(2)(8)
Other(3)(4)(43)(4)
Net realized gains (losses) (pre-tax)$(141)$(155)$(1,069)$(475)
(1)Relates to certain securities we intended to sell and securities written to market entering default.

Realized gains and losses from Equity securities and Other investments from the table above include sales of securities and unrealized gains and losses from fair value changes as follows:
Three Months Ended
September 30
20202019
(in millions of U.S. dollars)Equity SecuritiesOther InvestmentsTotalEquity SecuritiesOther InvestmentsTotal
Net gains (losses) recognized during the period$ $31 $31 $$(4)$(1)
Less: Net gains (losses) recognized from sales of securities34  34 24 (2)22 
Unrealized gains (losses) recognized for securities still held at reporting date$(34)$31 $(3)$(21)$(2)$(23)

Nine Months Ended
September 30
20202019
(in millions of U.S. dollars)Equity SecuritiesOther InvestmentsTotalEquity SecuritiesOther InvestmentsTotal
Net gains (losses) recognized during the period$119 $(71)$48 $66 $(18)$48 
Less: Net gains (losses) recognized from sales of securities197  197 57 (4)53 
Unrealized gains (losses) recognized for securities still held at reporting date$(78)$(71)$(149)$$(14)$(5)
The following table presents a roll-forward of valuation allowance for expected credit losses on fixed maturities:
Three Months EndedNine Months Ended
September 30September 30
(in millions of U.S. dollars)20202020
Available for sale
Valuation allowance for expected credit losses - beginning of period$69 $ 
Impact of adoption of new accounting guidance 25 
Provision for expected credit loss5 183 
Initial allowance for purchased securities with credit deterioration 5 
Write-offs charged against the expected credit loss (5)
Recovery of expected credit loss(40)(174)
Valuation allowance for expected credit losses - end of period$34 $34 
Held to maturity
Valuation allowance for expected credit losses - beginning of period$51 $ 
Impact of adoption of new accounting guidance 44 
Provision for expected credit loss2 9 
Recoveries of amounts previously written off(8)(8)
Valuation allowance for expected credit losses - end of period$45 $45 

Purchased Credit Deterioration (PCD) Securities
During the nine months ended September 30, 2020, we purchased $108 million of securities with credit deterioration, categorized as available for sale, and assessed an allowance for credit losses of $5 million at acquisition. These PCD securities had a par value at acquisition of $144 million.

Alternative investments
Alternative investments include partially-owned investment companies, investment funds, and limited partnerships measured at fair value using their respective net asset values or equivalent (NAV) as a practical expedient. The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:
September 30December 31
 Expected
Liquidation
Period of Underlying Assets
20202019
(in millions of U.S. dollars)Fair
Value
Maximum
Future Funding
Commitments
Fair
Value
Maximum
Future Funding
Commitments
Financial
2 to 10 Years
$579 $293 $611 $329 
Real Assets
2 to 11 Years
724 704 712 422 
Distressed
2 to 8 Years
252 573 263 80 
Private Credit
3 to 8 Years
86 272 104 272 
Traditional
2 to 14 Years
3,727 1,455 2,844 2,160 
Vintage
1 to 2 Years
83  116 — 
Investment fundsNot Applicable243  271 — 
$5,694 $3,297 $4,921 $3,263 

Included in all categories in the above table, except for Investment funds, are investments for which Chubb will never have the contractual option to redeem but receives distributions based on the liquidation of the underlying assets. Further, for all categories except for Investment funds, Chubb does not have the ability to sell or transfer the investments without the consent from the general partner of individual funds.
Investment Category: Consists of investments in private equity funds:
Financialtargeting financial services companies, such as financial institutions and insurance services worldwide
Real Assetstargeting investments related to hard, physical assets, such as real estate, infrastructure and natural resources
Distressedtargeting distressed corporate debt/credit and equity opportunities in the U.S.
Private Credittargeting privately originated corporate debt investments, including senior secured loans and subordinated bonds
Traditionalemploying traditional private equity investment strategies, such as buyout and growth equity globally
Vintagefunds where the initial fund term has expired

Investment funds employ various investment strategies, such as long/short equity and arbitrage/distressed. Included in this category are investments for which Chubb has the option to redeem at agreed upon value as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investment fund investments may be redeemed monthly, quarterly, semi-annually, or annually. If Chubb wishes to redeem an investment fund investment, it must first determine if the investment fund is still in a lock-up period (a time when Chubb cannot redeem its investment so that the investment fund manager has time to build the portfolio). If the investment fund is no longer in its lock-up period, Chubb must then notify the investment fund manager of its intention to redeem by the notification date prescribed by the subscription agreement. Subsequent to notification, the investment fund can redeem Chubb’s investment within several months of the notification. Notice periods for redemption of the investment funds range up to 270 days. Chubb can redeem its investment funds without consent from the investment fund managers.

d) Restricted assets
Chubb is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. Chubb is also required to restrict assets pledged under repurchase agreements, which represent Chubb's agreement to sell securities and repurchase them at a future date for a predetermined price. We use trust funds in certain large reinsurance transactions where the trust funds are set up for the benefit of the ceding companies and generally take the place of letter of credit (LOC) requirements. We have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at September 30, 2020 and December 31, 2019 are investments, primarily fixed maturities, totaling $20.0 billion and $21.0 billion, respectively, and cash of $166 million and $109 million, respectively.
The following table presents the components of restricted assets:
September 30December 31
(in millions of U.S. dollars)20202019
Trust funds$12,746 $14,004 
Deposits with U.S. regulatory authorities2,448 2,466 
Deposits with non-U.S. regulatory authorities2,957 2,709 
Assets pledged under repurchase agreements1,433 1,464 
Other pledged assets577 490 
Total$20,161 $21,133 
v3.20.2
Fair value measurements
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Fair value measurements Fair value measurements
a) Fair value hierarchy
Fair value of financial assets and financial liabilities is estimated based on the framework established in the fair value accounting guidance. The guidance defines fair value as the price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants and establishes a three-level valuation hierarchy based on the reliability of the inputs. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.

The three levels of the hierarchy are as follows:

Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2 – Includes, among other items, inputs other than quoted prices that are observable for the asset or liability such as
interest rates and yield curves, quoted prices for similar assets and liabilities in active markets, and quoted prices for identical or similar assets and liabilities in markets that are not active; and
Level 3 – Inputs that are unobservable and reflect management’s judgments about assumptions that market participants
would use in pricing an asset or liability.

We categorize financial instruments within the valuation hierarchy at the balance sheet date based upon the lowest level of inputs that are significant to the fair value measurement.

We use pricing services to obtain fair value measurements for the majority of our investment securities. Based on management’s understanding of the methodologies used, these pricing services only produce an estimate of fair value if there is observable market information that would allow them to make a fair value estimate. Based on our understanding of the market inputs used by the pricing services, all applicable investments have been valued in accordance with GAAP. We do not adjust prices obtained from pricing services. The following is a description of the valuation techniques and inputs used to determine fair values for financial instruments carried at fair value, as well as the general classification of such financial instruments pursuant to the valuation hierarchy.

Fixed maturities
We use pricing services to estimate fair value measurements for the majority of our fixed maturities. The pricing services use market quotations for fixed maturities that have quoted prices in active markets; such securities are classified within Level 1. For fixed maturities other than U.S. Treasury securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements using their pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Additional valuation factors that can be taken into account are nominal spreads, dollar basis, and liquidity adjustments. The pricing services evaluate each asset class based on relevant market and credit information, perceived market movements, and sector news. The market inputs used in the pricing evaluation, listed in the approximate order of priority include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. The extent of the use of each input is dependent on the asset class and the market conditions. Given the asset class, the priority of the use of inputs may change, or some market inputs may not be relevant. Additionally, fixed maturities valuation is more subjective when markets are less liquid due to the lack of market based inputs (i.e., stale pricing), which may increase the potential that an investment's estimated fair value is not reflective of the price at which an actual transaction would occur. The overwhelming majority of fixed maturities are classified within Level 2 because the most significant inputs used in the pricing techniques are observable. For a small number of fixed maturities, we obtain a single broker quote (typically from a market maker). Due to the disclaimers on the quotes that indicate that the price is indicative only, we include these fair value estimates in Level 3. 

Equity securities
Equity securities with active markets are classified within Level 1 as fair values are based on quoted market prices. For equity securities in markets which are less active, fair values are based on market valuations and are classified within Level 2. Equity securities for which pricing is unobservable are classified within Level 3.

Short-term investments
Short-term investments, which comprise securities due to mature within one year of the date of purchase that are traded in active markets, are classified within Level 1 as fair values are based on quoted market prices. Securities such as commercial paper and discount notes are classified within Level 2 because these securities are typically not actively traded due to their
approaching maturity and, as such, their cost approximates fair value. Short-term investments for which pricing is unobservable are classified within Level 3.

Other investments
Fair values for the majority of Other investments including investments in partially-owned investment companies, investment funds, and limited partnerships are based on their respective net asset values or equivalent (NAV) and are excluded from the fair value hierarchy table below. Certain of our long-duration contracts are supported by assets that do not qualify for separate account reporting under GAAP. These assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Other investments also include equity securities classified within Level 1, and fixed maturities, classified within Level 2, held in rabbi trusts maintained by Chubb for deferred compensation plans and supplemental retirement plans and are classified within the valuation hierarchy on the same basis as other equity securities and fixed maturities. Other investments for which pricing is unobservable are classified within Level 3.

Securities lending collateral
The underlying assets included in Securities lending collateral in the Consolidated balance sheets are fixed maturities which are classified in the valuation hierarchy on the same basis as other fixed maturities. Excluded from the valuation hierarchy is the corresponding liability related to Chubb’s obligation to return the collateral plus interest as it is reported at contract value and not fair value in the Consolidated balance sheets.

Investment derivative instruments
Actively traded investment derivative instruments, including futures, options, and forward contracts are classified within Level 1 as fair values are based on quoted market prices. The fair value of cross-currency swaps and interest rate swaps is based on market valuations and is classified within Level 2. Investment derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets.

Other derivative instruments
We maintain positions in exchange-traded equity futures contracts designed to limit exposure to a severe equity market decline, which would cause an increase in expected claims and, therefore, an increase in reserves for our guaranteed minimum death benefits (GMDB) and guaranteed living benefits (GLB) reinsurance business. Our positions in exchange-traded equity futures contracts are classified within Level 1. The fair value of the majority of the remaining positions in other derivative instruments is based on significant observable inputs including equity security and interest rate indices. Accordingly, these are classified within Level 2. Other derivative instruments based on unobservable inputs are classified within Level 3. Other derivative instruments are recorded in either Other assets or Accounts payable, accrued expenses, and other liabilities in the Consolidated balance sheets.

Separate account assets
Separate account assets represent segregated funds where investment risks are borne by the customers, except to the extent of certain guarantees made by Chubb. Separate account assets comprise mutual funds classified within Level 1 in the valuation hierarchy on the same basis as other equity securities traded in active markets. Separate account assets also include fixed maturities classified within Level 2 because the most significant inputs used in the pricing techniques are observable. Excluded from the valuation hierarchy are the corresponding liabilities as they are reported at contract value and not fair value in the Consolidated balance sheets. Separate account assets are recorded in Other assets in the Consolidated balance sheets.

Guaranteed living benefits
The GLB arises from life reinsurance programs covering living benefit guarantees whereby we assume the risk of guaranteed minimum income benefits (GMIB) associated with variable annuity contracts. GLB’s are recorded in Accounts payable, accrued expenses, and other liabilities and Future policy benefits in the Consolidated balance sheets. For GLB reinsurance, Chubb estimates fair value using an internal valuation model which includes current market information and estimates of policyholder behavior. All of the treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of factors, including interest rates, equity markets, credit risk, current account value, market volatility, expected annuitization rates and other policyholder behavior, and changes in policyholder mortality. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3.
Financial instruments measured at fair value on a recurring basis, by valuation hierarchy
September 30, 2020Level 1Level 2Level 3Total
(in millions of U.S. dollars)
Assets:
Fixed maturities available for sale
U.S. Treasury / Agency$2,264 $527 $ $2,791 
Non-U.S. 24,788 494 25,282 
Corporate and asset-backed securities 33,853 1,445 35,298 
Mortgage-backed securities 19,276 61 19,337 
Municipal 7,144  7,144 
2,264 85,588 2,000 89,852 
Equity securities3,022  66 3,088 
Short-term investments3,270 1,383 7 4,660 
Other investments