CHUBB LTD, 10-Q filed on 4/30/2021
Quarterly Report
v3.21.1
Document and Entity Information - SFr / shares
3 Months Ended
Mar. 31, 2021
Apr. 16, 2021
Dec. 31, 2020
Document Type 10-Q    
Document Period End Date Mar. 31, 2021    
Document Quarterly Report true    
Document Transition Report false    
Entity Registrant Name Chubb Ltd    
Entity Central Index Key 0000896159    
Document Fiscal Year Focus 2021    
Document Fiscal Period Focus Q1    
Entity File Number 1-11778    
Entity Incorporation, State or Country Code V8    
Entity Tax Identification Number 98-0091805    
Entity Address, Address Line One Baerengasse 32    
Entity Address, City or Town Zurich    
Entity Address, Country CH    
Entity Address, Postal Zip Code 8001    
Country Region 41    
City Area Code (0)43    
Local Phone Number 456 76 00    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Shell Company false    
Entity Emerging Growth Company false    
Common Shares, par value SFr 24.15   SFr 24.15
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Common Shares Outstanding   449,690,575  
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    
v3.21.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2021
Dec. 31, 2020
Assets    
Fixed maturities available for sale, at fair value, net of valuation allowance - $15 and $20 (amortized cost – $87,873 and $85,188) $ 91,071 $ 90,699
Fixed maturities held to maturity, net carrying value 11,132 11,653
Equity securities, at fair value 4,405 4,027
Short-term investments 3,735 4,345
Other investments, at fair value 8,636 7,945
Total investments 118,979 118,669
Cash 1,684 1,747
Restricted cash 157 89
Securities lending collateral 2,076 1,844
Accrued investment income 857 867
Insurance and reinsurance balances receivable, net of valuation allowance - $43 and $44 10,573 10,480
Reinsurance recoverable on losses and loss expenses, net of valuation allowance - $317 and $314 15,914 15,592
Reinsurance recoverable on policy benefits 202 206
Deferred policy acquisition costs 5,443 5,402
Value of business acquired 258 263
Goodwill 15,412 15,400
Other intangible assets 5,749 5,811
Prepaid reinsurance premiums 2,835 2,769
Investments in partially-owned insurance companies 2,871 2,813
Other assets 8,967 8,822
Total assets 191,977 190,774
Liabilities    
Unpaid losses and loss expenses 69,255 67,811
Unearned premiums 18,040 17,652
Future policy benefits 5,839 5,713
Insurance and reinsurance balances payable 6,566 6,708
Securities lending payable 2,076 1,844
Accounts payable, accrued expenses, and other liabilities 14,051 14,052
Deferred tax liabilities 482 892
Repurchase agreements 1,405 1,405
Long-term debt 14,879 14,948
Trust preferred securities 308 308
Total liabilities 132,901 131,333
Commitments and contingencies (refer to Note 7)
Shareholders’ equity    
Common Shares (CHF 24.15 par value; 477,605,264 shares issued; 449,676,959 and 450,732,625 shares outstanding) 11,064 11,064
Common Shares in treasury (27,928,305 and 26,872,639 shares) (3,901) (3,644)
Additional Paid in Capital, Common Stock 9,318 9,815
Retained earnings 41,637 39,337
Accumulated other comprehensive income (AOCI) 958 2,869
Total shareholders’ equity 59,076 59,441
Total liabilities and shareholders’ equity $ 191,977 $ 190,774
v3.21.1
Statement of Financial Position (Parentheticals)
$ in Millions
Mar. 31, 2021
USD ($)
shares
Dec. 31, 2020
USD ($)
shares
Statement of Financial Position [Abstract]    
Available for sale, at amortized cost $ 87,873 $ 85,188
Debt Securities, Available-for-sale, Allowance for Credit Loss 15 20
Held to maturity, Fair Value 11,752 12,510
Debt Securities, Held-to-maturity, Allowance for Credit Loss 43 44
short-term investments amortized cost 3,736 4,349
Premium Receivable, Allowance for Credit Loss 43 44
Reinsurance Recoverable, Allowance for Credit Loss $ 317 $ 314
Common Shares, shares issued | shares 477,605,264 477,605,264
Common Shares, shares outstanding | shares 449,676,959 450,732,625
Common Shares in treasury, shares | shares 27,928,305 26,872,639
v3.21.1
Consolidated Statements Of Operations and Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Revenues    
Net premiums written $ 8,662 $ 7,977
Increase in unearned premiums (441) (183)
Net premiums earned 8,221 7,794
Net investment income 863 861
Realized Investment Gains (Losses) 887 (958)
Total revenues 9,971 7,697
Expenses    
Losses and loss expenses 5,053 4,485
Policy benefits 167 129
Policy acquisition costs 1,665 1,615
Administrative expenses 744 741
Interest expense 122 132
Other (income) expense (490) 55
Amortization of purchased intangibles 72 73
Total expenses 7,333 7,230
Income before income tax 2,638 467
Income tax expense (benefit) (includes $4 and $(40) on unrealized gains and losses reclassified from AOCI) 338 215
Net income 2,300 252
Other comprehensive income (loss)    
Unrealized depreciation (2,293) (2,479)
Reclassification adjustment for net realized (gains) losses included in net income (24) 319
Unrealized appreciation (Depreciation) after reclassification adjustment (2,317) (2,160)
Change in:    
Cumulative foreign currency translation adjustment 22 (859)
Postretirement benefit liability adjustment (28) (14)
Other comprehensive loss, before income tax (2,323) (3,033)
Income tax benefit related to OCI items 412 321
Other comprehensive loss (1,911) (2,712)
Comprehensive income (loss) $ 389 $ (2,460)
Earnings per share    
Basic earnings per share $ 5.10 $ 0.56
Diluted earnings per share $ 5.07 $ 0.55
v3.21.1
Consolidated Statements of Operations and Comprehensive Income (Parentheticals) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Income Statement [Abstract]    
Total net realized gains (losses) reclassified from AOCI $ 24 $ (319)
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax $ 4 $ (40)
v3.21.1
Consolidated Statements Of Shareholders' Equity - USD ($)
$ in Millions
Total
Common Stock [Member]
Common shares in treasury [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
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, 2019   $ 11,121 $ (3,754) $ 11,203 $ 36,142 $ (63) $ 36,079 $ 2,543 $ (1,939) $ 15  
Common Shares repurchased     (326)                
Net shares redeemed under employee share-based compensation plans     208 (196)              
Exercise of stock options       (26)              
Share-based compensation expense       69              
Adjustments to Additional Paid in Capital, Dividends in Excess of Retained Earnings       (340)              
Net income (loss) $ 252       252            
Funding of dividends declared from Additional paid-in capital         340            
Dividends declared on Common Shares         (340)            
Change in period, before reclassification from AOCI, net of income tax benefit of $401 and $324               (2,155)      
Amounts reclassified from AOCI, net of income tax (expense) benefit of $4 and $(40)               279      
Change in period, net of income tax benefit of $405 and $284               (1,876)      
Change in period, net of income tax benefit of $2 and $34                 (825)    
Change in period, net of income tax benefit of $5 and $3                   (11)  
Balance - end of period at Mar. 31, 2020 52,197 11,121 (3,872) 10,710 36,331     667 (2,764) 4 $ (2,093)
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax (40)             (40)      
Other Comprehensive Income (Loss), Securities, Available-for-sale, Tax               284      
OCI, Debt Securities, Available-for-Sale, Gain (Loss), before Adjustment, Tax               324      
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax                 34    
Pension liability adjustment, Change in period, income tax (expense) benefit                   3  
Balance - beginning of period at Dec. 31, 2020 59,441 11,064 (3,644) 9,815 39,337 $ 0 $ 39,337 4,673 (1,637) (167)  
Common Shares repurchased     (519)                
Net shares redeemed under employee share-based compensation plans     262 (187)              
Exercise of stock options       (24)              
Share-based compensation expense       66              
Adjustments to Additional Paid in Capital, Dividends in Excess of Retained Earnings       (352)              
Net income (loss) 2,300       2,300            
Funding of dividends declared from Additional paid-in capital         352            
Dividends declared on Common Shares         (352)            
Change in period, before reclassification from AOCI, net of income tax benefit of $401 and $324               (1,892)      
Amounts reclassified from AOCI, net of income tax (expense) benefit of $4 and $(40)               (20)      
Change in period, net of income tax benefit of $405 and $284               (1,912)      
Change in period, net of income tax benefit of $2 and $34                 24    
Change in period, net of income tax benefit of $5 and $3                   (23)  
Balance - end of period at Mar. 31, 2021 59,076 $ 11,064 $ (3,901) $ 9,318 $ 41,637     2,761 (1,613) (190) $ 958
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax $ 4             4      
Other Comprehensive Income (Loss), Securities, Available-for-sale, Tax               405      
OCI, Debt Securities, Available-for-Sale, Gain (Loss), before Adjustment, Tax               $ 401      
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax                 $ 2    
Pension liability adjustment, Change in period, income tax (expense) benefit                   $ 5  
Accounting Standards Update [Extensible List] Accounting Standards Update 2016-13 [Member]                    
v3.21.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Cash flows from operating activities    
Net income $ 2,300 $ 252
Adjustments to reconcile net income to net cash flows from operating activities    
Net realized (gains) losses (887) 958
Amortization of premiums/discounts on fixed maturities 76 87
Amortization of purchased intangibles 72 73
Deferred income taxes 0 (13)
Unpaid losses and loss expenses 1,368 228
Unearned premiums 503 192
Future policy benefits 47 31
Insurance and reinsurance balances payable (36) 2
Accounts payable, accrued expenses, and other liabilities (663) (392)
Income taxes payable 101 109
Insurance and reinsurance balances receivable (209) (6)
Reinsurance recoverable (290) 116
Deferred policy acquisition costs (81) (65)
Other (196) 140
Net cash flows from operating activities 2,105 1,712
Cash flows from investing activities    
Purchases of fixed maturities available for sale (7,738) (6,474)
Purchases of fixed maturities held to maturity (102) (6)
Purchases of equity securities (351) (1,380)
Sales of fixed maturities available for sale 1,343 4,687
Sales of equity securities 351 131
Maturities and redemptions of fixed maturities available for sale 4,289 2,756
Maturities and redemptions of fixed maturities held to maturity 604 440
Net change in short-term investments 595 552
Net derivative instruments settlements 87 109
Private equity contribution (427) (361)
Private equity distribution 206 211
Payment, including deposit, for Huatai Group Interest (65) (1,550)
Other (44) (125)
Net cash flows used for investing activities (1,252) (1,010)
Cash flows from financing activities    
Dividends paid on Common Shares (352) (339)
Common Shares repurchased (519) (323)
Proceeds from issuance of repurchase agreements 450 952
Repayment of repurchase agreements (450) (952)
Proceeds from share-based compensation plans 115 47
Policyholder contract deposits and other 133 135
Policyholder contract withdrawals and other (124) (162)
Proceeds from (Payments for) Other Financing Activities (65) (3)
Net cash flows used for financing activities (812) (645)
Effect of foreign currency rate changes on cash and restricted cash (36) (45)
Net increase (decrease) in cash and restricted cash 5 12
Cash and restricted cash - beginning of period 1,836 1,646
Cash and restricted cash - end of period 1,841 1,658
Supplemental cash flow information    
Taxes paid 236 107
Interest paid $ 90 $ 91
v3.21.1
General
3 Months Ended
Mar. 31, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
General General
a) Basis of presentation
Chubb Limited is a holding company incorporated in Zurich, Switzerland. Chubb Limited, through its subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. Our results are reported through the following business segments: North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance. Refer to Note 11 for additional information.

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

The results of operations and cash flows for any interim period are not necessarily indicative of the results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2020 Form 10-K.

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

The following table provides a reconciliation of cash and restricted cash reported within the Consolidated balance sheets that total to the amounts shown in the Consolidated statements of cash flows:
March 31December 31
(in millions of U.S. dollars)20212020
Cash$1,684 $1,747 
Restricted cash157 89 
Total cash and restricted cash shown in the Consolidated statements of cash flows$1,841 $1,836 

c) Goodwill
During the three months ended March 31, 2021, Goodwill increased $12 million, primarily reflecting the impact of foreign exchange.

d) Accounting guidance not yet adopted
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.
v3.21.1
Acquisitions
3 Months Ended
Mar. 31, 2021
Business Combinations [Abstract]  
Acquisitions Acquisitions
Huatai Group
Chubb maintains a direct investment in Huatai Insurance Group Co., Ltd. (Huatai Group). Huatai Group is the parent company of, and owns 100 percent of, Huatai Property & Casualty Insurance Co., Ltd. (Huatai P&C), approximately 80 percent of Huatai Life Insurance Co., Ltd. (Huatai Life), and approximately 82 percent of Huatai Asset Management Co., Ltd. (collectively, Huatai). Huatai Group's insurance operations have more than 600 branches and 17 million customers in China. In November 2020, we completed the purchase of an incremental 0.9 percent ownership interest in Huatai Group for approximately $65 million, which was paid in January 2021.
As of March 31, 2021, Chubb's aggregate ownership interest in Huatai Group was approximately 47.1 percent. Chubb applies the equity method of accounting to its investment in Huatai Group by recording its share of net income or loss in Other (income) expense in the Consolidated statements of operations. In 2019, Chubb entered into an agreement to acquire an additional 7.1 percent ownership interest in Huatai Group. The purchase of the additional 7.1 percent ownership interest is contingent upon important conditions. Upon completion of the 7.1 percent purchase, Chubb is expected to obtain majority ownership of Huatai Group and control of Huatai. At that time, Chubb is expected to apply consolidation accounting and discontinue the application of the equity method of accounting.
v3.21.1
Investments
3 Months Ended
Mar. 31, 2021
Investments, Debt and Equity Securities [Abstract]  
Investments Investments
a) Fixed maturities
March 31, 2021Amortized
Cost
Valuation AllowanceGross
Unrealized
Appreciation
Gross
Unrealized
Depreciation
Fair
Value
(in millions of U.S. dollars)
Available for sale
U.S. Treasury / Agency$2,413 $ $121 $(7)$2,527 
Non-U.S.25,147 (6)1,214 (189)26,166 
Corporate and asset-backed securities35,224 (9)1,474 (289)36,400 
Mortgage-backed securities18,788  738 (89)19,437 
Municipal6,301  254 (14)6,541 
$87,873 $(15)$3,801 $(588)$91,071 
Amortized
Cost
Valuation AllowanceNet Carrying ValueGross
Unrealized
Appreciation
Gross
Unrealized
Depreciation
Fair
Value
Held to maturity
U.S. Treasury / Agency$1,158 $ $1,158 $39 $ $1,197 
Non-U.S.1,276 (6)1,270 82 (1)1,351 
Corporate and asset-backed securities2,163 (35)2,128 183  2,311 
Mortgage-backed securities1,888 (1)1,887 110  1,997 
Municipal4,690 (1)4,689 207  4,896 
$11,175 $(43)$11,132 $621 $(1)$11,752 
December 31, 2020Amortized
Cost
Valuation AllowanceGross
Unrealized
Appreciation
Gross
Unrealized
Depreciation
Fair
Value
(in millions of U.S. dollars)
Available for sale
U.S. Treasury / Agency$2,471 $— $199 $— $2,670 
Non-U.S.24,594 (6)1,808 (42)26,354 
Corporate and asset-backed securities34,095 (14)2,322 (72)36,331 
Mortgage-backed securities17,456 — 1,022 (8)18,470 
Municipal6,572 — 304 (2)6,874 
$85,188 $(20)$5,655 $(124)$90,699 
Amortized
Cost
Valuation AllowanceNet Carrying ValueGross
Unrealized
Appreciation
Gross Unrealized DepreciationFair
Value
Held to maturity
U.S. Treasury / Agency$1,392 $— $1,392 $60 $— $1,452 
Non-U.S.1,295 (7)1,288 118 (1)1,405 
Corporate and asset-backed securities2,185 (35)2,150 288 — 2,438 
Mortgage-backed securities2,000 (1)1,999 148 (1)2,146 
Municipal4,825 (1)4,824 245 — 5,069 
$11,697 $(44)$11,653 $859 $(2)$12,510 

The following table presents the amortized cost of our HTM securities according to S&P rating:
March 31, 2021December 31, 2020
(in millions of U.S. dollars, except for percentages)Amortized cost% of TotalAmortized cost% of Total
AAA$2,404 22 %$2,511 22 %
AA5,815 52 %6,193 53 %
A2,109 19 %2,138 18 %
BBB818 7 %826 %
BB28  %28 — %
Other1  %— %
Total$11,175 100 %$11,697 100 %
The following table presents fixed maturities by contractual maturity:
March 31December 31
 20212020
(in millions of U.S. dollars)Net Carrying ValueFair ValueNet Carrying ValueFair Value
Available for sale
Due in 1 year or less$4,767 $4,767 $4,760 $4,760 
Due after 1 year through 5 years26,100 26,100 26,227 26,227 
Due after 5 years through 10 years27,394 27,394 27,232 27,232 
Due after 10 years13,373 13,373 14,010 14,010 
71,634 71,634 72,229 72,229 
Mortgage-backed securities19,437 19,437 18,470 18,470 
$91,071 $91,071 $90,699 $90,699 
Held to maturity
Due in 1 year or less$1,099 $1,109 $1,231 $1,240 
Due after 1 year through 5 years3,471 3,613 3,592 3,760 
Due after 5 years through 10 years2,918 3,072 3,029 3,228 
Due after 10 years1,757 1,961 1,802 2,136 
9,245 9,755 9,654 10,364 
Mortgage-backed securities1,887 1,997 1,999 2,146 
$11,132 $11,752 $11,653 $12,510 

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

b) Gross unrealized loss
Fixed maturities in an unrealized loss position at March 31, 2021 comprised both investment grade and below investment grade securities for which fair value declined primarily due to widening credit spreads since the date of purchase.

The following tables present, for AFS fixed maturities in an unrealized loss position (including securities on loan) that are not deemed to have expected 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
March 31, 2021Fair ValueGross
Unrealized
Loss
Fair ValueGross
Unrealized
Loss
Fair ValueGross
Unrealized
Loss
(in millions of U.S. dollars)
U.S. Treasury / Agency$220 $(7)$ $ $220 $(7)
Non-U.S.4,775 (161)381 (19)5,156 (180)
Corporate and asset-backed securities6,753 (254)737 (19)7,490 (273)
Mortgage-backed securities5,470 (87)62 (2)5,532 (89)
Municipal
367 (13)14 (1)381 (14)
Total AFS fixed maturities $17,585 $(522)$1,194 $(41)$18,779 $(563)
0 – 12 MonthsOver 12 MonthsTotal
December 31, 2020Fair ValueGross
Unrealized
Loss
Fair ValueGross
Unrealized
Loss
Fair ValueGross
Unrealized
Loss
(in millions of U.S. dollars)
Non-U.S.$1,628 $(35)$114 $(5)$1,742 $(40)
Corporate and asset-backed securities2,212 (33)593 (14)2,805 (47)
Mortgage-backed securities875 (6)35 (2)910 (8)
Municipal
40 (1)16 (1)56 (2)
Total AFS fixed maturities$4,755 $(75)$758 $(22)$5,513 $(97)

c) Net realized gains (losses)

The following table presents the components of Net realized gains (losses):
Three Months Ended
March 31
(in millions of U.S. dollars)20212020
Fixed maturities:
Gross realized gains$37 $77 
Gross realized losses(19)(125)
Net (provision for) recovery of expected credit losses6 (150)
Impairment (1)
 (121)
Total fixed maturities $24 $(319)
Equity securities367 (29)
Other investments38 
Foreign exchange gains (losses)76 (68)
Investment and embedded derivative instruments109 15 
Fair value adjustments on insurance derivative319 (685)
S&P futures(44)125 
Other derivative instruments(1)(2)
Other(1)— 
Net realized gains (losses) (pre-tax)$887 $(958)
(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
March 31
20212020
(in millions of U.S. dollars)Equity SecuritiesOther InvestmentsTotalEquity SecuritiesOther InvestmentsTotal
Net gains (losses) recognized during the period$367 $38 $405 $(29)$$(24)
Less: Net gains (losses) recognized from sales of securities45  45 (24)— (24)
Unrealized gains (losses) recognized for securities still held at reporting date$322 $38 $360 $(5)$$— 
The following table presents a roll-forward of valuation allowance for expected credit losses on fixed maturities:
Three Months Ended
March 31
(in millions of U.S. dollars)20212020
Available for sale
Valuation allowance for expected credit losses - beginning of period$20 $— 
Impact of adoption of new accounting guidance 25 
Provision for expected credit loss4 149 
Initial allowance for purchased securities with credit deterioration 
Recovery of expected credit loss(9)— 
Valuation allowance for expected credit losses - end of period$15 $176 
Held to maturity
Valuation allowance for expected credit losses - beginning of period$44 $— 
Impact of adoption of new accounting guidance 44 
Provision for expected credit loss 
Recovery of expected credit loss(1)— 
Valuation allowance for expected credit losses - end of period$43 $45 

d) Alternative investments
Alternative investments include partially-owned investment companies, investment funds, and limited partnerships measured at fair value using net asset value (NAV) as a practical expedient. The following table presents, by investment category, the expected liquidation period, fair value, and maximum future funding commitments of alternative investments:
March 31December 31
 Expected
Liquidation
Period of Underlying Assets
20212020
(in millions of U.S. dollars)Fair
Value
Maximum
Future Funding
Commitments
Fair
Value
Maximum
Future Funding
Commitments
Financial
2 to 10 Years
$710 $270 $673 $237 
Real Assets
2 to 11 Years
942 621 805 598 
Distressed
2 to 8 Years
481 864 358 970 
Private Credit
3 to 8 Years
86 276 88 270 
Traditional
2 to 14 Years
4,912 1,039 4,519 1,125 
Vintage
1 to 2 Years
72  73 — 
Investment fundsNot Applicable254  254 — 
$7,457 $3,070 $6,770 $3,200 

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 are up to 270 days. Chubb can redeem its investment funds without consent from the investment fund managers.

e) Restricted assets
Chubb is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations. These requirements are generally promulgated in the statutory regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance liabilities. Chubb is also required to restrict assets pledged under repurchase agreements, which represent Chubb's agreement to sell securities and repurchase them at a future date for a predetermined price. We use trust funds in certain large reinsurance transactions where the trust funds are set up for the benefit of the ceding companies and generally take the place of letter of credit (LOC) requirements. We have investments in segregated portfolios primarily to provide collateral or guarantees for LOC and derivative transactions. Included in restricted assets at March 31, 2021 and December 31, 2020 are investments, primarily fixed maturities, totaling $20.8 billion and $19.6 billion, respectively, and cash of $157 million and $89 million, respectively.
The following table presents the components of restricted assets:
March 31December 31
(in millions of U.S. dollars)20212020
Trust funds$13,553 $12,305 
Deposits with U.S. regulatory authorities2,424 2,438 
Deposits with non-U.S. regulatory authorities2,917 2,905 
Assets pledged under repurchase agreements1,458 1,462 
Other pledged assets638 584 
Total$20,990 $19,694 
v3.21.1
Fair value measurements
3 Months Ended
Mar. 31, 2021
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 or pricing models, 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) and may require the use of models to be priced. The lack of market based inputs 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 future policy benefit reserves for our guaranteed minimum death benefits (GMDB) and an increase in the fair value liability for our 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 in the Consolidated balance sheets. For GLB reinsurance, Chubb estimates fair value using an internal valuation model which includes current market information and estimates of policyholder behavior. All of the treaties contain claim limits, which are factored into the valuation model. The fair value depends on a number of factors, including interest rates, equity markets, credit risk, current account value, market volatility, expected annuitization rates and other policyholder behavior, and changes in policyholder mortality. Because of the significant use of unobservable inputs including policyholder behavior, GLB reinsurance is classified within Level 3.
Financial instruments measured at fair value on a recurring basis, by valuation hierarchy
March 31, 2021Level 1Level 2Level 3Total
(in millions of U.S. dollars)
Assets:
Fixed maturities available for sale
U.S. Treasury / Agency$2,044 $483 $ $2,527 
Non-U.S. 25,516 650 26,166 
Corporate and asset-backed securities 34,788 1,612 36,400 
Mortgage-backed securities 19,386 51 19,437 
Municipal 6,541  6,541 
2,044 86,714 2,313 91,071 
Equity securities4,330  75 4,405 
Short-term investments2,279 1,455 1 3,735 
Other investments (1)
421 446 10 877 
Securities lending collateral 2,076  2,076 
Investment derivative instruments69   69 
Other derivative instruments2   2 
Separate account assets4,493 115  4,608 
Total assets measured at fair value (1)
$13,638 $90,806 $2,399 $106,843 
Liabilities:
Investment derivative instruments$79 $ $ $79 
Other derivative instruments7   7 
GLB (2)
  760 760 
Total liabilities measured at fair value$86 $ $760 $846 
(1)Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $7,457 million, policy loans of $232 million and other investments of $70 million at March 31, 2021 measured using NAV as a practical expedient.
(2)Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value.
 
December 31, 2020Level 1Level 2Level 3Total
(in millions of U.S. dollars)
Assets:
Fixed maturities available for sale
U.S. Treasury / Agency$2,148 $522 $— $2,670 
Non-U.S.— 25,808 546 26,354 
Corporate and asset-backed securities— 34,758 1,573 36,331 
Mortgage-backed securities— 18,410 60 18,470 
Municipal— 6,874 — 6,874 
2,148 86,372 2,179 90,699 
Equity securities3,954 — 73 4,027 
Short-term investments2,866 1,474 4,345 
Other investments (1)
434 438 10 882 
Securities lending collateral— 1,844 — 1,844 
Investment derivative instruments35 — — 35 
Separate account assets4,264 124 — 4,388 
Total assets measured at fair value (1)
$13,701 $90,252 $2,267 $106,220 
Liabilities:
Investment derivative instruments$52 $— $— $52 
Other derivative instruments17 — — 17 
GLB (2)
— — 1,089 1,089 
Total liabilities measured at fair value$69 $— $1,089 $1,158 
(1)Excluded from the table above are partially-owned investments, investment funds, and limited partnerships of $6,770 million, policy loans of $233 million and other investments of $60 million at December 31, 2020 measured using NAV as a practical expedient.
(2)Our GLB reinsurance product meets the definition of a derivative instrument for accounting purposes and is accordingly carried at fair value.

Level 3 financial instruments
The following table presents the significant unobservable inputs used in the Level 3 liability valuations. Excluded from the table below are inputs used to determine the fair value of Level 3 assets which are based on single broker quotes and contain no quantitative unobservable inputs developed by management. The majority of our fixed maturities classified as Level 3 used external pricing when markets are less liquid due to the lack of market inputs (i.e., stale pricing, broker quotes).
(in millions of U.S. dollars, except for percentages)Fair ValueValuation
Technique
Significant
Unobservable Inputs
Ranges
Weighted Average (1)
March 31, 2021December 31, 2020
GLB (1)
$760 $1,089 Actuarial modelLapse rate
3% – 34%
4.6 %
Annuitization rate
0% – 100%
3.4 %
(1)The weighted average lapse and annuitization rates are determined by weighting each treaty's rates by the GLB contracts fair value.

The most significant policyholder behavior assumptions include lapse rates and the GMIB annuitization rates. Assumptions regarding lapse rates and GMIB annuitization rates differ by treaty, but the underlying methodologies to determine rates applied to each treaty are comparable.

A lapse rate is the percentage of in-force policies surrendered in a given calendar year. All else equal, as lapse rates increase, ultimate claim payments will decrease.

The GMIB annuitization rate is the percentage of policies for which the policyholder will elect to annuitize using the guaranteed benefit provided under the GMIB. All else equal, as GMIB annuitization rates increase, ultimate claim payments will increase, subject to treaty claim limits.
The effect of changes in key market factors on assumed lapse and annuitization rates reflect emerging trends using data available from cedants. For treaties with limited experience, rates are established in line with data received from other ceding companies adjusted, as appropriate, with industry estimates. The model and related assumptions are regularly re-evaluated by management and enhanced, as appropriate, based upon additional experience obtained related to policyholder behavior and availability of updated information such as market conditions, market participant assumptions, and demographics of in-force annuities. For the three months ended March 31, 2021 and 2020, no material refinements were made to the model. For detailed information on our lapse and annuitization rate assumptions, refer to Note 4 to the Consolidated Financial Statements of our 2020 Form 10-K.

The following tables present a reconciliation of the beginning and ending balances of financial instruments measured at fair value using significant unobservable inputs (Level 3):
AssetsLiabilities
Three Months Ended
March 31, 2021
(in millions of U.S. dollars)
Available-for-Sale Debt SecuritiesEquity
securities
Short-term investmentsOther
investments
GLB (1)
Non-U.S.Corporate and asset-
backed securities
Mortgage-backed securities
Balance, beginning of period$546 $1,573 $60 $73 $5 $10 $1,089 
Transfers into Level 3 17      
Change in Net Unrealized Gains/Losses in OCI8 6      
Net Realized Gains/Losses (3) 2   (319)
Purchases121 169  3 1   
Sales(7